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

To: SOROS who wrote (97303)	7/22/2002 10:17:30 PM
From: sylvester80	Read Replies (2) \| Respond to of 99280

July 22, 2002 - ARE STOCKS UNDERVALUED OR EARNINGS OVERSTATED? 205.232.165.149 Last week, I was in the air and on the road visiting with institutional equity portfolio managers in Milwaukee, Madison, Chicago, and Denver. I read the financial newspapers on the flights between cities. I don’t recall so much pessimism about both the short-term and long-term outlook for stocks. My three favorite technical indicators—1) the bull/bear ratio of investment advisory letters, 2) the ratio of the S&P 500 to its 200-day moving average, and 3) the percentage of New York Stock Exchange stocks above their 30-day moving averages—show that sentiment is at extremely pessimistic levels that often preceded rallies in the past (Figure 1). All we probably need now to make a major bottom in the stock market is to have a leading weekly financial magazine write a cover story titled “The Death of Equities.” The Value Of Earnings. Not surprisingly the barrage of bad news has depressed the investors I visited during my latest marketing trip. Of course, it seems investors everywhere are worrying that earnings reports can’t be trusted. If we can’t trust the accuracy, quality, and accounting of earnings, how can we value the earnings numbers reported by companies and the forecasts provided by industry analysts? Industry analysts are currently predicting that S&P 500 earnings should be $51.36 per share this year and $61.19 per share next year. These numbers imply that 52-week forward consensus expected earnings—i.e., the time-weighted average of this year’s and next year’s estimates—is currently $56.46 per share (Figure 2). Last week, Coke and Boeing announced that they will be expensing stock options from now on. If other companies start doing so as well, either voluntarily or because of rules imposed on them by government regulators, then earnings would be reduced by the calculated value of the options. Furthermore, companies may soon have to lower their actuarial assumptions for the rate of return they are likely to earn on pension assets. This would also depress earnings. Other adjustments to improve the quality of earnings reports might also lower earnings. In my view, investors aren’t waiting for companies to make the changes. They aren’t waiting for analysts either. Investors are already making these adjustments by lowering the valuation multiples they are willing to pay for the earnings reported by companies and predicted by analysts. At the end of March, investors were willing to pay 20.7 times forward earnings. Now they are paying only 15.6 times. In the Fed’s Stock Valuation Model (FSVM), the fair-value forward P/E is simply the reciprocal of the 10-year Treasury bond yield. It is currently 21.5 (Figure 3). In other words, stocks are 27% undervalued according to the model (Figure 4). .... more click link

To: SOROS who wrote (97303)	7/22/2002 10:29:07 PM
From: sylvester80	Respond to of 99280

BTW, what was the 10 year treasury bond yield in 73-74? What is it now? What was inflation then? What is it now? Oh, and since I'm primarily a day trader, long term ups or downs don't mean sh*t to me. However, the longer this drags on, the more bullish I get, to the point of wanting to deploy some major swing long positions on QQQ and SPY and may do that as soon as tomorrow or Wed. On the issue of gold, as I said before, it wasn't me who has been saying gold stocks would benefit on the recent stock downturn. In fact, they haven't. So don't blame me for it. Good luck with your trades.