John Hussman on Stock Returns at Current Levels

Ryan Leggio: Let's talk a little bit about where we currently are in the market.
The S&P as we're talking today is right around 1050. The dividend
yield of the S&P is slightly under 2%. The 10-year treasury is
hovering right around 3% and the 30-year treasury is hovering
right around 4%. And given these market conditions, can you let
readers know what specifically your outlook is for the S&P
generally over the next ten years now?

John Hussman: Right. We have a standard calculation that we frequently update on
the website, where we look at the implied long-term return in
stocks and that's basically driven by applying a reasonable range of
multiples to normalized earnings and we've talked before about
this.

Normalized earnings historically have grown about the same rate
as nominal GDP, if you look peak-to-peak across economic cycles.
It's a little over 6% annually for the S&P 500 and you can take that
back to the 50s or 40s or even 30s.

So, using that basic approach, we are looking at a long-term 10-
year return for the S&P 500 and total return including dividends
approaching 7% right now.

Ryan Leggio: Great. So 7%, not as great as the 9% or 10% that investors usually
expect but I also wanted to touch then on for comparison purposes,
your expectations in March 2009 was approaching 10% or 11%
using the same methodology, is that correct?

John Hussman: Yeah. At the very bottom, we even got passed 11%. We got a little
closer to 12% but it was extremely brief. At major secular lows
like we've seen in say '74 or 1982 or a little after 1950, we saw that
numbers go as high as 15.5 or 16 for 10-year expected returns. So,
we didn't get to what one would consider generational
undervaluation but stocks were briefly undervalued at the 2009
level certainly.