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Results 301–350
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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.
Estimating the Risk of a Market Crash
by John Hussman of Hussman Funds,
A defensive outlook here does not presume, require, or rely on a market crash. Our ongoing discipline is to align our investment outlook with the market return/risk profile that we estimate on the basis of a broad ensemble of evidence that we can test historically and validate in out-of-sample data. That outlook will shift as that evidence shifts, period.
Does the CAPE Still Work?
by William Hester of Hussman Funds,
We feel no particular obligation defend the CAPE ratio. It has a strong long-term relationship to subsequent 10-year market returns. And its only one of numerous valuation indicators that we use in our work - many which are considerably more reliable.
The Coming Retreat in Corporate Earnings
by John Hussman of Hussman Funds,
The problem is not simply that earnings are likely to retreat deeply over the next few years. Rather, the problem is that investors have embedded the assumption of permanently elevated profit margins into stock prices, leaving the market about 80-100% above levels that would provide investors with historically adequate long-term returns. An equivalent way to say this is that stocks are currently at levels that we estimate will provide roughly zero nominal total returns over the next 7-10 years, with historically adequate long-term returns thereafter.
The Truth Does Not Change According To Our Ability To Stomach It
by John Hussman of Hussman Funds,
The stock market is presently at valuations where not only cyclical but secular bear markets have started. A secular bear period comprises a series of cyclical bull-bear periods where valuations gradually work their way lower at each successive cyclical trough. The past 13 years of paltry overall total returns for the S&P 500 have unfortunately corrected very little of the excess in 2000, largely thanks to yet another round of Fed-enabled speculation. We should have learned how these episodes end.
The Elephant in the Room
by John Hussman of Hussman Funds,
Investors will do themselves terrible harm if they ignore the objective warnings of history based on our subjective experience in this unfinished half-cycle. That subjective experience is far more closely related to my 2009 stress-testing decision than many investors recognize.
An Open Letter to the FOMC: Recognizing the Valuation Bubble in Equities
by John Hussman of Hussman Funds,
The Fed has done enough, and perhaps dangerously more than enough. The prospect of dismal investment returns in equities is an outcome that is largely baked-in-the-cake. The only question is how much worse the outcomes will be as a result of Fed policy that has few economic mechanisms other than to encourage speculative behavior.
Chumps, Champs, and Bamboo
by John Hussman of Hussman Funds,
At bull market peaks, it often seems that the market is simply headed higher with no end in sight, and buy-and-hold appears superior to every alternative. Meanwhile, the reputation of value-conscious investors and risk-managers goes from champ to chump. Then, the bamboo tree suddenly sprouts, and the entire lag is often replaced by outperformance in less than a year. Only after the fact does the reputation of risk-managed strategies surge from chump to champ.
A Textbook Pre-Crash Bubble
by John Hussman of Hussman Funds,
Despite the unusually extended period of speculation as a result of faith in quantitative easing, I continue to believe that normal historical regularities will exert themselves with a vengeance over the completion of this market cycle. Importantly, the market has now re-established the most hostile overvalued, overbought, overbullish syndrome we identify.
Leash the Dogma
by John Hussman of Hussman Funds,
Its fascinating to hear central bankers talk about the economy, because in the span of a few seconds they can say so many things that simply arent supported by the evidence. For anyone planning to watch the confirmation hearings for the next Fed Chair, the evidence below is provided as something of a leash to restrain the attacking dogma.
The Grand Superstition
by John Hussman of Hussman Funds,
One thing that separates humans from animals is the ability to evaluate whether there is really any actual mechanistic link between cause and effect. When we stop looking for those links, and believe that one thing causes another because it just does we give up the benefits of human intelligence and exchange them for the reflexive impulses of lemmings, sheep, and pigeons.
Did Monetary Policy Cause the Recovery?
by John Hussman of Hussman Funds,
Much of the present faith in monetary policy derives from the belief that it was the central factor in ending the banking crisis during what is often called the Great Recession. On careful analysis, however, the clearest and most immediate event that ended the banking crisis was not monetary policy, but the abandonment of mark-to-market accounting by the Financial Accounting Standards Board on March 16, 2009, in response to Congressional pressure by the House Committee on Financial Services on March 12, 2009.
When Economic Data is Worse Than Useless
by John Hussman of Hussman Funds,
Investors and analysts fall over themselves daily to analyze and interpret the latest data from regional Fed surveys (e.g. Philly Fed, Empire Manufacturing), purchasing managers indices (e.g. national manufacturing, national services, regional PMIs), and other economic measures (e.g. new unemployment claims, average weekly hours). The problem is that virtually all of these measures have become not only uncorrelated with subsequent economic outcomes, but negatively correlated with subsequent outcomes.
Sitting Ducks
by John Hussman of Hussman Funds,
Stocks are a claim on a very long-term stream of future cash flows that will be distributed to shareholders over time, and P/E ratios are simply a shorthand. P/E ratios are useful only to the extent that the earnings measure being used is reasonably representative and informative about the long-term stream of cash flows what might be called a sufficient statistic.
Psychological Ether
by John Hussman of Hussman Funds,
In my view, the problem with quantitative easing is that its entire effect relies on provoking risk-taking by those who would otherwise choose not to do so; that the FOMC has extended and amplified financial market distortions without regard to the rich valuations and dismal prospective returns that financial assets are most likely priced to achieve; and that this distortion of financial asset prices has precious little to do with the presumptive goal of Fed policy, which is greater job creation and economic activity.
