Money and Finance
- Links
Catching back up after a few days in Miami... PBS Program: E.O. Wilson – Of Ants and Men, premieres Wednesday, September 30, 2015 (LINK) Related book: Journey to the Ants: A Story of Scientific ExplorationA Dozen Things Learned from Charlie Munger...
- Hussman Weekly Market Comment: Ockham's Razor And The Market Cycle
Link to: Ockham's Razor and the Market Cycle We increasingly see investors believing that history is no longer informative, and that the Federal Reserve has finally discovered how to produce perpetually rising markets and can intervene without...
- 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: Overlooking Overvaluation
Presently, on the basis of smooth fundamentals such as revenues, book values, dividends and cyclically-adjusted earnings, the S&P 500 is somewhere between 40-70% above pre-bubble valuation norms, depending on the measure. That’s about the same point...
- Hussman Weekly Market Comment: Borrowing Returns From The Future
Two aphorisms regularly become popular during speculative periods in the market. One is the statement by John Maynard Keynes that "the market can stay irrational longer than you can remain solvent." The other is Warren Buffett's remark that "a pack...
Money and Finance
Hussman Weekly Market Comment: The Federal Reserve's Two Legged Stool
Link to: The Federal Reserve's Two Legged Stool
Extraordinary market returns and dismal market returns both come from somewhere. Long periods of outstanding market returns have their origins in depressed valuations. Long periods of dismal market returns have their origins in elevated valuations. The best way to understand the returns that investors can expect over the long-term is to have a firm understanding of where reliablemeasures of valuation stand at each point in time.
A few quick valuation studies may be helpful. As the workhorse for these studies, we'll use the ratio of market capitalization to GDP. Warren Buffett observed in a 2001 Fortune interview that "it is probably the best single measure of where valuations stand at any given moment."
A variety of normalized earnings measures could be used as well, but emphatically, what should not be used is any price/earnings measure that is not adjusted for the variation of profit margins over the economic cycle. That includes the "Fed Model" and any number of "equity risk premium" measures, which actually have a rather weak correlation with actual subsequent market returns. For more evidence on why margin variation is important to consider, see Margins, Multiples, and the Iron Law of Valuation.
- Links
Catching back up after a few days in Miami... PBS Program: E.O. Wilson – Of Ants and Men, premieres Wednesday, September 30, 2015 (LINK) Related book: Journey to the Ants: A Story of Scientific ExplorationA Dozen Things Learned from Charlie Munger...
- Hussman Weekly Market Comment: Ockham's Razor And The Market Cycle
Link to: Ockham's Razor and the Market Cycle We increasingly see investors believing that history is no longer informative, and that the Federal Reserve has finally discovered how to produce perpetually rising markets and can intervene without...
- 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: Overlooking Overvaluation
Presently, on the basis of smooth fundamentals such as revenues, book values, dividends and cyclically-adjusted earnings, the S&P 500 is somewhere between 40-70% above pre-bubble valuation norms, depending on the measure. That’s about the same point...
- Hussman Weekly Market Comment: Borrowing Returns From The Future
Two aphorisms regularly become popular during speculative periods in the market. One is the statement by John Maynard Keynes that "the market can stay irrational longer than you can remain solvent." The other is Warren Buffett's remark that "a pack...