While Liz Ann Sonders says stocks are undervalued using her computation of “normalized” earnings, fund manager John Hussman has a far different view. In his latest market commentary, Hussman says the S&P 500 is trading for about 40% above historical norms based on his own normalized earnings calculation.

One apparent difference between Sonders’ and Hussman’s calculations is that Sonders uses a blend of as-reported and operating earnings. Hussman appears to be more focused on as-reported earnings. “Operating earnings exclude a whole host of charges — what some observers correctly call ‘recurring non-recurring’ charges,” he writes. “These include large and often quite regular losses that the companies deem, often on the thinnest basis, to be detached from their core business — even if the losses are directly related to their core business. Items like enormous asset writeoffs come to mind.”

Hussman also offers a warning about earnings estimates. He says current estimates for the S&P 500 include profit margins that are almost 50% greater than historical averages. “Investors will walk themselves over a cliff if they price stocks as if profit margins, going forward, will be dramatically and sustainably higher than U.S. companies achieved in all of market history,” he writes.

Hussman says he continues to observe “pointed recession risks”, and thinks that the market is a ‘rent, not own’ market being driven by technical traders “who uniformly and somewhat predictably pile on to the sell side or the buy side when particular levels are hit.”