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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: ChrisJP who wrote (26415)	2/3/2002 8:45:38 AM
From: exp	Respond to of 99280

Chris, Clearly 2002 SPX eps and future 10 year bond yields are the TWO KEY variables in the valuation model and there is quite a bit od disagreement on Wall Street especially regarding 2002 SPX operating earnings (even Abby J. Cohen (GS) lowered her estimated 2002 SPX eps from $52 to $42 on 1/23). NAZ valuation in addition includes the valuation PREMIUM over SPX, with 50% currently considered justified. However, NAZ is subject to the same valuation swings as SPX only exacerbated by the expansion of the premium. Since the end of 1995, SPX was consistently above its Fair Value by as much as 70% in the Spring of 2000 with the exception of short periods in the Fall 1998 and portions of 2001. NAZ was even more overvalued due to the expansion of the premium beyond the 50% (in fact, that premium used to be much smaller than 50% before 1995 and especially before 1990). Therefore, NAZ CANNOT be considered historically immune to valuation adjustments and it is likely that over time NAZ valuation premium over SPX will also shrink close to historical norms. I would also like to repeat assessments from several prominent investors including Bill Gross, Warren Buffett, etc. who predict LOWER than average returns on equities for the next several years mostly due to the fact that the longer term interest rates may have bottomed out while equities are still overvalued on a historical basis.