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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Berney who wrote (9080)	11/3/1997 10:45:00 PM
From: Elllk	Read Replies (1) \| Respond to of 94695

Berney I understand and it sounds reasonable. The GE barometer is interesting. I didn't realize it was that high. Something of a stunner. Larry

To: Berney who wrote (9080)	11/3/1997 11:48:00 PM
From: Bilow	Read Replies (3) \| Respond to of 94695

I agree. Everyone knows the market is overvalued. So I compiled some numbers: I compared the current economic situation with the one as close to 3 years ago as I could get. First take a look at changes in the US basic numbers. (All numbers that should be are annualized percentage increases or decreases.) Between 9/94 and 9/97 or 2Q94 and 2Q97: GDP +2.67% Pers. Consumption +2.59% Private Investment +6.28% M1 - 2.65% Exports +10.17% (Very healthy, but now bulls say it isn't important) Imports + 8.83% Trade (im)balance - 1.43% (i.e becoming more balanced) Manuf. shipped +5.50% New orders +5.40% Unfilled orders +4.18% Inventories + 4.02% Durable goods shipped +6.39% New orders +6.20% Unfilled orders +4.30% Inventory +4.04% Nondurable goods shipped +4.46% New orders +4.46% Unfilled orders +1.97% Inventory +3.98% Loans at Commercial Banks +6.67% Consumer Loans +5.80% Basically, if the US economy were a corporation, we would put a growth rate of 4 or 5 percent on it, and it would carry about the same PE as GM, say 8 or at most 10. But the SPX sells at a PE much larger. The bulls have some reasons for this. The one that is of the greatest importance is the decrease in interest rates. So I looked up those numbers too, along with the CPI figures: CPI 9/93 to 9/94 +2.96% 9/96 to 9/97 +2.15% (A little less inflation now.) 10-year treasury 9/94 7.46% 9/97 6.21% (A decrease in yearly interest cost of 6.3% per year.) The above is important, as it shows how to capitalize future earnings, more or less. But again, it hasn't been changing real fast. Besides, we really ought to compute the real cost of money, by subtracting off the approximate inflation. 9/94 4.50% 9/97 4.06% (A decrease in yearly interest cost of 3.5% per year.) The above gives a better estimate of the change in money costs over the past three years. I always try to avoid analyzing earnings, as they bounce around so much, but I don't have any scruples about looking at cash flows: Corporate Cash Flow +5.33% (annualized) Part of the above is presumably the reduced interest costs. Now. What has the SPX done over the last three years? SPX +27.74% I think this is out of whack. So how about it bulls? Show me where all this new fundamental value for the economy and the SPX is coming from? If you argue stock prices are going to increase because they have increased so far, I will ignore you. I just want to see where the economic numbers suggest paying so much more for stocks now than in 1994. -- Carl