Forget FOMO - 90% Of Stocks Have Never Been More Expensive

Tyler Durden's picture

Authored by Mike Shedlock via,

John Hussman’s report this week, Estimating Market Losses at a Speculative Extreme, has an interesting chart on Median price-to revenue ratios over time. Let’s dive in.

I added the dashed blue line for ease in comparison to the dot-com bubble peak. Here are some snips from Hussman.

“One of the things that you may have noticed is that our downside targets for the market don’t simply slide up in parallel with the market. Most analysts have an ingrained ‘15% correction’ mentality, such that no matter how high prices advance, the probable maximum downside risk is just 15% or so (and that would be considered bad).


Factually speaking, however, that’s not the way it works… The inconvenient fact is that valuation ultimately matters. That has led to the rather peculiar risk projections that have appeared in this letter in recent months. Trend uniformity helps to postpone that reality, but in the end, there it is…


Over time, price/revenue ratios come back into line. Currently, that would require an 83% plunge in tech stocks (recall the 1969-70 tech massacre). The plunge may be muted to about 65% given several years of revenue growth. If you understand values and market history, you know we’re not joking.

That’s not from today. It’s what Hussman wrote on March 7, 2000.

Hussman notes “The S&P 500 followed by losing half of its value by October 2002, while the tech-heavy Nasdaq 100 lost an oddly precise 83%.”

In regards to today, and of the chart posted above, Hussman has this to say, emphasis his:

The distinction between today and the 2000 peak is in the breadth of overvaluation across individual stocks. Back in 2000, the most extreme speculation was centered on a fraction of all stocks, largely representing technology, and accounting for a large proportion of the total market capitalization of the S&P 500 Index.


At the March 2000 bubble peak, an understanding of market history (including the outcomes of prior speculative episodes) enabled my seemingly preposterous but accurate estimate that large-cap technology stocks faced potential losses of approximately -83% over the completion of the market cycle.


At the 2007 market peak, by contrast, stocks were generally overvalued enough to indicate prospective losses of about -55% for all but the very lowest price/revenue decile. That risk was realized in the form of widespread and indiscriminate losses across all sectors during the market collapse that followed, even though financial stocks were hardest hit.


In my view (supported by a century of market cycles across history), investors are vastly underestimating the prospects for market losses over the completion of this cycle, are overestimating the availability of “safe” stocks or sectors that might avoid the damage, and are overestimating both the likelihood and the need for some recognizable “catalyst” to emerge before severe market losses unfold. We presently estimate median losses of about -63% in S&P 500 component stocks over the completion of the current market cycle. There is not a single decile of stocks for which we expect market losses of less than about -54% over the completion of the current market cycle, and we estimate that the richest deciles could lose about -67% to -69% of their market capitalization. As in 2000 and 2007, investors are mistaking a wildly reckless world for a permanently changed one, and their re-education in the concept that valuations matter is likely to be predictably brutal.

Placing the Blame

Hussman accurately places the blame on central banks as well as investors who believe the central bank is in control.

Central banks possess no concealed, mysterious knowledge that is somehow obscure to mortals. If anything, one might question whether some FOMC governors have ever carefully examined historical data at all, given that many of their propositions can be refuted by even the most basic scatterplot.


One thing should be clear: policy makers have not become “smarter.”


What they have become, with each bubble-crash cycle, is more reckless and arrogant in their willingness to extend speculative financial conditions by encouraging yield-seeking, compressing prospective future investment returns, amplifying the destructive consequences that inevitably result, and ironically, using those same consequences to justify fresh intervention.

Error Admission

Hussman admitted his errors, as have I. Neither of us anticipated:

  1. The jaw-dropping lengths of central bank recklessness in this half-cycle
  2. The ability of yield-seeking speculation to defer the implications of even the most extreme “overvalued, overbought, overbullish” conditions
  3. The importance of prioritizing the uniformity of market internals in a zero-interest rate environment

THE Choice

Investors have the same choice today as they have had at every point in time over the past few years.

