Hussman Weekly Market Commen
Here's a link to the latest Hussman commentary:Hussman Funds - Weekly Market Comment: January 30, 2006 - Where Else are Investors Going to Go?
"The S&P 500 currently trades at 19.3 times peak earnings (trailing GAAP basis), compared with a historical average for the
price/peak earnings ratio of about 14, and if we only look at points where earnings were actually at fresh peaks, a historical average closer to 12. Suppose that earnings, currently right at the robust 6% trendline connecting S&P 500 earnings peaks from economic cycle to cycle across history, continue to grow along the peak of that historical channel over the next 5 years, and that the price/peak earnings ratio at that point touches, merely touches, a level of 16 - still well above historical norms. Given a current dividend yield of 1.84%, the resulting 5-year total return would be:
(1.06)(16/19.3)^(1/5) + .0184(19.3/16+1)/2 - 1 = 4.13%
... which is about what you can expect from money market funds.
This isn't a timing argument, because the quality of market action is at worst mixed, and investors may very well have some
speculation left in them. Unfortunately, speculation at this point will simply cause further deterioration in the long-term returns that stocks are priced to deliver. It's not necessary for investors to actually shift from stocks to money market funds (in fact, it's impossible for them to do so, in aggregate). All that's required for a "bear market" is for investors to recognize how unsatisfactory the long-term returns are likely to be from prevailing valuations. Investors could discover this with simple algebra, and historically reliable algebra at that, but hope springs eternal."