In a rare interview with Morningstar John Hussman recently elaborated on his recession call and details why he is turning even more cautious than the has been. Hussman says the March 2009 lows are likely to be broken and that stocks are grossly overvalued right now:


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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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  • BK

    Cheers TPC
    Out of all the U.S. strategists I try to follow, I reckon he is one of the best that you have. He seems to have a pretty good handle on both the macro and the micro.

  • http://www.pragcap.com TPC

    Agreed. Hussman is one of the best.

  • Hedgebot

    One of the things that makes Hussman so valuable a thinker is that he examines problems through the lenses of several different disciplines. He has mastered the tools of academic economics rather than being mastered by them.

  • Rob

    Hussmann didn’t exactly say that stocks are “grossly” overvalued right now. He said that they are priced to deliver a 7% annualized return (probably 3.5% to 4% real). That is much lower than the historical average but still the near the best valuation in the past 15 years (excluding October 2008 to July 2009).

    That is certainly not worth the risking a “normal” allocation to equities, however, which asset class is currently priced for better 10-year returns?

    Gold, bonds, real estate, commodities, cash?

    Cash will earn a negative return unless we have deflation. Otherwise it is a strategic asset. There is buy more other assets if and when they fall relative to cash.

    Gold, bonds, and comodities all have been bid up to levels that one can likely expect a zero to negative return. Bonds holders hoping for deflation, buyers of commodities hoping for inflation. Buyers of gold seemingly hoping for the end of the world.

    One should remain flexible and not put all ones eggs in one basket.

  • http://www.pragcap.com TPC

    True. He said:

    “The market’s expectations by Wall Street analysts, for instance, implicitly imply profit margins that are among the highest levels in history”

    Combined with below average growth I think it’s safe to say that Hussman isn’t having an easy time finding value here….Sorry for the misrepresentation.

  • John Kinnucan

    Hussmman is bearish? Wow, what an original thought, with the S&P getting crushed lately… He and my teenage daughters’ friends are the only bears I know of right now! What does Hussman and these teenagers know that the rest of us are missing?

  • TraderDan

    Rob, Gold buyers are not hoping for the end of the world. They only see that many of the governments of the world seem hell bent on getting us there with their policies. So the gold buyers are trying to provide some wealth protection against certain debasement and potential collapse of the fiat currencies. Most everyone sees the value in buying fire insurance on their home which they hope to never actually need. So does it not make sense to also own some gold, say 5% of your net worth, as some insurance that you hope to never need?

  • In Banking

    I’ve toiled over this myself actually. Currently, I do see us in a short term deflationary trend so I have some cash on hand. However, my biggest allocation is in short term lending funds, followed by bond funds. Unfortunately, a minute allocation in a hybrid fund (stock, bonds and “other”) has offset the gains from my bond funds. That tells me volumes…