Hussman: We Are at the Mouth of a Vortex
Here’s an interesting historical look into past instances that resemble the current market environment. Unfortunately, I can’t say that I put a lot of weight into such a small data set, but it’s interesting nonetheless:
“There are few times in history when the S&P 500 has been within 1% or less of its upper Bollinger band (two standard deviations above the 20-period moving average) on daily, weekly and monthly resolutions; coupled with a Shiller P/E in excess of 18 – the present multiple is actually 22.3; coupled with advisory bullishness above 47% and bearishness below 27% – the actual figures are 51% and 24.5% respectively; with the S&P 500 at a 4-year high and more than 8% above its 52-week moving average; and coupled, for good measure, with decelerating market internals, so that the advance-decline line at least deteriorated relative to its 13-week moving average compared with 6-months prior, or actually broke that average during the preceding month. This set of conditions is observationally equivalent to a variety of other extreme syndromes of overvalued, overbought, overbullish conditions that we’ve reported over time. Once that syndrome becomes extreme – as it has here – and you get any sort of meaningful “divergence” (rising interest rates, deteriorating internals, etc), the result is a virtual Who’s Who of awful times to invest.
Consider the chronicle of these instances in recent decades: August and December 1972, shortly before a bull market peak that would see the S&P 500 lose half of its value over the next two years; August 1987, just before the market lost a third of its value over the next 20 weeks; April and July 1998, which would see the market lose 20% within a few months; a minor instance in July 1999 which would see the market lose just over 10% over the next 12 weeks, and following a recovery, another instance in March 2000 that would be followed by a collapse of more than 50% into 2002; April and July 2007, which would be followed by a collapse of more than 50% in the S&P 500, and today.
The prior instances were sometimes followed by immediate market losses, and were sometimes characterized by extended top formations – which produce a sort of complacency as investors say “see, the market may be elevated and investors may be over-bullish, but the market is so resilient that it’s ignoring all that, so there’s no reason to worry.” Ultimately, however, the subsequent plunges wiped out far more return than investors achieved by remaining invested once conditions became so extreme. We are in familiar territory, but that territory generally marks the mouth of a vortex.”
Source: Hussman Funds
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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I am pretty tired of Hussman. I used to be a defender of his, but his fund has been such an awful performer that it’s hard to defend this permabear position any longer.
I’m disagreeing. Hussman is an excellent analyst and one of his funds vastly outperformed S&P 500 since 2001. The problem with Hussmann is that never before the central banks of this world were so hell bent on preserving the assets values. It’s a question of life or death for the current debt based money system: quite simply it cannot deleverage and infact is not. Will the effort of the CB succeed ? Frankly I’m pretty sure that in medium to long term they will loose control but at the same time because of the extreme disorder that will follow, I don’t know what to hope for the future of the young people.
You mean Hussman couldn’t anticipate what effect Fed’s actions can have?
The BOJ has been doing this for 20+ years since the bubble burst. Its market has had some big multiyear upswings, but the 20 year trend has been down down down. That is the problem with central bank actions. They can’t change the long term trend, but they can sure stretch it in time by an order of magnitude or more.
BOJ has been advised by Bernanke for years. They’ve dragged a market correction that would have lasted 3 or 4 years to over 2 decades just to protect zombie banks.
Don’t read him then!
He’s not a permabear, he just looks back through history, and has made some excellent calls. No one is ever 100% right, but his funds do very well in a complete cycle.
Just watch the next 12 months, then come back and humbly admit you were totally wrong to criticise him at all.
That’s a normal human reaction and it’s an inappropriate one.
Let’s say that you saw a guy playing Russian roulette. You know there’s a bullet in one of the six chambers. You don’t like his odds. You try to warn him. He stick the gun in his mouth and pulls the trigger. Click. He doesn’t die. He does it again. You warn him again. You really don’t like his odds now and tell him so, but he pulls the trigger again and doesn’t die.
If you still don’t like his odds and would try to warn him AGAIN, does that make you a “permabear” when it comes to his prospects or simply persistent?
Agreed SS. Permabears are getting quite long in the tooth. I think his fund has underperformed because he tries to time the market. Clearly, that hasn’t worked out too well. I still enjoy reading his analysis though. And actually agree with him on a myriad of issues at the core. I just disagree with the timing aspect of it all. Hussman and Roubini just need to quit while they are behind.
“I think his fund has underperformed because he tries to time the market. ”
He goes to great lengths to say the that he does not time markets.
His problem,if that is the right expression, is that the criteria he uses are of step with a general market heavily manipulated by central bank policy.If and when his criteria come good and they will at some point the he becomes a hero,but who knows when that will be.
He will be vindicated eventually but he tends to make short term predictions too often.
This time it’s different.
