Not to keep beating the same drum, but John Hussman seconds Andrew Smithers's points about the U.S. stock market's overvaluation. Hussman's bete-noire is the common use of "forward operating earnings" as a means of concluding that the market is cheap--a practice whose many flaws merely start with the fact that the historical average P/E multiple on "forward operating earnings" is about 11-times, not the 15-times that many investors use (Hussman cites Cliff Asness here). Hussman is quick (and wise) to say that this condition doesn't mean that stocks will tank--just that future returns for the S&P 500 won't look anything like 10% a year.
After triangulating with a variety of valuation methods, including the dividend discount model, Hussman puts the fair value of the S&P 500 at 850, 40% below today's level. So anyone counting on U.S. stocks to appreciate at 10% a year for the next decade had better 1) scale back expectations, and/or 2) pray that it's different this time.
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