A subject near and dear to those with a gimlet eye.
Regale me with tales of equity risk premia, of Schwert's or Cowles' stock price series or, as in this case,expected future returns and I am happy.
[is it any wonder you always end up in the corner at parties? -ed]
Via Pragmatic Capitalism:
Excellent analysis from John Hussman. As always, this week’s letter is a must read:
Pragcap has the link to Hussman.“Currently, the forward operating earnings model above suggests an average annual 10-year total return for the S&P 500 of 5.5%, while indicating that the S&P 500 was briefly and moderately undervalued at the 2009 market low. Not surprisingly, the 1988-1991 model projections underestimated the market’s subsequent 10-year total return, as the period a decade later – between 1998 and 2001 – represented the extremes of the subsequent valuation bubble. Overall, the correspondence between projected and actual 10-year market returns is very close. Taken together, my impression is that this is a record that a reasonable and informative valuation model ought to produce.”