John Hussman: Market Overvalued by 66% Using Tobins Q

"We’ve regularly observed that corporate profit margins (and economy-wide, profits as a share of GDP) have a strong tendency to “mean revert” over time – specifically, elevated profit margins are associated with unusually weak earnings growth over the following 5-year period, and depressed profit margins are associated with unusually strong earnings growth over that horizon (see last week’s comment, A False Sense of Security ). Notably, the ratio of corporate profits to GDP is presently nearly 70% above its historical norm. Of course, the most common valuation methods used by Wall Street analysts (whether they use the “Fed model” or “forward operating earnings times arbitrary P/E multiple”) rely almost exclusively on estimates of year ahead earnings. Embedded in these toy models is the quiet assumption that current profit margins will be sustained indefinitely.
By contrast, a wide range of measures that use “normalized” fundamentals of one form or another are extraordinarily stretched. Andrew Smithers recently took note of the elevated levels of cyclically adjusted P/E ratios and price to replacement cost (“q”) and observed “As of 8th March, 2012, with the S&P 500 at 1365.9 , the overvaluation by the relevant measures was 48% for non-financials and 66% for quoted shares. Although the overvaluation of the stock market is well short of the extremes reached at the year ends of 1929 and 1999, it has reached the other previous peaks of 1906, 1936 and 1968.”
At 1400 on the S&P 500, the market’s overvaluation has now reached 70% on these measures, which have a far stronger correlation with subsequent market returns than the Fed Model or other unadjusted methods using forward operating earnings. This is particularly true over horizons of 4 years or longer. As a side note, since the reliance on forward operating earnings is now an established Wall Street practice, Valuing the S&P 500 Using Forward Operating Earnings details how to improve the reliability of market valuations based on these figures..."

at http://www.valuewalk.com/2012/04/john-hussman-market-overvalued-by-66-using-tobins-q/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+valuewalk%2FtNbc+%28Value+Walk%29

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Jim Rogers : when the next blow comes, we have nothing left

"Jim Rogers : "Money was too cheap and too plentiful,He caused the stock market bubble and that led to the real estate bubble and the consumer debt bubble. Now those bubbles have burst and what is Ben Bernanke — the current Fed chairman — doing? He's printing more money. Bernanke couldn't get a job as a banker. He's just a printer. That's all he knows how to do. Print money. There isn't enough trees to print all of the money Bernanke wants." "Sure, when the next blow comes, and it will over the next 18 months, we have nothing left." - in gulfnews"

at http://jimrogers1.blogspot.ca/2012/03/jim-rogers-when-next-blow-comes-we-have.html#.T3Mm6A0AJ74.pingfm