Cullen could probably answer better but maybe his recent lack of success is due to not adopting MR. In today’s post he shows the “liquidity preference” curve again, and hints of either rapidly rising interest rates as soon as the economy recovers or depression followed by inflation.
I’m wondering the same thing as jt26. Unfortunately I don’t understand MR well enough to know what to make of John’s data and conclusions. His two graphs are accurate data as far as I know. And there is enough data that is reasonably well behaved that it should be worth something. The issue is what conclusions can be made from that data.
The CB’s are SOL ammo wise and if pols were any more clueless well they can’t be more clueless. I’ve no idea how we get out of this.
Analysis is worthless unless it translates into actionable information that eventually leads to acceptable performance. The Strategic Growth Fund is a disaster and the International fund is off to a less than stellar start. The Total Return Fund looks to be doing it’s job, however, for a fund that is supposed to be hedged, it took one hell of a drawdown in 09. He has essentially been writing the same stuff since the mid 90′s. It is just intellectual masturbation. The man and those like him that dig their heels into their biases need to free themselves from the intellectual chains and learn what the hell a primary trend looks like.
Strategic Growth has outperformed the market since inception with much less drawdown. The fund has been a complete success.
The annualized outperformance has all been in the first two years since inception. The last 10 years have been dreadful in relative performance. I doubt the overwhelming majority of current shareholders are in during the first two years.
So check back with the current shareholders in 10 years.
Another asset gatherer who can write.
How can anyone reliably analyze a market which has ceased to exist as a market? A “government managed” i.e. “government manipulated” market is simply NOT a market. It is something quite different and what logic may have answered in the past no long does today, nor tomorrow when the FED meets to yet again conjure up trillions in fiat money. Sooner, though probably later, this is all going to end badly. How could it NOT?
My wildest conjecture only -
I think we are seeing the epoch of Central Banks power grab in the financial markets. They have pushed all their chips into the reflation effort at all -cost. If in 2-4 years, the world is still mired in stagnation, the CBs will have most of their power curbed or outright stripped. Bernanke and company will either go down as the biggest heroes ever to help avert a worldwide financial disaster or they will be seen as the cause of the world miseries, especially if food and fuel prices continue to spiral higher and higher.
John may be right about this, right now, but he sure as heck has lost a lot of AUM being wrong for quite a long time.
Better to relate to reality rather than one’s theories about how it should be.
Now Everyone Thinks The Market’s Going To Crash
Henry Blodget | May 30, 2010, 10:23 AM | 14,368 | 38
… Seth Klarman at Baupost Group is worried. John Hussman of the Hussman Funds says all sorts of warning lights have lit up across his screen. …
80% Chance Of A Market Crash In The Next Year
John P. Hussman, PhD | Dec. 7, 2009, 6:12 AM | 2,932 | 9
Email. Zip. 80% Chance Of A Market Crash In The Next Year. John P. Hussman, PhD | Dec. … The following is an excerpt from fund manager John Hussman’s weekly letter …
Hussman: The Market Is More Overbought Than Any Time In History
Henry Blodget | Oct. 20, 2009, 6:49 AM | 3,720 | 19
… Hussman: The Market Is More Overbought Than Any Time In History. Henry Blodget | Oct. … You have successfully emailed the post. John Hussman rains on the parade: …
Hussman On Stocks: “Abrupt Downside Risk”
Henry Blodget | May 28, 2009, 7:05 AM | 4,788 | 10
Enter you email address and zip code to set up customized email alerts. Email. Zip. Hussman On Stocks: “Abrupt Downside Risk”. Henry …
John Hussman: Volume Warns Of A Sharp Pullback
Vincent Fernando | Oct. 12, 2009, 4:23 PM | 1,889 | 9
Enter you email address and zip code to set up customized email alerts. Email. Zip. John Hussman: Volume Warns Of A Sharp Pullback. Vincent Fernando | Oct. …
A Great New Bull Market? Why?
Henry Blodget | May 14, 2009, 11:53 AM | 4,554 | 19
… In the meantime, here’s fund manager John Hussman, who comes to the same conclusion that we have: … Read John Hussman’s whole column here >. …
Enjoying The Suckers’ Rally?
