Michael Lipper, a former president of the New York Society of Security Analysts, says he thinks stocks are already pricing in a slowdown in sales growth and a decrease in profit margins.

“One of the many lessons that I learned from John Neff, who was the great portfolio manager of the Windsor Fund, (now known as the Vanguard Windsor Fund), was to focus on the earnings power of a company under normal business conditions and not what was thought about the current level of earnings,” Lipper, the president of Lipper Advisory Services, writes. “Thus for him, it was the comparison of earnings power to current price to determine the attractiveness of a stock.”

Today, Lipper says, many believe that the current earnings projections represent cyclically peak earnings, with margins at record levels and sales growth slowing. But, he says, investors are already pricing in a more normal profit climate. “I would submit that this recognition is already in the prices of the shares that they own,” he writes. “If my assertion is reasonably correct, when reported earnings turn down there is not a good reason to further discount current prices. I believe that the general price levels of many stocks presume a decline on the order of 25%, and thus many stocks are selling at perhaps 15X their earnings power and therefore there is no pressing need to mark stocks down further.”

That’s not what’s occurring, however. “We are talking ourselves into a recession by curtailing our expenses where we can, and not taking advantage of the huge talent bank that is available for us to hire,” Lipper says.

Lipper is hopeful that the root causes of the financial crises around the globe are the same, which would mean the period of adjusting to deal with them would be relatively short. “The substantial structural imbalances caused by people in many countries, demanding from pliant politicians more than we are willing to pay for through fees, prices, and taxes, will be addressed painfully and hopefully soon,” he says, though he adds that he’s hopeful that “prudent, long term equity investment will see no fixed limits to our eventual returns. Hopefully the waiting period is getting shorter.”