"This Is The Broadest Episode Of Extreme Equity Market Overvaluation In History"

Excerpted from John Hussman's Weekly Market Comment,

Market valuations, on these measures, presently approach or exceed the 1929 and 2000 extremes, placing U.S. equity market valuations at the most offensive levels in history.

Indeed, with median valuations on these measures now more than 2.7 times their historical norms, there is strong reason to expect a market loss on the order of -63% over the completion of the current market cycle; a decline that would not even bring valuations below their historical norms (which we’ve typically seen by the completion of nearly every market cycle outside of the 2002 low).

"...unlike the 2000 valuation extreme, which was largely focused on a subset of extremely overvalued technology stocks, the current market extreme is the broadest episode of extreme equity market overvaluation in history. The chart below shows the median price/revenue ratio of S&P 500 component stocks, which set yet another record high in the week ended November 3, 2017, and now stands more than 50% above the 2000 extreme."

The following chart below shows our Margin-Adjusted CAPE as of November 3, 2017.

On this measure, market valuations are now more extreme than at any point in history, including the 1929 and 2000 market highs.

Finally Hussman reminds the complacent majority of how this well end:

The final chart is a reminder of how these speculative episodes end.


In 2000, most deciles experienced losses on the order of 30-50%, with the exception of the hypervalued top decile represented, at the time, by technology stocks.


In March 2000, I wrote: “Over time, price/revenue ratios come back in line. Currently, that would require an 83% plunge in tech stocks (recall the 1969-70 tech massacre). If you understand values and market history, you know we’re not joking.”

While it feels like it at the moment, trees can't grow to the sky, but as Hussman concludes, it’s clear from market internals that investors again have the speculative bit in their teeth.

What’s important, however, is to distinguish near-term speculative outcomes from longer-term investment outcomes.


If history is any guide, the first leg down from the current speculative blowoff is likely to be abrupt and rather vertical. Investors will be tempted to buy into that decline, and may very well be rewarded for it over the shorter-run. The problem is that while investors are reluctant to sell into strength here, they may also have no tolerance for selling into a market loss once internals break down. Instead, they will likely pass up their opportunity to reduce exposure to market losses even after market internals deteriorate clearly.


After that, the intermittent hope from fast, furious (but ultimately failing) rallies will likely encourage them to hold on all the way into a deep market collapse. That’s how severe market declines unfold.


Caloot donefuhkingaround Mon, 11/06/2017 - 16:44 Permalink

What if the equities represent prices and a market feeling the inflation created, and instead of collapse the rest of the entire economy catches up.  Stated differently, what if it's the dollar that crashes and mainstream America has to pay equivalent values on goods and energy and services..   What would a burger cost if it's price was adjusted upwards to the current equities valuations.    Venezuela is not a bubble.   Zimbabwe was not a bubble.   I'm not so sure the US is in a bubble.   It would be way better if it was. The possibility of an inflationary spiral is much scarier.   

In reply to by donefuhkingaround

Caloot Five Star Mon, 11/06/2017 - 17:22 Permalink

It could be logically argued that wages are the last to rise.  Also it could be argued that wages are in a depressive state given the real unemployment state of the US with over 100 million people unemployed. Add robotics and ai and you have the true value of working low class Americans as almost worthless.  And so reflected in their wages. Without money printing onto an EBT card, what would bread lines look like.  The idea that inflation would be uniform is naive.   

In reply to by Five Star

Sy Kloine Bee Mon, 11/06/2017 - 16:37 Permalink

They're going to wait until just before the boomers make the bulk of withdrawals from their pension accounts.  Then they will push the magic button hidden under the roulette table, zeros will come up, and the house will get its take.

adr Mon, 11/06/2017 - 16:47 Permalink

The stock market has divorced itself from business fundamentals. Now that mark to fantasy and tactics that would have put CFOs in jail in decades past are common practice and in fact encouraged, bankrupt companies can be closing in on trillion dollar valuations.How can you ship a $350 sectional couch for free across the country and make a profit on the sale? How can you even have a business when you lose money on nearly everything you sell? Not only that but how can your company be worth half a trillion dollars?IN reality everything is imploding. Malls are empty, major chains are going belly up at an accelerated rate. Car sales are only propped up with massive incentives and loan terms going out into mortgage territory. An entire generation is living at home with their parents, forgoing anything that can be called growing up. This gives us a record high stock market?Almost half of the working age population is unemployed. Closing in on over 100 million people, yet we are told the unemployment rate is near record lows. Nobody seems to be happy, yet we should all be basking in the unbelievable wealth and prosperity granted to us over the past ten years.But how can we, the budget is over $3 trillion and the national debt over $20 trillion. In 1995 when the debt was a paltry $4 trillion I was taking classes telling me the debt was insurmountable and insane. What is it now?I know a few high net worth individuals who are all cashing out. Now that they are in the last stage of their life, they want to enjoy what they have raped from the system. None of them ever believed they could get away with what they have for so long. Some might press their luck and try for the cherry, others happy with the sprinkles.  If you are actually middle class, are you better off? Are you living the same lifestyle your parents had when they were your age? Does your wife work? Are your kids going on the vacations like you did? Do they have the stores to go to like you did? Or the country clubs, swimming pools, and after school activities?Life in 2017 isn't 1987. Sure as hell isn't 1957. Maybe in 2047 we can have the DOW at 1 million and the average person will be living in a 200sq ft container with one window. But everything you need will be delivered by Amazon droids, at least you can look forward to that kids.

zagzigga adr Mon, 11/06/2017 - 16:58 Permalink

"If you are actually middle class, are you better off? "No fucking way! If you chose to sit out the speculation game and opted to remain a renter, you are fucked. If you don't have employer sponsored healthcare and Obanacare is your only option, you are fucked. if your wage growth is anemic and actually negative when accounting for inflation, you are fucked. Middle class floks can no longer aspire for a better life, they are now lower class.  

