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Business/Finance See other Business/Finance Articles Title: Business Insider's Blodget: 'Stocks Are at Least 40 Overvalued' Business Insider's Blodget: 'Stocks Are at Least 40 Overvalued' Thursday, 26 Dec 2013 07:39 AM By Dan Weil The stock market's torrid rally has left it vastly overvalued and vulnerable to a horrific plunge, says Henry Blodget, editor-in-chief of Business Insider. "Every valid valuation measure I look at suggests that stocks are at least 40 percent overvalued," he writes on the service. Among examples Blodget cites is that the cyclically adjusted price-earnings ratio, based on 10 years of profits, stands at 25, compared with a long-term average of 15. In addition, the current ratio of stock market capitalization to revenue is 1.6, compared with a long-term average of 1.0, he notes. And the ratio of stock market capitalization to GDP is twice the pre-1990s average, Blodget adds. These data imply stock returns of about 2 percent per year including dividends over the next decade, he says. But Blodget believes it's unlikely to be a regular pattern. Stocks tend to boom and bust, he notes. "So the farther we get away from average valuations, the more the potential for a bust increases." A crash of 40 to 55 percent is possible, based on the valuation data and the work of fund manager John Hussman, Blodget explains. While the Standard & Poor's 500 Index has generated at total return of 31.2 percent so far this year, a 50 percent decline would put the index below 900. "A careful study of history suggests that a crash is increasingly likely and that long-term stock returns from this level are likely to be crappy," he states. However, many investors expect the stock market's ascent to continue. "General economic conditions are showing a sustainable recovery pattern," Eric Teal, chief investment officer at First Citizens BancShares in Raleigh, N.C., tells Bloomberg. "I think we'll continue to grind higher through year-end, and we anticipate that the fourth-quarter earnings outlook will be positive as well." Read Latest Breaking News from Newsmax.com http://www.moneynews.com/InvestingAnalysis/Blodget-stocks-crash-overvalued/2013/12/26/id/543813#ixzz2obvIPj00 Poster Comment: This is a harbinger of a coming crash. Glad I have no money in the market. ;) Post Comment Private Reply Ignore Thread
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