Zeev's Turnips Patch-No Politics (ZEEV)

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Regarding valuations and how out of hand they are:

Decision Point Alert
By Carl Swenlin
December 21, 2002

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Substantial poritions of this report have been omitted in deference to paid
subscribers.

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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. Our opinion is that GAAP
earnings must be used for historical comparisons, and core earnings
should be used for individual company value analysis. Pro forma
earnings should be thrown into a pile, aged, and used for fertilizer.

As of 12/18/02 Standard & Poors reported the following earnings for
the S&P 500:
"As Reported" (GAAP) EPS is $30.34; P/E is 26.70.
"Core" EPS is $18.48; P/E is 53.56.
"Pro Forma" EPS is $44.03; P/E is 18.51.

Based upon the latest as reported earnings the following would be the
approximate S&P 500 values at the cardinal points of the normal
historical value range:

Undervalued (P/E = 10): 303
Fair Value (P/E = 15): 455
Overvalued (P/E = 20): 607

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