Replies to post #50429 on Zeev's Turnips Patch-No Politics (ZEEV)

[Zeev Hed]

The "fed model" suggests that under a PE of 24 (based on the 10 years bond yield of 4.21 or so) the market is undervalued. The question is will the 500 bring in $39/share next year or not. I have no answer to that question. I think it is also important to understand that in bear markets excess undervaluations are the norm, and we did not have that, at least not in major sectors. Many individual stocks have reached excessive under valuations, but I am not sure many of the 500 are in that category.

Zeev

[sylvester80]

Excuse me but... other than the last 0.5% cut (which is all but disappeared as mortgage rates are now higher than before the cut), interests have been this low for the last year while the markets have been crashing. So maybe you can explain why with those low rates during the last year, the markets continued to paint new lows. It looks to me that valuation matters and matters quite a lot.

Also you better be very afraid looking at those credit rates climb. And from the looks of things on today's newspaper, things don't look good going forward. The consumer is full of debt now more than ever. With the uptick in mortgage rates and the disappearance of 0% credit starting, watch out... you may not see the results quite yet, but you will by January and they will be ugly for the markets...

But that's JMHO.

[mlsoft]

wahz...

I have to agree with ardent, who said that whatever arguments can be made for higher equity prices, valuations are not one of them - and that is especially true in the tech sector. You make your argument by plugging in current analyst "pro-forma" and EBITDA estimates for 2003 into the Fed model and declare the market to be severely undervalued as if those estimates were based on real earnings instead of the pure fiction they represent.

When you go back to compare historical PE's it is meaningless unless you are comparing apples to apples, and the use of "pro-forma", EBITDA, and other methods that overstate earnings is a recent development of the bubble years. If you want to compare current PE's to historical ones, you need to use real earnings, which give the market a current PE ratio of 50 or slightly above, per S&P. That is hardly cheap, and it makes no difference whether you use the Fed or any other model to make the comparisons.

Your call for the recent market rally has been a very good one while my expectations of a downturn have proven wrong thus far, but I think your complaints about folks rejecting your fundamental analysis are misguided. Perhaps the problem is more that some of your arguments are obviously flawed, and the one based on valuation is one of them.

Congratulations on the good calls for the market on your part though I still doubt your bullish scenario. Good luck to you.

mlsoft

[Emptyhead]

wahz

There is always a point to be made although not all will end up agreeing with it. The forum that is so popular here is based on how one or more posters interpret the market direction and the individuals analysis therein with emphasis on particular stocks. You do a great job and service here. Your thoughts on the fundamnetals are as important as the technicals,believe it or not. I,for one,do look forward to reading what you have to say.

regards...