Money and Finance
- Hussman Weekly Market Comment: Pushing Luck
Link to: Pushing LuckThe 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...
- 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: Did Monetary Policy Cause The Recovery?
As investors, we should be aware that the current Shiller P/E of 24.8 (S&P 500 divided by the 10-year average of inflation adjusted earnings) is now above every historical instance prior to the bubble period since the late-1990's, save for the...
- Hussman Weekly Market Comment: The Lesson Of The Coming Decade
We continue to observe conditions that fall within the most negative 5% of historical instances, and these conditions (not any inherent preference toward bearishness) are the reason we hold to a defensive outlook here. The concept of a “broken speculative...
- Hussman Weekly Market Comment: Too Little To "lock In"
We've regularly observed that corporate profit margins (and economy-wide, profits as a share of GDP) have a strong tendency to "mean revert" over time - specifically, elevated profit margins are associated with unusually weak earnings growth over...
Money and Finance
Hussman Weekly Market Comment: We Should Already Have Learned How This Will End
Overvalued, overbought, overbullish. When in history have we seen the Shiller P/E (S&P 500 divided by the 10-year average of inflation-adjusted earnings) above 23, the S&P 500 over 60% above its 4-year low and 10% above its 52-week average, with investment advisory bears below 20% for at least two weeks running? Three times: the April 2010 peak, the March-May 2011 peak – both followed by corrections approaching 20% – and today. Even if one ignores the historical evidence suggesting the potential for significant bear market losses over the next couple of years, speculators should be aware that present conditions have been hostile even in the context of the recent bull market advance.
I use the word “speculators” intentionally, as the historical evidence overwhelmingly indicates that there is little in the way of “investment” merit at present valuations. See Investment, Speculation, Valuation, and Tinker Bell for a review of the simplistic “forward earnings” measures universally touted by Wall Street here, compared with a range of distinct valuation approaches (including a far more effective use of forward earnings), all which reach nearly identical conclusions, and all which have a dramatically stronger relationship with subsequent market returns at every horizon. Our present estimate of prospective 10-year S&P 500 nominal total returns is now down to about 3.5% annually.
Andrew Smithers out of London provides yet another metric based on Tobin’s q (market value versus replacement cost). The chart below is on log scale, so you have to do a bit of math to translate to percentage over/undervaluation, for example, exp(0.42) = 1.52, or 52% overvaluation.
The chart is based on data through the end of 2012. Smithers notes “At that date the S&P 500 was at 1426 and US non-financials were overvalued by 44% according to q and quoted shares, including financials, were overvalued by 52% according to CAPE. With the S&P 500 at 1552 the overvaluation was 57% for non-financials and 65% for quoted shares.”
- Hussman Weekly Market Comment: Pushing Luck
Link to: Pushing LuckThe 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...
- 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: Did Monetary Policy Cause The Recovery?
As investors, we should be aware that the current Shiller P/E of 24.8 (S&P 500 divided by the 10-year average of inflation adjusted earnings) is now above every historical instance prior to the bubble period since the late-1990's, save for the...
- Hussman Weekly Market Comment: The Lesson Of The Coming Decade
We continue to observe conditions that fall within the most negative 5% of historical instances, and these conditions (not any inherent preference toward bearishness) are the reason we hold to a defensive outlook here. The concept of a “broken speculative...
- Hussman Weekly Market Comment: Too Little To "lock In"
We've regularly observed that corporate profit margins (and economy-wide, profits as a share of GDP) have a strong tendency to "mean revert" over time - specifically, elevated profit margins are associated with unusually weak earnings growth over...