Search Results
Results 251–300
of 373 found.
A Better Lesson than "This Time is Different"
by John Hussman of Hussman Funds,
The near-term outcome of speculative, overvalued markets is conditional on investor preferences toward risk-seeking or risk-aversion, and those preferences can be largely inferred from observable market internals and credit spreads. The difference between an overvalued market that becomes more overvalued, and an overvalued market that crashes, has little to do with the level of valuation and everything to do with investor risk preferences. Yet long-term investment outcomes remain chiefly defined by those valuations.
The Line Between Rational Speculation and Market Collapse
by John Hussman of Hussman Funds,
Current equity valuations provide no margin of safety for long-term investors. One might as well be investing on a dare. If we observe an improvement in market internals and credit spreads, it would not make valuations any less obscene, but it would significantly ease our immediate concerns about market losses. A safety net would be required in any event, but there is a range of possible outlooks between hard-negative and constructive with a safety net.
Iceberg at the Starboard Bow
by John Hussman of Hussman Funds,
Market history, including the series of bubbles and crashes over the past 15 years, does not teach that valuation is irrelevant, but instead that a key distinction affects whether stability or instability is likely to prevail. When rich valuations are coupled with tame credit spreads and uniform strength across a broad range of market internals and security types, one can infer that investors remain tolerant toward risk. In that environment, risk premiums may be low, but theres no particular pressure for them to normalize, even if the speculation is driven by mindless yield-seeking.
A Sensible Proposal and a New Adjective
by John Hussman of Hussman Funds,
The FOMC is well-served by Richard Fishers proposal to consider terminating the current policy of reinvesting proceeds from Fed balance sheet holdings as those securities mature. That shift would not imply any rush to raise the federal funds rate or otherwise normalize policy rates.
Peaking Process
by John Hussman of Hussman Funds,
In my view, we are likely witnessing the peak of the third equity valuation bubble in the past 14 years, the first two which saw major indices plunge by at least 50%. Its important to recognize that market peaks are a process, not an event. Internal deterioration has actually been developing since early July, and became measurable in early August. This process has been quite like what we observed in 2007, when deterioration became measurable in July of that year. Despite an initial selloff, the major indices recovered to a marginal new high in October 2007 before continuing lower.
Hard-Won Lessons and the Bird in the Hand
by John Hussman of Hussman Funds,
The S&P 500 is more than double its historical valuation norms on reliable measures (with about 90% correlation with actual subsequent 10-year market returns), sentiment is lopsided, and we observe dispersion across market internals, along with widening credit spreads. These and similar considerations present a coherent pattern that has been informative in market cycles across a century of history including the period since 2009. None of those considerations inform us that the U.S. stock market currently presents a desirable opportunity to accept risk.
A Most Important Distinction
by John Hussman of Hussman Funds,
Quantitative easing only works to the extent that default-free, low interest liquidity is viewed as an inferior holding. When investor psychology shifts toward increasing risk aversion which we can reasonably measure through the uniformity or dispersion of market internals, the variation of credit spreads between risky and safe debt, and investor sponsorship as reflected in price-volume behavior default-free, low interest liquidity is no longer considered inferior. Its actually desirable, so creating more of the stuff is not supportive to stock prices.
These Go to Eleven
by John Hussman of Hussman Funds,
We have entered an environment in which extraordinarily thin risk premiums have been joined in recent weeks by a subtle shift toward increasing risk aversion. Present conditions couple every essential component of historically extreme and vulnerable market environments. The market has been dodging boomerangs, not bullets, and they are likely to come back harder for it.
Do the Lessons of History No Longer Apply?
by John Hussman of Hussman Funds,
Without permanent changes in the way the world works, on valuation measures that are best correlated with actual subsequent market returns, stocks are wickedly overvalued here. Meanwhile, the stock market re-established overvalued, overbought, overbullish conditions last week that mirror some of the most precarious points in the historical record such as 1929, 1937, 1974, 1987, 2000 and 2007. Notably, that syndrome is now coupled with continued evidence of a subtle shift toward more risk-averse investor psychology, primarily reflected by internal dispersion and widening credit spreads.
Losing Velocity: QE and the Massive Speculative Carry Trade
by John Hussman of Hussman Funds,
What central banks around the world seem to overlook is that by changing the mix of government liabilities that the public is forced to hold, away from bonds and toward currency and bank reserves, the only material outcome of QE is the distortion of financial markets, turning the global economy into one massive speculative carry trade. The monetary base, interest rates, and velocity are jointly determined, and absent some exogenous shock to velocity or interest rates, creating more base money simply results in that base money being turned over at a slower rate.
Fast, Furious, and Prone to Failure
by John Hussman of Hussman Funds,
Though we remain open to the potential for market internals to improve convincingly enough to at least defer our immediate concerns about market risk, we should also be mindful of the sequence common to the 1929, 1972, 1987, 2000 and 2007 episodes.
