Tags: John | Hussman | Stocks | Too | Expensive | Correction | Due

John Hussman: Stocks Too Expensive, Correction Due

Wednesday, 16 Feb 2011 08:10 AM

Put John Hussman squarely in the doubter’s column. In his latest note to investors, the fund manager makes the case that the current bull market will end in tears soon enough.

He points out that the S&P 500 has surpassed a cyclically adjusted price-earnings, or P/E, ratio of 24 (that is, earnings adjusted for inflation, a measure favored by Yale professor Robert Shiller).

Aside from the dot-com days and just after, as the housing bubble inflated, we haven’t seen this kind of market valuation since 1929, Hussman warned.

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“We should not deserve to be called ‘investors’ if we fail to recognize that valuations are richer today than at any point in history, save for the few months before the 1929 crash, and a bubble period that has been rewarded by zero total return for the S&P 500 since 2000,” Hussman wrote.

“Indeed, the stock market has lagged the return on low-yielding Treasury bills since August 1998. I am not sure that even members of my own profession have learned anything from this.”

Hussman figures that the S&P will return about 3.15 percent annually over the coming decade. He notes that speculative runs are going to be common but says they simply cannot endure without reversals.

“Even during extended speculative periods as we observed in the late-1990s, those advances have tended to suffer deep and abrupt intermediate-term corrections once elevated valuations are joined by overbought conditions, overbullish sentiment, and rising interest rates, as we observe today,” Hussman wrote.

Short fund guru Doug Kass, president of Seabreeze Partners Management, tells CNBC that the moment of truth is near and that a correction is imminent.

”There’s simply no fear. The market is like a freight train with its intensity and unrelenting drive,” Kass said.

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Put John Hussman squarely in the doubter s column. In his latest note to investors, the fund manager makes the case that the current bull market will end in tears soon enough. He points out that the S P 500 has surpassed a cyclically adjusted price-earnings, or P/E, ratio...
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2011-10-16
Wednesday, 16 Feb 2011 08:10 AM
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