More Good News From Forecasters, S&P At 400

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James Tobin won the Nobel prize for economics in 1969. By his measurement of the stock market, the S&P has a very long way to drop. Keep in mind that there are nuts everywhere making predictions.

According to Bloomberg, Tobin’s Q ratio, which compares the market value of companies to the cost of their constituent parts, indicates the Standard & Poor’s 500 Index is still too expensive relative to the cost of replacing assets. While the 39 percent drop in the S&P this year pushed equity prices below replacement cost, history suggests the ratio must sink further as deflation sets in. The S&P may plunge another 55 percent to a trough of 400 by 2014.

Douglas A. McIntyre