Money and Finance
- Hussman Weekly Market Comment: Following The Fed To 50% Flops
One of the most strongly held beliefs of investors here is the notion that it is inappropriate to “Fight the Fed” – reflecting the view that Federal Reserve easing is sufficient to keep stocks not only elevated, but rising. What’s baffling about...
- Hussman Weekly Market Comment: Not In Kansas Anymore
Even in the event that quantitative easing is sufficient to override hostile market conditions in the near-term, it is worth noting that long-term outcomes are likely to be unaffected. We presently estimate a prospective 10-year total return on the S&P...
- Hussman Weekly Market Comment: Run Of The Mill
My Views in a Nutshell: We remain strongly defensive here, which will ideally be resolved by a sharp improvement in valuations followed by early improvement in market action, but we'll respond to shifts in the evidence however conditions change. I...
- Hussman Weekly Market Comment: Release The Kraken
Over the past 13 years, and including the recent market advance, the S&P 500 has underperformed even the minuscule return on risk-free Treasury bills, while experiencing two market plunges in excess of 50%. I am concerned that we are about to continue...
- Hussman Weekly Market Comment From May 21, 2007: How Much Do Interest Rates Affect The Fair Value Of Stocks?
In recent months, I've used a wide variety of analytical methods (discounted cash flows, normalized earnings, price/peak earnings calculations, etc) to show that stocks are currently priced to deliver unusually poor long-term returns – stated simply,...
Money and Finance
Hussman Weekly Market Comment: Secular Bear Markets - Volatility Without Return
Present market and economic conditions highlight a fairly dramatic disparity between continued economic and valuation headwinds (particularly on a “cyclical” horizon of 18-24 months) and complacent short-term conditions that rest on the continuation of massive monetary and fiscal imbalances. It’s obvious even from a casual observation of economic conditions that these imbalances are inconsistent with a healthy economy; short term interest rates near zero, monetary base at 18% of nominal GDP (more than twice the level that would be consistent with short-term yields at even 2%), and a Federal deficit near 10% of GDP. Because it is an accounting identity that the deficit of one sector must be the surplus of another, and neither consumers nor our trading partners are running surpluses, it follows that our massive Federal deficit has temporarily driven corporate profit margins to historic highs about 70% above their norms even while wages as a percent of GDP have reached a record low.
Despite these imbalances, as long as Wall Street collectively closes its ears and hums, everything seems to be just fine. Sure, valuations are rich on the basis of normalized earnings, but stocks have performed well in hindsight. Sure, short-term interest rates are at zero, but investors have found what they believe is value in the higher interest rates available on junk debt. Sure, the labor force participation rate has plunged back to 1980 levels while every cohort of the population has lost jobs in the past 3 years except workers over the age of 55, but the payroll figures remain positive to-date. Sure, Europe is already in recession, with a largely insolvent banking sector, but for now, words have been enough to talk investors down from concern about any of that.
For our part, we continue to focus on the prospective market return/risk profile that has been associated with prevailing market conditions (including not only post-war and Depression-era data, but also data from the most recent cycle). The fact is that market conditions vary measurablyover the course of the bull-bear market cycle. It's true that repeated “kick-the-can” interventions during the most recent cycle have created more variability in the lag between unfavorable conditions and subsequent market losses. Still, even this did not prevent significant corrections in 2010 and 2011. The corrections in 2012 have been fairly shallow despite fairly extreme conditions from the standpoint of our own return/risk estimates, but we also observed that in 2000 and 2007 – when it would have been tragic to confuse the postponement of bad outcomes with an escape from them. I have little doubt that the coming market cycle will provide extended opportunities for an unhedged and even aggressive exposure to market risk. At present, however, I am convinced that investors are mistakenly reaching for yield in credit-sensitive debt, misled by temporarily elevated profit margins in the stock market, overconfident about government safety nets, complacent about European risks, and still likely to be blindsided by a U.S. recession.
- Hussman Weekly Market Comment: Following The Fed To 50% Flops
One of the most strongly held beliefs of investors here is the notion that it is inappropriate to “Fight the Fed” – reflecting the view that Federal Reserve easing is sufficient to keep stocks not only elevated, but rising. What’s baffling about...
- Hussman Weekly Market Comment: Not In Kansas Anymore
Even in the event that quantitative easing is sufficient to override hostile market conditions in the near-term, it is worth noting that long-term outcomes are likely to be unaffected. We presently estimate a prospective 10-year total return on the S&P...
- Hussman Weekly Market Comment: Run Of The Mill
My Views in a Nutshell: We remain strongly defensive here, which will ideally be resolved by a sharp improvement in valuations followed by early improvement in market action, but we'll respond to shifts in the evidence however conditions change. I...
- Hussman Weekly Market Comment: Release The Kraken
Over the past 13 years, and including the recent market advance, the S&P 500 has underperformed even the minuscule return on risk-free Treasury bills, while experiencing two market plunges in excess of 50%. I am concerned that we are about to continue...
- Hussman Weekly Market Comment From May 21, 2007: How Much Do Interest Rates Affect The Fair Value Of Stocks?
In recent months, I've used a wide variety of analytical methods (discounted cash flows, normalized earnings, price/peak earnings calculations, etc) to show that stocks are currently priced to deliver unusually poor long-term returns – stated simply,...