Stock Market Crash: Bubble Expert Warns 60% Further Downside Ahead

Hussman uses his proprietary margin-adjusted price-to-earnings ratio.Stocks are risky. Treasury bonds are not. So when investing in stocks, investors ought to take into account their return potential relative to risk-free rates to determine whether or not they are a worthy investment., the president of the Hussman Investment Trust who called the 2000 and 2008 market crashes.

Sometimes they have reverted even further, to levels on par with a 5% premium over Treasury yields or 10% over Treasury yields .This time, Hussman believes stocks are headed for the green line, getting them back to levels in line with a 10% premium over Treasurys. This happened during the 1929 and 2008 crashes, and nearly happened during the dot-com crash in 2000. This would mean around 60% further downside from levels seen earlier this week, when Hussman published the commentary.

Another way of showing the decline potential to get back to levels associated with better returns than Treasurys is in the chart below. So far, the S&P 500 has not fallen nearly as close to its decline potential as it has in prior crashes over the last 100 years.Hussman had company in two widely followed market strategists this week regarding his high valuation call.

"The current PE of around 18x is very vulnerable, and not just against sharply higher cash/bond yields," Edwards said."The current nosebleed level of valuations seen in the US PEG ratio is a result of theGoldman Sachs' David Kostin

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