VIDEO: Stocks to Deliver Flat Returns Over the Next 7-10 Years

I joined CNBC Asia’s Street Signs last night to chat about the market’s prospects.

By just about any metric you want to choose, U.S. stocks are expensive today. At 26.9, the cyclically-adjusted price/earnings ratio (“CAPE”) is about 62% higher than its historical average. This implies annual returns over the next 7-10 yeras of less than half a percent per year, and that included dividends. Stripping out dividends, the S&P 500 is priced to actually lose money over the next decade.

A lot of analysts discard the CAPE because they feel it gives too much weight to past earnings, which in this case are depressed by the 2008-2009 meltdown and corresponding profit collapse.

I disagree. After all, earnings were at record highs going into the crisis and are back near record highs today. And in any event, the entire purpose of the CAPE is to average out the peaks and troughs in earnings over the course of a full economic cycle.

But for the sake of argument, let’s toss the CAPE out the window and look at other metrics. As AdvisorShares Ranger Equity Bear ETF (HDGE) Co-Manager John Del  Vecchio recently wrote in Economy & Markets, the S&P 500’s price/sales ratio is priced at a stratospheric 1.7 times. Anything above is considered excessive and implies future returns of less than 1% per year. Tobin’s Q–a less common metric that compares the market value of stocks to the replacement value of their assets–is sitting at its second-highest levels in history, approximately at the level it reached in 1998.

Pick your metric. I have yet to find one that says U.S. stocks are a bargain. But as I explain in the video, I see see quite a bit of value overseas.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog.