While stock markets end January at new cycle highs and record hyper valuations, John Hussman’s February missive is worth a little mull for thinking minds. Here’s a snippet:
“Understand this. The more glorious this bubble becomes in hindsight, the more dismal future investment returns become in foresight. The higher the price investors pay for a set of future cash flows, the lower the return they will enjoy over time.
…if market valuations, which are presently about triple their historical norms on the most reliable measures, simply move to double their historical norms a decade from today, the implied 10-year annual total return for the S&P 500 would be roughly (1.036)*(2/3)^(1/10)-1+.02 = 1.48% annually.
Simply touching the historical norm – not even reaching historically undervalued levels – would imply a 10-year annual total return for the S&P 500 of roughly (1.036)*(1/3)^(1/10)-1+.02 = -5.18% annually.
Whatever they’re doing, it’s not “investment.”
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