Sunday, June 17, 2007

New Economy, or Unfinished Cycle? / Hussman

tough times for rational investors like Hussman. to me it more an more obvious that only a major "credit event" in the lbo/takeover mania can shake the markets. to be honest i thought that this event happened in February in subprime........

harte zeiten für rationelle investoren wie Hussman. es sieht immer mehr so aus das eizig und allein ein "unfall" im kreditsegment der lbo/übernahmen etwas ändern kann und die märkte nachhaltig urchschütteln kann. um ehrlich zu sein dachte ich das dieses ereignis bereits im februar im bereich subprime kredite stattgefunden hat......

Presently, the market's valuation on the basis of price/revenue, price/book, and price/dividend is higher than at any prior historical market peak on record except the 2000 peak.

On the basis of normalized profit margins, the current P/E for the S&P 500 would be about 25 times record earnings rather than the (still elevated) multiple of 18.4.

Even if we give only 25% weight to that normalized value, and give 75% weight to the prevailing multiple, the resulting P/E for the S&P 500 is still over 20, and is about the same as what prevailed prior to the 1929, 1973-74, and 1987 market plunges.

This market is only “cheap” if one couples non-GAAP “forward operating earnings” with the Fed Model. As I've detailed in recent weeks, that approach has ridiculous implications even in the data sample (1980-2000) that was used to construct it, and is quickly and easily verified as pure garbage in pre-1980 data, using any proxy remotely close to estimated “forward earnings

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