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To: Les H who wrote (237779)	4/26/2003 8:42:38 PM
From: Giordano Bruno	Read Replies (1) \| Respond to of 436258

THE REAL P/E RATIO The "as reported" P/E for the S&P 500 (a.k.a. earnings based on GAAP -- Generally Accepted Accounting Principals) is the historical standard for reporting earnings. The normal range for GAAP P/E ratio is between 10 (undervalued) to 20 (overvalued). The investment sales industry would like us to think that "pro forma" or "operating earnings" is the same as GAAP, but operating earnings are a fabrication prone to gross distortion. There is no standard by which operating earnings can be judged because operating earnings are not based on real accounting -- all revenue is included, but selective expenses are ignored. This version is becoming known as EBBS (Earnings Before Bad Stuff). Standard & Poors has introduced a third version called "core" earnings, which is more critical and analytical than the other two, and is designed to reveal the true condition of the company. We can only use GAAP earnings for historical comparisons, because there is no historical record for the other two. Core earnings should be used for individual company value analysis. Pro forma earnings should be ignored. The following are based on S&P 500 12-month trailing earnings as of Q4 2002 (Source: Standard & Poors). The current P/E is calculated by dividing the most recent S&P 500 close by the EPS: "As Reported" (GAAP) EPS is $28.00; P/E is 32.10. "Core" EPS is $23.75; P/E is 37.84. "Pro Forma" EPS is $45.98; P/E is 19.55. Based upon the latest GAAP earnings the following would be the approximate S&P 500 values at the cardinal points of the normal historical value range. They are calculated simply by multiplying the GAAP EPS by 10, 15, and 20: Undervalued (P/E = 10): 280 Fair Value (P/E = 15): 420 Overvalued (P/E = 20): 560 EARNINGS UPDATE: Earnings reporting for Q1 2003 is just beginning, and we can monitor the progress using the spreadsheet we download from the Standard & Poors web site. The latest is dated April 23 and about one-third of S&P 500 companies have reported Q1 results. It is interesting to watch original estimates being adjusted as actual results are reported. Most interesting is that pro forma estimates/results are moving higher (from $11.96 to $12.39), while GAAP results have moved slightly lower (from $11.43 to $11.40). This indicates that "earnings improvements" we are hearing about are being engineered in the pro forma dreamscape, not reality. Using Q1 GAAP estimates the P/E would be about 30.57, slightly improved over the 12-month period ending December 2002, but still grotesquely overvalued. decisionpoint.com

To: Les H who wrote (237779)	4/26/2003 11:51:05 PM
From: Gut Trader	Respond to of 436258

Bezos to IPO the Moon biz.yahoo.com

To: Les H who wrote (237779)	4/27/2003 8:21:49 AM
From: Haim R. Branisteanu	Read Replies (3) \| Respond to of 436258

US finds 'nerve gas' in Iraq (Filed: 27/04/2003) Initial tests on 14 barrels of suspicious chemicals found at a site north of Baghdad by American soldiers have revealed traces of nerve and blistering agents. A special forces reconaissance team found the unmarked barrels with at least 150 gas masks at the site east of Bayji, around 130 miles north of Baghdad, according to an American journalist. More than 12 missiles were also discovered at what is believed to be a mobile chemical weapons laboratory. David Wright, a reporter with the American television network ABC, said a platoon of chemical weapons experts from the US Army's 1-10 Cavalry had been despatched to carry out tests on the site. Their initial findings concluded that the barrels contained a mixture of three chemicals, including a nerve agent and blistering agent. Lt Valerie Phipps, who is leading the weapons squad, said the preliminary tests were 98 per cent accurate. Full tests on the site are expected to take around a week. The find could be the evidence which proves American and British allegations that Saddam Hussein's regime possessed weapons of mass destruction. However, experts have said pesticides can give false positive results because they can be made from the same chemicals used to produce mustard gas and the nerve gas Sarin. American troops found more than 20 drums near the southern city of Karbala on Apr 7 that initially tested positive for Sarin and mustard gas but which the military later determined were pesticides. On Apr 10, American forces found a mobile radar truck outside Baghdad which was also wrongly thought to be a mobile chemical weapons laboratory. telegraph.co.uk

To: Les H who wrote (237779)	4/27/2003 9:30:02 AM
From: Les H	Read Replies (1) \| Respond to of 436258

`Fed model's' worth in valuing stocks debatable Gauge concludes S&P 500 stocks priced too low chicagotribune.com By Chris Graja Bloomberg News Published April 27, 2003 NEW YORK -- The stocks in the Standard & Poor's 500 index are 36 percent undervalued, or Wall Street analysts' profit estimates are too high. It is possible to draw either conclusion from a method of valuing the U.S. stock market called the "Fed model" and cited by Federal Reserve Chairman Alan Greenspan. This approach compares the average earnings forecast for S&P 500 companies with the yield on 10-year Treasury notes. The calculation suggests stocks are inexpensive even after the S&P 500's 10 percent rally since the end of September. Some investors, on the other hand, said the Fed model is misleading because it depends on expectations. "Earnings estimates are delusionary," said Jay Compson, a money manager at Abington Capital LP, a Boston hedge fund. "I don't use the Fed model, and I don't know why it is used at all. There is more to valuing stocks than just the yield on 10-year notes." Investors and strategists follow the Fed model. When stocks yield more in earnings than Treasuries pay out in interest, as they do now, the theory suggests equities may be cheap. If the yield is lower than the bonds' payout, stocks may be expensive. Companies in the S&P 500 are expected to earn $55.03 per "share" of the index, according to the average analyst estimate compiled by Thomson Financial/First Call. That equals about 6 percent of the index level; 10-year U.S. Treasury bonds yield 3.93 percent. Assuming analysts' profit forecasts prove accurate, the S&P 500 would have to be around 1400 to be fairly valued relative to bonds, based on the model. The benchmark index was about 36 percent below that value at Friday's close. Year-ahead earnings forecasts typically are too high by 9 to 12 percentage points, according to First Call. "Analysts' earnings estimates are probably a little too high," said Alex Motola of Thornburg Investment Management in Santa Fe, N.M. Still, his research is turning up more stocks worth buying, Motola said. The firm recently bought Hughes Electronics Corp., which operates DirecTV satellite service, for the Thornburg Core Growth Fund. The formula also can be used to determine investors' estimates of earnings, Edward Yardeni of Prudential Securities Inc. said in a note to clients, as opposed to what analysts are predicting. If the S&P 500 is fairly valued at its current level, then investors expect earnings to drop 36 percent, to about $35.35 a share of the S&P 500. That's the level of earnings that will produce a yield equal to the 10-year Treasury. Wall Street analysts expect earnings to jump 12 percent. Edgar Peters, chief investment officer of PanAgora Asset Management in Boston, tweaks the formula to account for the fact that analysts are too bullish. Peters averages estimated earnings for the next 12 months and reported operating results for the previous 12 months. Even with his modifications, the model shows "the stock market is undervalued" by about 30 percent, he said. Some analysts say the Fed model overstates the value of stocks when bond yields are as low as they are now. The 10-year Treasury yield is down from an average of 6.66 percent in the 1990s. The lower yields go, the higher the implied value of stocks, yet stocks aren't necessarily worth more when the economy is slowing, as implied by a drop in interest rates. Investors such as Peters said it is important to remember that the Fed model is a relative value tool. "You can make a case that bonds are expensive," said Mark Keller of A.G. Edwards Asset Management. "If stocks are cheap relative to an expensive asset class, does that mean they are cheap?"