Robert Prechter: Yield on S&P Should Be Double, Price/Book Ratio Cut In Half (CNBC Video)

Robert Prechter, founder and CEO of Elliott Wave International (see their news feed on the sidebar), thinks the S&P 500 is overvalued, we are in a "bear market rally", and we're in the "late stages of the 1930s depression". He expects a deflationary scenario in the next 4-5 years (so will the Fed pull the trigger on QE3?). Watch the CNBC video after the jump (from 12/14/2011). If interested, I put up yearly chart of the S&P 500 dividend yield going back to 1881. At they have historical charts and tables of the inflation rate, 10-year Treasury bond yield and S&P 500 P/E ratio (via Yale Prof. Robert Shiller's database). I did a post comparing the secular lows of the S&P cyclically adjusted P/E ratio (CAPE) to the 10-year yield a few months ago here: Hussman: Under Extreme Secular Undervaluation S&P Hits 400. For a historical chart of the S&P 500 Price/Book ratio (as of 1/28/2011), see this post: Felix Zulauf Sees S&P Bottoming at 500 (Book Value), Bullish On Gold (Price/Book Ratio Chart).

Robert Prechter on CNBC:

"I think valuations are still very high. The yield on the S&P is about 2.2%, it should be more than double that. It's still more than two times book value, that's twice as high as it should be. People point to earnings, but you know they fudge the earnings so much, they were the worst indicator to look at anyway. And now you can barely compare the data to old data so I don't even use earnings...(lol, makes sense)"

"Back in 2000 and 2007 guess what we had, record earnings both times. Now were those good times to sell stocks or buy them? They were great times to sell stocks. Record earnings tend to occur a few months or even quarters after the high..."

Data source: using Yale Economics Professor Robert Shiller's data

He recommends safety.

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