No valuation model is a good predictor of stocks future action. I think that Hussman completely misses the point, the point is that of the three major influences on future stock prices, the valuation influence is not a hindrance for future advances. By the way, I don't use the "fed model" since I look at trailing earnings not a tenuous future earnings as the fed does.
The only thing the fed model does is help compare competing investments. What will one do with their money. Put it in real estate. Not likely as highly valued as that is right now. Put it in 1% short term instruments. If you like 1%. Put it into 3% to 4% bonds. Not me. Put it in high quality stocks with earnings yields of 5% (a 20 PE, decreasing as earnings increase) and 1.5% dividend yield, and then let them accumulate (appreciation) tax free. Sounds like Warren Buffett's equity/bond, doesn't it.
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