Sorry guys, FOMO and the TINA excuse (there is no alternative) do not work.

Meanwhile, those who embraced the bubble are mocking those who didn’t. That is a contrarian warning. Alan Greenspan provides another.

In a Bubblicious Debate, Greenspan Says “Bond Bubble About to Break”, No Stock Market Bubble.

Be very concerned when Greenspan spots bubbles that do not exist while touting those that don’t.

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NugginFuts's picture

Oh come off it! Nothing is coming down until TPTB say so. Which is never because their house is next to ours and will burn down just as fast. 

They'd rather lie forever than admit they're not in control any more.

Raffie's picture

Either go big or go home when it comes to stawks.

Shitonya Serfs's picture

Yep, the turd that won't flush.

Raffie's picture

Use a stick to chop it up so it can be flushed.

Creepy_Azz_Crackaah's picture

An air cannon. Blast that sucker down so hard that it pops up in your neighbor's toilet.

Raffie's picture

Or put the toilet ontop of a wood chipper.

No more log jam issues.

deev's picture

Its amazing what happens when people buy into index funds, and the active traders, day traders, shorters and hedge funds don't get a look in to destabilise the market.

Full Court Lugenpresse's picture

This is literally the same thing they said in 2000 and 2007: "don't fight the Fed", "the house always wins", etc. etc. The idea that TPTB have figured out the magic formula to keep stocks permanently overvalued is an old idea that apparently needs to get re-disproved every few years. Hussman even addresses it directly, pointing out that frantic rate cuts all through 2007 and 2008 (plus a bunch of other extreme measures, remember the super-conduit?) utterly failed to stem the market collapse.

I like Hussman. He's got a no-bullshit thesis backed by a lot of historical data. I'm not going to say he's 100% definitely right, but it's rare to find anyone contradicting him who's done nearly as much homework as he has.

OpenThePodBayDoorHAL's picture

That's the problem: homework. Looking at prior historical periods.

Markets ebb and flow based on the risk appetite and available capital of the participants. Oops, problem problem: we have a brand new "investor" at the table who can materialize money from thin air. An investor who was not there in 2000 or 2007.

"Market" analysis no longer applies because we no longer have markets. I'm sorry for the many serious people like Dr. Hussman who spent a career understanding something that no longer exists.

Dow 30,000, 50,000, 100,000, why not? Anyone? Beuhler? Name a reason "why not". Because it will take $25.00 for a loaf of bread? Do you think these pathological insane people care about that?

Pollygotacracker's picture

If the CB's are invulnerable, what is the reason for previous crashes? Why didn't they prevent them from happening? They will lose control of interest rates, and that will make the whole shit show unstable. Watch for the 30 year treasury bond to reach 3.18%. Investors know inflation is running higher than the government and the Fed is admitting. The Fed will lose control of interest rates. That will pop the bubble.

OpenThePodBayDoorHAL's picture

CBs weren't outright buyers of assets last time around. More homework before posting next time

Pollygotacracker's picture

That is an urban legend. Do you have proof? What many shares?

Zorba's idea's picture

Ding! Ding! Ding! winning post of the day...Congrats! Fuck Shep's wave..follow the FED until they suggest exhuberence is intolerable!

SurlysonofaBitch's picture

His investment performance has been terrible, though. And, not just through this market cycle.

Hurp Derpington's picture

As Charles Lindbergh said in 1913,

"To cause high prices, all the Federal Reserve Board will do will be to lower the rediscount rate..., producing an expansion of credit and a rising stock market; then when ... business men are adjusted to these conditions, it can check ... prosperity in mid career by arbitrarily raising the rate of interest. It can cause the pendulum of a rising and falling market to swing gently back and forth by slight changes in the discount rate, or cause violent fluctuations by a greater rate variation and in either case it will possess inside information as to financial conditions and advance knowledge of the coming change, either up or down. This is the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money. They know in advance when to create panics to their advantage, They also know when to stop panic. Inflation and deflation work equally well for them when they control finance."

