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Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: Sonki who wrote (8113)	11/16/1997 2:45:00 PM
From: studdog	Respond to of 18056

tw:>> i found your methods very intresting. how did u come up w. earning/ 10yr yield makes perfect sense w. valuations. << That simple model is the one the Fed uses to come up with "fair market value" , as per Dr. Yardeni on his web page. (Thanks Bonnie Bear for the link) Karl

To: Sonki who wrote (8113)	11/16/1997 2:46:00 PM
From: Rational	Read Replies (1) \| Respond to of 18056

Sonki: one thing to note: market was trading at 7 pe approx 7yrs? ago at the high valuations (20pe) is justified w. growth rates of 15%. The interest rate was higher then than it is now. But a P/E of 21 assumes a rate of growth in earnings that cannot be easily sustained. I have seen the valuation model using the 10-year yield published in the WSJ from time to time. The model: Value = Earnings/(COC - Growth Rate) is given in introductory finance textbooks. The WSJ has used COC equal to the 10-year yeild. This can be valid for the best US companies if these companies are presumed to be as stable as the US Treasury. It is a stretch of imagination. If the S&P 500 is more risky than US Treas, then the current value of S&P 500 is way too high. Sankar