A.I.M. Users Bulletin Board

[lionhead0]

Hi Tom, Re: VLAP and market peaks.............

Well, we could debate the compositions of the indexes and the arithmetic vs market capitalization endlessly, so I will respectfully disagree with you as to which methodology is best and which composition is best. As I mentioned on a previous post, one needs 2500 stocks to represent the U.S. market; 500 and 1700 don't fulfill that role. I'm going to use a broader, equity only, market cap weighted index. In fact, the same index that the Federal Reserve uses in their Capital Asset Pricing Model, the Wilshire 5000. The index is tradeable and data readably available for comparisons as they're part of the Dow Jones group.

As for the "Peak Earnings" concept, we've been in a bear market technically since the end of December of 2007 as the market looked forward to it. Looking at your chart, the earnings seem quite rosy then. The big question now is, what is the "E" of P/E? In any event, yes we will be rewarded for taking the extra risk of buying stocks. What concerns me is buying stocks when the risk premium is back to normal, historic levels in a bear market. My forecast for a ranging flat market hasn't changed. If we get a raging bull market, I'll be most pleasantly surprised as my expectations will have been exceeded. ;)

Best, Tim