Raffie's picture

Buy the spike, go all in and don't look back.

ReturnOfDaMac's picture

Come on in, the waters fine.

Raffie's picture

The acid will not hurt you, only exfoliates the dead skin cells.

ReturnOfDaMac's picture

Yep, And you will feel even better after the CB's run the Mah-Kit up a few more points tomorrow.

Van G's picture




Creepy_Azz_Crackaah's picture

SchlongWave lost everything in the markets so has to resort to spamming comments sections for $35/month subscribers. Man, those subscribers are pissed when they get the YUGE SchlongWave losses and see the unauthorized charges that SchliongWave adds to their card. Why would you stick with a moron like that?

OH!!! You're one of the multitude of SchlongWave spam accounts. LOL!!!

SlothHedge's picture

They are not taking new subscribers. Just Goldman trying to manipulate mRkets.

PrezTrump's picture


Sonya B59's picture

A person would have to really stupid to lose all his money. You are foolish.

Creepy_Azz_Crackaah's picture

And you are SchlongWave account number 27.

SlothHedge's picture

ShepWave is looking for a sell off too. The difference is that they have not said togo bearish yet. When they do the markets wl crash. Goldman driving the train but no one knows it yet 


Creepy_Azz_Crackaah's picture

SchlongWave, If you're doing so well "investing" why do you have to desperately try to make money by spamming ZH comments sections?

Please answer.

Creepy_Azz_Crackaah's picture

Still waiting for an answer, SchlongWave. No doubt many of your potential "subscribers" have the same question. Why not answer it?

PrezTrump's picture

see how easy it is to kill their spam?

Sonya B59's picture

I used to think so but they have been around for over 20 years. Just a large following I think.

Creepy_Azz_Crackaah's picture

You should probably log off then back on with a different SchloingWave ZH account. This one is getting used too much.

PrezTrump's picture


PrezTrump's picture



punkster's picture

Why so many shepers on here bragging all the time?

Creepy_Azz_Crackaah's picture

Because it is one Schlonger (you) who registered upwards of 100 ZH spam accounts. Notice how SchlongWave has the posting times spread out - as if it had to log off then back on with another account to comment to itself. Not only did SchlongWave lose evertyhing in the markets, SchlongWave isn't very bright.

Sorry, Schlonger, ZHers aren't stupid.

PrezTrump's picture


Sonya B59's picture

I do read them and their calls have been good. But look into them and see their connections with Goldman are still strong. I smell a rat. Until they prove me wrong I will trust them. 

Creepy_Azz_Crackaah's picture

Of course you will. You are SchlongWave ZH account number 27.

BTW - I am writing this from my home in Antarctica just as you boast of being from Spain. We are international peoples, you (SclongWave) and me...

MadhyaBharatx's picture

Shepwave, Goldman and Prechter all connected. Proof

tgatliff's picture

Why try to pretend that fundamentals exist?  

Retail investors dont affect anything anymore.  Central Banks are buying equities everytime they dip and will continue doing so simply because it is their new shiny monetary toy.  They wont even allow a 5% decline anymore without BOJ Kuroda making a mad dash to buy everything.

nsurf9's picture

Yeup, and now its in your face and they don't even give a duck that you know that they're stealing from you.

Rainman's picture

Even Uncle Warren is sitting on a record hundred billion cash .... waiting to swoop in like a buzzard when the tide goes out.

Bob Beachcomber's picture

I wish I could move my 401K assets to real estate.

Don Sunset's picture

No matter how we get there, be it print to infinity or get back to fundamentals, it's GAME OVER.  RESET.

Enjoy your life right now.

user_name's picture

I give it to the twins FOMO and TINA hard.  Even a little backdoor every once in a while.  They've needed it a little more lately.

DC Beastie Boy's picture

Well I lost all my stocks in a boating accident