In reply to by adr

XBroker1 adr Mon, 11/06/2017 - 18:15 Permalink

"If you are actually middle class, are you better off? Are you living the same lifestyle your parents had when they were your age?"Better, but I'm not married. That has a lot to do w/ my happiness level judging by the grim faces and attitudes of the married men & women I see. My children also have their own homes. I can travel anywhere I want, whenever I want. I never owned an 'I' or 'smart' anything. I somehow see a correlation between those wicked devices and the misery index. Why would I own something that implicity gives someone the ability to spy on me...

In reply to by adr

Honest Sam Mon, 11/06/2017 - 16:53 Permalink

Only if you think of the dollar, the greenback, as buying today the same basket of goods and services as it did in 1941,  When you fucktor in the 99% decrease in the value of the dollar,  even 45,000 on the Dow seems too low.

RabbitOne Mon, 11/06/2017 - 16:54 Permalink

None of these experts ever discuss what is really going on. I call what is really going on the “Zimbabwe pump”. If you looked at the stock market in Zimbabwe when their currency was going belly up in the 1990's it looks just like ours does today...

zagzigga Mon, 11/06/2017 - 16:54 Permalink

You could have said the same thing last year, the year before that, and the year before that. But who's listening? Neither the central banksters nor msm nor retail sheeple care about facts.

moonmac Mon, 11/06/2017 - 17:03 Permalink

Banks encouraged small businesses that survived the last recession to double down on debt so next recession they are guaranteed to fail. A few of my favorite mom & pop restaurants expanded into the vacant stores next door but I just don’t see enough customers to stay open especially once the next downturn hits. They should have stayed small but now everyone thinks they can get filthy rich slinging hash. They will become part of the 95% of eateries that close down within 3 years.

Robb Mon, 11/06/2017 - 17:10 Permalink

learned about working group support 2009 - 2016 and demanded same/ better or cat's out of the bag in 140 characters, guess thats why they are bailing. Ha!

ZeroLounger Mon, 11/06/2017 - 17:24 Permalink

I went over to Hussman's website this a.m.  It's now his MONTHLY market comment. My how times change. I've been reading his weekly diatribes now for......how many years?  Poor guy.  He's right, this sucker's going down.It's gone on longer than any of us could have imagined. It's gone on for so long that now he's got a brand new website and the commentsare monthly, not weekly.  I felt something shift in the FORCE this morning, finding this out.

geno-econ Mon, 11/06/2017 - 17:27 Permalink

I love the American "can do " approach as long as you can get a loan. mortgage, home equity loan, credit card or a Daddy trust fund.   Those making it on their own is getting smaller every year.  So when the stockmarket takes a major hit, the whole system implodes because the remaining stored wealth is destroyed beyond any possibility of rebounding.

Fantasy Free E… Mon, 11/06/2017 - 17:29 Permalink

It is wrong to call this market overvalued. It is over stimulated. http://quillian.net/blog/being-right-about-the-stock-market/ In the short term this makes a world of differenced. The danger to the market is that the deep state is showing signs of fragmenting. As long as central banks have a directive to move stocks higher, the effort will be made. As long as the general public is still clueless as to being fleeced, they won't object. The central banks will not stop on their own. Don't get me wrong, the market will break. There is just no way to know how long organized support will go on. Very few longterm holdings are hitting the market. Volume is low as it needs to be to manipulate the market. It is not just low. Take a way all of the trades that are closed between the open and close and there is hardly any volume at all. It takes very little central bank money to sop up any excess supply.

slobbermut Mon, 11/06/2017 - 18:13 Permalink

Yada Yada Yada.....doesn't count for shit until the sundry CBs cease their constant funny-money market infusions - and honestly why should they?  Will they pull the rug at some time...yeah, probably - but who the fuck knows when; maybe TPTB want the S&P at 2800...then they simply create the money, pretty much out of thin for all intents and purposes, and continue the daily melt-up; nuke America and the market likely goes up due to all the anticipated increased spending to rebuild.

Dragon HAwk Mon, 11/06/2017 - 18:28 Permalink

It's like playing monopoly with a million dollars sitting on Free parking every time you land they dump more money into the game, and you buy more shit.

nsurf9 Mon, 11/06/2017 - 19:09 Permalink

I was just telling my honey - my johnson, if measured in today's dollars, is at least 23.54842 inches!Like other countries, she didn't believe me, and the Fed didn't give a $h!t because their stealing from everybody.

Anarchyteez Mon, 11/06/2017 - 19:07 Permalink

Remember the scene in the last Mad Max movie where the driver spray paints his teeth chrome and says, “what a lovely day?!” While driving into a lightning sand storm at 110mph?

You think these are interesting times? Just wait!