John Hussman, president of Hussman Strategic Advisors, believes the S&P 500 stock index would have to fall by 55 percent to reach historical norms.
“The notion that equity valuations cannot, or will not, revisit normal run-of-the-mill prospective returns (or better) in the coming decade has utterly no support in the historical record. We made similarly ‘preposterous’ but ultimately accurate statements in 2000 and 2007 about the size of the market loss that would likely complete the cycle”.
John is absolutely right and you can see the same from the chart above. The average P/E ratio oscillated around 15 over the last 120 years. And that would indeed warrant close to a 50% haircut from today’s levels.
Impossible? Here is a fun fact. Did you know that between 1899 and 1949, a 50 year period of time, the Dow barely moved. In nominal terms it gained approximately 2% a year. Inflation adjusted, it lost over 25% of its value. The same occurred between 1790 and 1860.
Any notion that we are in some sort of a new economic/financial reality is a foolish one. The stock market is in a massive bubble and it will decline substantially over the next two years. As per our mathematical and timing work. Click Here
