Sunday, November 24, 2013

Hussman: "An Open Letter to the FOMC: Recognizing the Valuation Bubble In Equities"


"valuation measures driven by single-period earnings (whether trailing earnings or forward operating earnings) are poorly correlated with subsequent market returns, mainly because they impose the counterfactual assumption that profit margins can be held constant over time. In contrast, measures that account for the cyclicality of profit margins typically have far greater explanatory power than their raw counterparts."