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To: 16yearcycle who wrote (8639)	9/8/2001 9:56:12 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 57684

hi Eugene Kearney, the devil is in the details, so you need to make sure the details are correct! The feds own model shows that at in early 1999, the S&P was not overvalued. Seems that rates are lower now, and inflation is lower. Don't even ask about money supply growth. Some bubble. The "bubble" seems to have been from 12/98 to 4/00. you say the bubble was from late 98 to 4/00, which would include early 99, when you presumably accept that the fed's model of the S&P was not overvalued. so which is it? how can you accept it was overvalued and not overvalued? The nasdaq is 500-600 points lower than what fair value was in late 1998 what is "fair value" and where can i get some? The pe on the entire market is now at 16....with no inflation, low rates, and damn close to trough earnings where are you getting these numbers? please cite a reference. i will give you some numbers as well as references: * the WSJ recently ran a piece saying the S&P500 PE was almost 37 when you back out the proforma BS, or 32 if you exclude JDSU (S&P499!). * barra data from august 31, 2001 shows the S&P500 PE at 22.33 when excluding negative earnings, and 33.95 when including negative earnings. check it out for yourself at barra.com now show me where you got that PE of 16! i think that's unlikely, because you can see even the barra S&P value PE is over 18, and growth over 27 (excluding negative earnings). . It is my opinion that we are currently about 15% undervalued across the board Eugene, the dividend yield on the S&P is 1.6% and growth is unlikely to exceed GDP growth, which is maybe 2.5% a year. that adds up to 4.1%. back out inflation of 2%, and the real expected growth including dividends, on a fundamental basis, looks like 2.1% to me. that is very unattractive to me if i can buy, say TIPS with a real yield above 3.5%. pe on the S&P in 74 was 7, but rates were at 10, and trailing e were at a peak i hope this doesn't mean you wouldn't have bought equities in 74! one of the problems with the comparison to the 70s is that real rates on bonds were often negative due to high inflation, whereas now they are positive due to low inflation. the historical bond rate of return (5 yr Ts) has been about 2% on a real basis, and now one can get 3.5%. so on a real basis bonds still maintain some attractiveness in my opinion, at least compared to US equities.