Henry Blodget: Be Prepared For Stocks To Crash 40%-55%

The stock market continues to set new highs, which is exciting and fun for those of us who own stocks.

I own stocks, so I'm certainly enjoying it.

I hope stocks continue to charge higher, but I can't find much data to suggest that they will. I only have a vague hope that the Fed will continue to pump air into the balloon and corporations will continue to find ways to cut more costs and grow their already record-high earnings.

Meanwhile, every valid valuation measure I look at suggests that stocks are at least 40% overvalued and, therefore, are likely to produce lousy returns over the next 10 years.

Which valuation measures suggest the stock market is very overvalued?

These, among others:

  • Cyclically adjusted price-earnings ratio (current P/E is 25X vs. 15X average)
  • Market cap to revenue (current ratio of 1.6 vs. 1.0 average)
  • Market cap to GDP (double the pre-1990s norm)

How lousy do these measures suggest stock returns will be over the next decade?

About 2.5% per year for the S&P 500 — a far cry from the double-digit returns of the past 5 years and the ~10% long-term average.

Read more: http://www.businessinsider.com/be-prepared-for-stocks-to-crash-2013-11#ixzz2kBBFk7Nq
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