On the Tendency of Large Market Losses to Occur in Succession
by John Hussman of Hussman Funds,
We may wish to believe that a 25-30% market plunge has zero probability since we know that the probability of a one-day loss of several percent is quite low, making a whole series of them seemingly impossible. But that view overlooks the tendency of large losses to occur in succession. It also overlooks the tendency for monetary easing to support stocks only when low- or zero-interest risk-free assets are considered inferior holdings in comparison to risky ones.
Air-Pockets, Free-Falls, and Crashes
by John Hussman of Hussman Funds,
Once overvalued, overbought, overbullish extremes are joined by deterioration in market internals and trend-uniformity, one finds a narrow set comprising less than 5% of history that contains little but abrupt air-pockets, free-falls, and crashes.
Dancing Without a Floor
by John Hussman of Hussman Funds,
As I did in 2000 and 2007, I feel obligated to state an expectation that only seems like a bizarre assertion because the financial memory is just as short as the popular understanding of valuation is superficial: I view the stock market as likely to lose more than half of its value from its recent high to its ultimate low in this market cycle. In my view, speculators are dancing without a floor.
The Ingredients of a Market Crash
by John Hussman of Hussman Funds,
Market peaks often go through several months of top formation, so the near-term remains uncertain. Still, it has become urgent for investors to carefully examine all risk exposures. When extreme valuations on historically reliable measures, lopsided bullishness, and compressed risk premiums are joined by deteriorating market internals, widening credit spreads, and a breakdown in trend uniformity, its advisable to make certain that the long position you have is the long position you want over the remainder of the market cycle.
The Ponzi Economy
by John Hussman of Hussman Funds,
When the most persistent, most aggressive, and most sizeable actions of policymakers are those that discourage saving, promote debt-financed consumption, and encourage the diversion of scarce savings to yield-seeking speculation rather than productive investment, the backbone that supports a rising standard of living is broken.
Broken Links: Fed Policy and the Growing Gap Betweeen Wall Street and Main Street
by John Hussman of Hussman Funds,
The issue is not whether the U.S. economy does or does not need life support. The issue is that QE is not life support in the first place. How can policy makers help to build the economy from the middle-out, and slow the both the unproductive diversion and the lopsided distribution of resources in our economic system? We should begin by stopping the harm.
Low and Expanding Risk Premiums are the Root of Abrupt Market Losses
by John Hussman of Hussman Funds,
Compressed risk premiums normalize in spikes. Day-to-day news stories are merely opportunities for depressed risk premiums to shift up toward more normal levels, but the normalization itself is inevitable, and the spike in risk premiums (decline in prices) need not be proportional or justifiable by the news at all.
Quotes on a Screen and Blotches of Ink
by John Hussman of Hussman Funds,
The ratio of market capitalization to GDP, which Warren Buffett (correctly) observed in a 2001 Fortune interview is "probably the single best measure of where valuations stand at any given moment" is now about 150% (not just 50%) above its pre-bubble norm, and beyond every point in history except for the final quarter of 1999 and the first two quarters of 2000. Much of what investors view as "wealth" here is little but transitory quotes on a screen and blotches of ink on pieces of paper that have todays date on them. Investors seem to have forgotten how that works.
The Delusion of Perpetual Motion
by John Hussman of Hussman Funds,
The Federal Reserves promise to hold safe interest rates at zero for a very long period of time has not created a perpetual motion machine for stocks. No it has simply created an environment where investors have felt forced to speculate, to the point where stocks are now also priced to deliver zero total returns for a very long period of time. Put simply, we are already here. Investment decisions driven primarily by the question What other choice do I have? are likely to prove regrettable.
This Time is Different, Yet with the Same Ending
by John Hussman of Hussman Funds,
The Federal Reserves policy of quantitative easing has produced a historically prolonged period of speculative yield-seeking by investors starved for safe return. The problem with simply concluding that quantitative easing can do this forever is that even speculative assets have to compete with zero. When a safe zero return is above the medium or long-term return that one can estimate for a very risky asset, the rationale for continuing to hold the risky asset becomes purely dependent on expectations of immediate short-term price gains.
Formula for Market Extremes
by John Hussman of Hussman Funds,
Market extremes generally share a common formula. One part reality is blended with one part misguided perception (typically extrapolating recent trends as if they are driven by some reliable and permanent mechanism), and often one part pure delusion (typically in the form of a colorful hallucination with elves, gnomes and dancing mushrooms all singing in harmony that reliable valuation measures no longer matter).
Market Peaks are a Process
by John Hussman of Hussman Funds,
Market peaks are a process, not an event or an instant. Investors should be thinking very seriously about the extent of potential market losses over the completion of the present market cycle. It is the wrong question to ask where else am I going to put my money with short-term interest rates near zero? The problem with that question is that it carries the implicit assumption that the expected return on stocks is even positive or adequate given the prospective risks.
