Hussman on Market Valuations (June 4, 2012)

source: Business Insider
John Hussman, who manages the Hussman Funds, is sticking with his view that the market is overvalued in his weekly note.

"Valuations have improved marginally, but the market remains dramatically higher than levels typically associated with run-of-the-mill bear market lows, not to mention secular ones.

I expect that the U.S. economy is presently entering a recession, which is global in nature. It is unlikely to respond meaningfully to monetary stimulus, which has already gone well past the point of diminishing returns, and on to the point of recklessness.

At present yields, a further round of QE would essentially amount to fiscal policy, subsidizing bond market speculators and banks, and ultimately producing near-certain losses for the Fed, after interest, and at public expense.

Stocks remain overvalued on the basis of normalized earnings, and only appear reasonably priced on the basis of "forward earnings" because forward earnings estimates implicitly reflect assumed profit margins that are 50-70% above historical norms.

Present elevated profit margins are a direct result of massive deficit spending coupled with low savings rates, allowing corporate revenues to outstrip depressed labor expenses.

One more quote:

"I doubt that we'll be as defensive as we've been recently for a great while longer, but that's another way of saying that I expect significant market events in fairly short order."

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