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To: quartersawyer who wrote (121276)	7/3/2002 2:27:50 PM
From: Wyätt Gwyön	Respond to of 152472

The latest reading shows that the S&P 500 is 15.2% undervalued." imo, that is completely wrong. the problem is it relies on an incredibly naive interpretation of SPX earnings. basically, you need to be completely naive and take SPX PRO FORMA earnings ESTIMATES. anybody that naive has probably already lost most of their money by buying Global Crossing, Worldcom, etc. the 2.5% SPX earnings yield corresponds to a PE of 40, which is where the SPX actually is. check out the real SPX PE! it is not surprising to see Yardeni try to justify the Fed model. as i recall he is one of its main proponents.

To: quartersawyer who wrote (121276)	7/3/2002 3:28:29 PM
From: Clarksterh	Read Replies (1) \| Respond to of 152472

Chapq - The difference between Yardini and MM is that Yardini is using the pre mid-May version of the S&P 500 P/E. MM is using the post mid-May version. In mid-May S&P chose to recalculate operating earnings by including options expenses and one-time restructuring charges among other things. Undoubtedly companies were misusing restructuring charges to boost earnings and options were overused, but the S&P solution is a sledgehammer negative solution. And without doubt it makes any comparison of P/E in this downturn with previous downturns silly and pretty much pointless as is obvious just by the magnitude of the change over the last month. (I suspect that in the previous recession ('91) the earnings would have fallen at least 25% under the same rules, perhaps as much as 35% but I'd love to see data.) Looked at another way, it isn't exactly a good comparison to be comparing 10 yr bond yield with earnings which have exageratedly bad short term earnings due to including one time hits from restructuring. All JMO. But of course I should be discounted since I still disagree with including options 'costs' as an expense instead of just a dilution ;) Clark