John Mauldin believes the market will return to single digit P/E ratios. Mauldin claims the market is 50 percent overvalued using four measurements based on dividend yield: first, the Tobin Q factor is the markets value of a firms assets divided by their replacement value is high by 31 percent; second, the price of stocks to their 10 year average of real earnings is too high by 31 percent; third, market capitalization (stock price x outstanding shares) compared to Gross Domestic Product (GDP) is high by 45 percent; and fourth, the market P/E value of 26 is high from the 15 P/E median and Mauldin and Grantham concede too raising the median to 17.5 P/E factoring that investors are smarter and more liquid. Mauldin concludes the market is overvalued at 50 percent and in recession, the DOW would correct to 6,000. Why the correction? The market loves comfort, stable growth, stable low inflation, and strong profit margins. Biotech and technology receive no exception and as investors move from future value expectations to present value expectations and evaluate companies on value. Some of the old companies will start to look good. [Learn More ...]

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