Henry Blodget | Apr. 15, 2009, 1:41 PM | 13,297 | 44
… Fund manager John Hussman lays out a persuasive bear case in this week’s letter. Here’s an excerpt: … Read John Hussman’s full note here >. …
Deseret News, The (Salt Lake City, UT) – June 12, 1994
NEWSLETTER SAYS STOCKS ARE A BEAR
Hussman Econometrics (34119 W. Twelve Mile Road, Farmington Hills, Mich. 48331), which The Hulbert Financial Digest has called “the most promising newcomer among investment newsletters” after its first three-year performance doubled the market’s return, has turned bearish on stocks. “The market is beginning to display the classic traits generally associated with bull-market tops. The time to buy stocks is in the middle of a recession, not when an expansion…
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A Coupla Bears Tell Why They’re Still Growling
Pay-Per-View – Los Angeles Times – ProQuest Archiver – Mar 3, 1995
It’s not the end of civilization, Hussman says: “Stocks are just due for a natural, normal, run-of-the-mill bear market.” …
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Analyst unimpressed by Pyxis rival
Pay-Per-View – San Diego Union – Tribune – ProQuest Archiver – Jul 30, 1995
John P. Hussman of the Michigan-based newsletter Hussman Econometrics is not bullish on the stock market now,
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BusinessWeek: May 15, 1995
Adds John P. Hussman, a money manager and investment newsletter writer based in Farmington Hills, Mich.: “There’s a likelihood of slipping into a bear market at any time.”
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S&P’S 500 DIVIDEND YIELD IS 2.66%, LOWEST OF CENTURY
$2.95 – Deseret News – NewsBank – Jun 18, 1995
“The stock market has left itself no room for error,” observes Hussman Econometrics (34119 W. Twelve Mile Road, Farmington Hills, MI 48331). …
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May 5, 1996
STOCKS OFFER LOW-RISK PREMIUM, PAPER SAYS
The latest argument for higher stock prices is that Baby Boomers are saving more and investing it in stocks, notes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, Mich. 48334). “In fact, there’s been no evidence of any significant increase in the U.S. savings rate. The money-flow argument ignores the fact that every buyer’s dollar that enters the market leaves it moments later with a seller. Stocks currently offer the lowest risk-premium in…
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Published on March 26, 1996, The Washington Times{PUBLICATION2}
Market’s total value points to bad times
There have been five times this century when the size of the stock market (total capitalization) relative to the size of the economy (nominal gross domestic product) exceeded 75 percent, as it does today, observes Hussman Econometrics (34119 W. Twelve Mile Road, Farmington Hills, Mich. 48331)
“Each instance coincided with a Standard & Poor’s 500 dividend yield of only 3 percent or less, as is also the case now. Each marked the peak of a major bull market
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Mr. Bear and Mr. Bull
By Mark Hulbert, 02.10.97
Forbes
The bear is John Hussman, editor of Hussman Econometrics, and adjunct professor of economics at the University of Michigan. What sets Hussman apart from the other bears isn’t his focus on the market’s fundamental extreme overvaluation. That’s something he shares with virtually every other bear. What makes Hussman’s bearishness noteworthy is his compelling explanation of the mistakes he made several years ago when he and the others turned prematurely bearish. ;
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Published on July 1, 1997, The Washington Times{PUBLICATION2}
Sky-high prices may warn of stocks’ fall
Historically, when the price-earnings ratio on the Standard & Poor’s 500 has been above 20-to-1, as it has been recently, it has always been because earnings are depressed, observes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, Mich. 48334).
“This is the first time in history that we’ve seen a P/E over 20-to-1 on record earnings. The only two times the P/E exceeded even 19-to-1 on record earnings was in 1964 and 1972. In
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Published on June 3, 1997, The Washington Times{PUBLICATION2}
As dividend yields sink, how far can stocks rise?
“The extremely high returns on stocks over the past 14 years have been the result of a decline from the highest dividend yield in two generations, 6.7 percent in August 1982, to the lowest dividend yield in history, now well below 2 percent,” notes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, Mich. 48334).
“It seems unlikely that the dividend yield can fall much from current levels. So it seems equally unlikely that stocks can rise
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Nov 7, 1997
Stocks have never been this highly valued when earnings were at record levels, notes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, …
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Economist: U.S. might already be in recession
The San Diego Union – Tribune – San Diego, Calif.
Author: DON BAUDER
Date: Oct 30, 1998
He’s John P. Hussman of Sunrise, Fla.-based Hussman Econometric Advisors, and he says the markets are already giving off clear recessionary signals: The interest rate spread between corporate debt and Treasury debt has widened, indicating growing fear of credit risk, while the spread between long- and short-term Treasury instrument interest rates has narrowed considerably, suggesting the market expects a very sharp growth slowdown.
Combine these so-called “forward-looking” indicators with other similar ones, such as the stock market decline, the drop in consumer confidence and the National Association of Purchasing Managers Index suggesting that manufacturing is contracting, and “the signal says, `Hey, we’re expecting very slow growth, probably recession,’” Hussman says
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That is the best response Gordon – It is always worth returning to see how their previous predictions turned out. Hussman is in illustrious company – Roubini, Faber……..
Gordon: Nice summation of Hussman gafes. The man has no credibility whatsoever. Unfortunately, when the market finally turns into a bear market, there will be those who will put Hussman back on his pedestal and claim he was right all along.