Stocks need to fall about 18 percent to reach fair value, says David Rosenberg, chief economist at Gluskin Sheff & Associates.
Investors are overestimating global economic strength and corporate earnings, he told Bloomberg.
“Based on the economic outlook, fair value in the S&P 500 is closer to 900 than 1,100.”
Much of the recent improvement in corporate earnings stems from cost cuts rather than sales increases.
“Without the benefit of top-line revenue growth and pricing power, it will be very difficult to get earnings into the range where the majority of analysts currently have their forecasts residing,” Rosenberg says.
“There’s just a general level of complacency in the marketplace right now,” he maintains.
“The cost of buying insurance to guard against a possible decline in equity valuations is currently very low. That’s very low because most investors don’t believe they need it.”
Rosenberg also is concerned about sovereign-debt risk in the wake of recent credit-rating downgrades.
“Whatever bad assets that have been resolved in this credit crisis have almost entirely been placed on the books of governments and central banks, which now have their own particular set of risks,” he says.
Investment legend Jim Rogers doesn’t like stocks any better than Rosenberg. Rogers is put off by the 65 percent market rally of the last nine months.
"I don't like to buy anything like that," he told CNBC. "I'm skeptical of the economy going forward."
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