Hussman wrote in his 2/1/10 comment and accompanying chart that normalized earnings should be 13.6% of book value. Year end book value is 667 per share which would put normalized earnings at 90.71, implying a current normalized P/E of 18.18 less than 20% above historical norms. The current p/b ratio of sp500 is 2.47, a ratio of 2.0 would be in line with history.
Whats most surprising to me is that hussman hasnt taken a meaningful position in his international funds, as the historical ROEs are similar (12-13%) to the united states as hussman has mentioned a couple of times. With emerging markets around 1.5 x book and developed europe around 1.7 x book indicating below average valuations
I understand his concern, however hes said that the nly time to be 100% hedged would be when theres both unfavorable valuations and market action, clearly thats not the case there. It does little good to have a model that predicts good returns if youre not willing to take even a partial exposure.
I think most of the reason why he hasnt taken exposure comes back to the us. If hes predicting a large decline here, then its likely that nearly all markets will follow suit.