Money and Finance
- Links
Q&A with Guy Spier about his book, The Education of a Value Investor (LINK) Buffett’s Private Analysis of Geico in 1976: ‘Extraordinary’ But ‘Mismanaged’ [H/T Lincoln] (LINK) Aswath Damodaran on corporate break-ups, using EBay and PayPal...
- Hussman Weekly Market Comment: Exit Strategy
Link to: Exit Strategy The S&P 500 set a marginal new high on Friday, in the context of a broad rollover in momentum thus far this year that we view as likely – though of course not certain – to represent a broad cyclical peak of the sort that...
- Hussman Weekly Market Comment: Increasing Concerns And Systemic Instability
Link to: Increasing Concerns and Systemic Instability With the S&P 500 just 3% below its all-time high, there’s very little change our views here. Last week’s mild retreat only looks something other than mild when viewed in the context of a late-stage...
- Hussman Weekly Market Comment: Short Horizon, Long Horizon
Over history, and including the past decade, properly normalized valuations have remained a powerful guidepost for full-cycle and long-term returns, particularly on the horizon of 7-10 years. On that front, the current price/revenue multiple of the S&P...
- Hussman Weekly Market Comment: Sitting Ducks
The present market context is this: from a valuation standpoint, virtually every reliable measure of market valuation we observe is now within the highest 1% of historical observations prior to the late-1990’s bubble. “Reliable” in this context...
Money and Finance
Hussman Weekly Market Comment: Pushing Luck
Link to: Pushing Luck
The latest data from the NYSE shows equity margin debt at a new all-time high. Relative to GDP, the current 2.6% level was eclipsed only once – at the March 2000 market peak. In the context of the most extreme bullish sentiment in decades, and reliable valuation metrics about double their historical norms prior to the late-1990’s bubble (price/revenue, market cap/GDP, Tobin’s Q, properly normalized price/forward operating earnings, price to cyclically-adjusted earnings), we view present market conditions as dangerously speculative.
Before it’s too late, I should note – as I also did at the 2007 market peak just before the market collapsed – that unadjusted forward operating P/E ratios and the Fed Model are both quite unreliable indications of value or prospective returns (see Long-Term Evidence on the Fed Model and Forward Operating P/E Ratios).
Even the shallow 3% retreat from the market’s all-time highs may be enough to prompt a reflexive “buy-the-dip” response in the context of extreme bullish sentiment here, as the S&P 500 bounced off of a widely monitored and steeply ascending trendline last week that connects several short-term market lows over the past year. Regardless, the potential for short-term gains is overwhelmed by the risk of deep cyclical and secular losses. We presently estimate prospective 10-year S&P 500 nominal total returns averaging just 2.7% annually, with negative expected total returns on every horizon shorter than 7 years.
Could the stock market’s valuation really be double its historical norm? Yes, this is presently the case for numerous historically reliable measures, including price/revenue, market cap/GDP, Tobin’s Q, and a variety of properly normalized earnings-based measures.
- Links
Q&A with Guy Spier about his book, The Education of a Value Investor (LINK) Buffett’s Private Analysis of Geico in 1976: ‘Extraordinary’ But ‘Mismanaged’ [H/T Lincoln] (LINK) Aswath Damodaran on corporate break-ups, using EBay and PayPal...
- Hussman Weekly Market Comment: Exit Strategy
Link to: Exit Strategy The S&P 500 set a marginal new high on Friday, in the context of a broad rollover in momentum thus far this year that we view as likely – though of course not certain – to represent a broad cyclical peak of the sort that...
- Hussman Weekly Market Comment: Increasing Concerns And Systemic Instability
Link to: Increasing Concerns and Systemic Instability With the S&P 500 just 3% below its all-time high, there’s very little change our views here. Last week’s mild retreat only looks something other than mild when viewed in the context of a late-stage...
- Hussman Weekly Market Comment: Short Horizon, Long Horizon
Over history, and including the past decade, properly normalized valuations have remained a powerful guidepost for full-cycle and long-term returns, particularly on the horizon of 7-10 years. On that front, the current price/revenue multiple of the S&P...
- Hussman Weekly Market Comment: Sitting Ducks
The present market context is this: from a valuation standpoint, virtually every reliable measure of market valuation we observe is now within the highest 1% of historical observations prior to the late-1990’s bubble. “Reliable” in this context...