Cahm Viss Me Eef You Vahn to Live
by John Hussman of Hussman Funds,
Taking the broad stock market as a whole, and considering all stocks ? not simply the largest of the large caps ? investors are now making the broadest and most leveraged bet on overvalued equities in U.S. history. Conditions somehow do not feel so dangerous because profit margins are cyclically extreme, but I suspect that this only means that investors will be surprised by the depth of the markets losses, as they were in 2000-2002 and 2007-2009. The lessons on this really are freely available all the way back to the South Sea Bubble.
The Future is Now
by John Hussman of Hussman Funds,
The Federal Reserve has stomped on the gas pedal for years, inadvertently taking price/earnings ratios at face value, while attending to ?equity risk premium? models that have a demonstrably poor relationship with subsequent market returns. As a result, the Fed has produced what is now the most generalized equity valuation bubble that investors are likely to observe in their lifetimes.
The Federal Reserve's Two-Legged Stool
by John Hussman of Hussman Funds,
In viewing the Fed?s mandate as a tradeoff only between inflation and unemployment, Chair Yellen seems to overlook the feature of economic dynamics that has been most punishing for the U.S. economy over the past decade. That feature is repeated malinvestment, yield-seeking speculation, and ultimately financial instability, largely enabled by the Federal Reserve?s own actions.
Margins, Multiples, and the Iron Law of Valuation
by John Hussman of Hussman Funds,
The Iron Law of Valuation is that every security is a claim on an expected stream of future cash flows, and given that expected stream of future cash flows, the current price of the security moves opposite to the expected future return on that security. A corollary to the Iron Law of Valuation is that one can only reliably use a ?price/X? multiple to value stocks if ?X? is a sufficient statistic for the very long-term stream of cash flows that stocks are likely to deliver into the hands of investors for decades to come.
The Other Side of the Mountain
by John Hussman of Hussman Funds,
Having witnessed the glorious advancing portion of the uncompleted market cycle since 2009, investors might, perhaps, want to consider how this cycle might end. After long diagonal advances to overvalued speculative peaks, the other side of the mountain is typically not a permanently high plateau.
Shifting Policy at the Fed: Good for Long-Term Growth, Bad for Cyclical Bubbles
by John Hussman of Hussman Funds,
The Fed is wisely and palpably moving away from the idea that more QE is automatically better for the economy, and has started to correctly question the effectiveness of QE, as well as its potential to worsen economic risks rather than remove them.
Fed-Induced Speculation Does Not Create Wealth
by John Hussman of Hussman Funds,
Fed-induced speculation does not create wealth. It only changes the profile of returns over time. It redistributes wealth away from investors who are enticed to buy at rich valuations and hold the bag, and redistributes wealth toward the handful of investors both fortunate and wise enough to sell at rich valuations and wait for better opportunities.
Restoring the "Virtuous Cycle" of Economic Growth
by John Hussman of Hussman Funds,
The so-called ?dual mandate? of the Federal Reserve does not ask the Fed to manage short-run or even cyclical fluctuations in the economy. Instead ? whether one believes that the goals of that mandate are achievable or not ? it asks the Fed to ?maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.?
Do Foreign Profits Explain Elevated Profit Margins? No.
by John Hussman of Hussman Funds,
Foreign profits as a share of GNP have been contracting since 2007, are only about two-tenths of a percent above the 2009 low, and therefore do not have any material role in the surge in overall profit margins we?ve observed in recent years. The surge can be fully explained by mirror image deficits in household and government saving - a relationship that can be demonstrated across decades of historical evidence.
Topping Patterns and the Proper Cause for Optimism
by John Hussman of Hussman Funds,
We would dismiss classic topping patterns we observe here if the recent market peak did not feature the "full catastrophe" of textbook speculative features, particularly the same syndrome of extreme overvalued, overbought, overbullish, rising yield conditions observed (prior to the past year) only at major market peaks in 2007, 2000, 1987, 1972, and 1929. Meanwhile, we remain encouraged. Those who follow a historically informed, value-conscious, and risk-managed investment discipline should be among the most optimistic investors in the financial markets.
Double Trouble
by John Hussman of Hussman Funds,
On the basis of a broad range of valuation measures that are tightly (nearly 90%) correlated with actual subsequent S&P 500 total returns over the following decade, we estimate that stock prices are about double the level that would generate historically adequate long-term returns.
Increasing Concerns and Systemic Instability
by John Hussman of Hussman Funds,
The potential collapse of a now-complete log-periodic bubble is best considered something of a physics experiment, and its not what drives our investment stance. Still, the backdrop of steep overvaluation, extreme bullish sentiment, record margin debt, and international dislocations could hardly provide a more fitting context for a disruptive completion to the present market cycle.
Hovering With an Anvil
by John Hussman of Hussman Funds,
In my view, the stock market is hovering in what has a good chance of being seen in hindsight as the complacent lull before a period of steep losses. Meanwhile, we would require a certain amount of deterioration in stock prices, credit spreads, and employment growth to amplify our economic concerns, but even here we can say that there is little evidence of economic acceleration. Broad economic activity continues to hover at levels that have historically delineated the border of expansions and recessions.
Results 251–300
of 373 found.
