Monday, April 11, 2016

The S&P 500 Remains Obscenely Overvalued?
[Cliff Note: We AGREE with Hussman's essay & evaluation. Yet, we beg to differ! Equities are obscenely overvalued by historical measure, BUT the 'measuring stick' (the unit of account that we call MONEY) is being obscenely debauched by systematic debasement of MONEY. Historical measures of value are being rendered meaningless. We hope our readers understand this perspective that many highly intelligent analysts are missing. The Confidence Men (& women) that control the issue & distribution of money don't want the world to understand the CONFIDENCE GAME they are playing.]
"From a long-term, historically-informed investment perspective, the S&P 500 remains obscenely overvalued on valuation measures most closely correlated with actual subsequent market returns (and that have remained tightly correlated with actual market returns even in recent cycles). We estimate that S&P 500 nominal annual total returns will average only about 0-2% on a 10-12 year horizon, with negative expected real returns after inflation. From a cyclical perspective, we continue to expect the S&P 500 to retreat by about 40-55% over the completion of the current market cycle; an outcome that we would view as run-of-the-mill and that would in no way represent a worst-case scenario. Every market cycle in history has drawn valuations toward or below levels consistent with expectations of 10% nominal annual returns over a 10-12 year horizon. This includes cycles prior to the 1960’s when interest rates regularly visited levels similar to the present. Those two perspectives, in combination, mean that we expect the market to go nowhere for more than a decade, but to go nowhere in a distressing way that includes steep interim losses. This is really no different than the expectations I expressed at the 2000 and 2007 market peaks, based similar valuation arithmetic. Of course, in order to get to zero 10-12 year returns, steep interim losses must also be followed by substantial gains. In my view, the best way for investors to achieve strong returns in the S&P 500 over the coming 10-12 years is to wait for the rain, and torrential rain at that."
- John Hussman
LINK HERE to the essay

No comments: