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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: JZGalt who wrote (5389)	8/20/1998 8:27:00 AM
From: OldAIMGuy	Respond to of 18928

Hi Dave, The Relative Valuation component has been quite good at calling out periods of over and under valuation. You can see the graphs (I apologize for the quality in advance) at execpc.com It's been in more recent times that it's hit the high risk area and become stuck- about the last year. Prior to that it has justified the market's moves quite well. I don't think I can account for the recent "problem" other than to say that it was real. There are times when P/E multiples expand even when there's no good reason - the last year might be one of them. I've been considering the use of the 30 year Treasury rate rather than the short term rate. I haven't gathered all the data yet, but it does have a larger swing than does the short term rate. This might "correct" the most recent problem. More later. I've not thought of using the direction of the indicator as the indicator itself. Good idea. In that case, with the Value Line P/E shrinking right now, that would be a plus, I think I'd plot the st direction against a long term moving average to see just where it's heading. Ms. Garzarelli was kind enough to share with the world the relation of P/E and interest rates in an interview (maybe on W$W). Her opinion was that high P/E's could be supported for long periods if interest rates were low and visa versa. Her "average" was 20. I use as my average risk range 18.5 to 20.5. Extremes beyond those levels are to be noted. With interest rates being a reflection of inflation to a degree, we are probably measuring similar things. There's probably a time lag built into both based upon reporting in one case and on FED reaction time in the other. Thanks for bringing this to the discussion table. I've been lazy and haven't managed to get to the library to gather the consistent data for the long Tbill since 1982, which is the beginning of my data base. I guess I should move it up from "one of these days" to something more immediate!! Best regards, Tom