SPX Monthly -- November, 2014

Fundamentals
Bull market in place since early 2009 remains in place. With the termination of QE, the easy
money portion of the bull is over. Profile is now moderate return for the assumption of much
higher risk. Liquidity cycle still strong at present, but progressive deceleration in growth of
liquidity measured yr/yr % suggests a moderation of business sales and profits growth in
2015 and early 2016. History makes clear that the cessation of large QE programs can work to
destabilize the economy unless consumer / business / banking confidence remain high and
private sector liquidity growth progresses at a moderate pace. Capital resources including
physical capacity, underutilized labor and banking system liquidity remain ample enough to
support moderate economic expansion through 2016. Inflation potential is modest so there
is no visible need for the Fed to raise short term rates enough to curb economic overheating.

Valuation
The market's p/e ratio stands at 17.5 x likely 2014 net per share. there has been a sharp
elevation in the p/e since 2011 reflecting a strong deceleration of inflation, the major QE
program and rising investor confidence in  the modest growth / low inflation story. Some
players remain convinced the Fed will re-institute some form of QE if the economy falters in
the months ahead.

I have the SPX  valued at a p/e of 17x based upon an assumed longer range earnings plowback
ratio of 60% (Currently, the breakdown is dividend payout 34%, plowback 66%).

Players must now pay a premium p/e on cyclically elevated earnings to be  long in the market.
The p/e on long term trend earnings of  $90 per SPX share is 23x. It is a very expensive
market on this basis.

Technical
The SPX is quite extended on the super long term channel as well as that of the current bull
market. Long term measures of RSI, MACD and price momentum are all at very elevated
levels. A substantial long term overbought happens to dovetail with a rich market on
fundamental grounds. SPX Monthly