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Strategies & Market Trends : P&S and STO Death Blow's -- Ignore unavailable to you. Want to Upgrade?

To: Math Junkie who wrote (455)	5/16/2002 11:50:05 PM
From: exp	Read Replies (1) \| Respond to of 30712

Richard, I disagree with ALL your points on SPX Fair Value: (1) Actually, it's not just the yardstick being changed, it's the recognition that the actual amount of money made by cos needs to be adjusted downward. How? Just like the use of pro-forma did not change the material reality of earnings yet allowed for higher P/E values, the same way the acctg for options costs will lower P/E as a recognition of lower ACTUAL earnings. Options DO lower earnings by DILUTING the value of existing shares. Clearly, it won't be SPX=770 but some value between 770 and 1055 (fair value). (2) Using GAAP earnings P/E of SPX is probably well over 30 and not in low 20s so the current "pro-forma" earnings are not "real" but an acctg fiction that's slowly being corrected. If we were to return to GAAP, fair value of SPX would probably be around 600-700. (3) Govt is already planning to impose Soc Sec and Medicare taxes on the value of options grants which will make the cost of options quite "real" as in actual cash outlays. (4) The link you provide calculates Fair Value of SPX, which is on a CNBC morning ticker, given the current SPX futures and overnight interest rates. It has NOTHING to do with the Fair Value of SPX as given by the Fed valuation model.