Baby Steps
by John Hussman of Hussman Funds,
Our view is that the Federal Reserve will taper its program of quantitative easing this week, in the range of a $10-15 billion reduction in the pace of monthly debt purchases. The Fed really has no communication problem about this the economic impact of further quantitative easing has had diminishing returns, and the economic drag from fiscal reductions has thus far been smaller than the Fed feared when it justified QEternity on the basis of those concerns last year.
The Lesson of the Coming Decade
by John Hussman of Hussman Funds,
Even if the S&P 500 Index goes nowhere over the coming decade - as historically reliable measures of valuation suggest - it will probably go nowhere in an interesting and volatile way, providing better value and opportunities that are well-supported by historical evidence. The challenge will be to maintain discipline even when frustration begs investors to abandon it.
The Outlook Will Shift as Conditions Shift
by John Hussman of Hussman Funds,
Though I expect that the present cycle will be completed by a market loss on the order of 40-55%, conditions can certainly emerge over the course of this cycle that could warrant a more constructive stance than we have presently, though possibly less extended than wed like. The most likely constructive opportunity would emerge from a moderate retreat in market valuations, ideally to oversold conditions from an intermediate-term perspective, coupled with an early firming in measures of market internals.
Extreme Brevity of the Financial Memory
by John Hussman of Hussman Funds,
The period of generally rich valuations since the late-1990s (associated with overall market returns hardly better than Treasury bill returns since then) has created a tolerance for valuations that, in fact, have led to awful declines, and have required fresh recoveries to elevated valuations simply to provide meager peak-to-peak returns.
The Minsky Bubble
by John Hussman of Hussman Funds,
In his classic treatise on speculation, Manias, Panics and Crashes (originally published in 1978), the late Charles Kindleberger laid out a pattern of events that has periodically occurred in financial markets throughout history. Drawing on the work of economist Hyman Minsky, the conditions he described are likely far more relevant at the present moment than investors may recognize.
Baked in the Cake
by John Hussman of Hussman Funds,
Once the risk premium is beaten out of stocks, there is no way out, and nothing that can be done about it. Poor subsequent returns, market losses, and the associated destruction of financial security (at least for the bag-holders) are already baked in the cake. This should have been the lesson gleaned from the period since 2000, but because it remains unlearned, it will also become the lesson of the coming decade.
All of the Above
by John Hussman of Hussman Funds,
Market internals remain broken here. That may change, and it might even change soon. Until it does, we would be inclined to tread carefully, because this may be the highest level investors will see on the S&P 500 for quite some time. Choosing between potential catalysts - credit strains in China, the risk of disappointing earnings, or economic weakness, the incoming data is consistent with one conclusion: all of the above.
Market Internals Suggest a Shift to Risk-Aversion
by John Hussman of Hussman Funds,
Our primary attention here is on market internals. If they improve, I expect that well adopt at least a moderately constructive view. Presently, however, my impression is that investors have shifted from risk-seeking to risk-aversion. This shift is not because of a hawkish Fed, but in spite of a dovish one - something more appears to be going on. Its tempting to wait until a stronger and more specific catalyst emerges, but the financial markets have demonstrated repeatedly over time that market losses come first, and the catalyst becomes evident afterward.
The Price of Distortion
by John Hussman of Hussman Funds,
Corporate profits have benefited in recent years from enormous fiscal distortions that have bloated margins 70% above their historical norms. Stock prices have benefited in recent years from enormous monetary distortions that have suppressed interest rates and encouraged investors to reach for yield. Combining those effects, investors have been encouraged to chase stocks, placing elevated price/earnings multiples on already elevated earnings. Investors who value stocks on the basis of these distortions are likely to discover in hindsight that they have paid a very dear price.
2009 vs. 2013
by John Hussman of Hussman Funds,
One of the most strongly held beliefs of investors here is the notion that it is inappropriate to Fight the Fed reflecting the view that Federal Reserve easing is sufficient to keep stocks not only elevated, but rising. Whats baffling about this is that the last two 50% market declines both the 2001-2002 plunge and the 2008-2009 plunge occurred in environments of aggressive, persistent Federal Reserve easing.
Following the Fed to 50% Flops
by John Hussman of Hussman Funds,
One of the most strongly held beliefs of investors here is the notion that it is inappropriate to Fight the Fed reflecting the view that Federal Reserve easing is sufficient to keep stocks not only elevated, but rising. Whats baffling about this is that the last two 50% market declines both the 2001-2002 plunge and the 2008-2009 plunge occurred in environments of aggressive, persistent Federal Reserve easing.
Rock, Paper, Scissors
by John Hussman of Hussman Funds,
Theres a sort of rock-paper-scissors relationship to financial indicators. Trend following factors typically trump valuations alone, while overvalued, overbought, overbullish syndromes trump trend-following and monetary considerations. Monetary factors tend to be most effective as confirmation of other measures, particularly of trend-following factors, but only in the absence of overvalued, overbought, overbullish syndromes.
Aligning Market Exposure With the Expected Return/Risk Profile
by John Hussman of Hussman Funds,
Some risks and market conditions are more rewarding than others. My objectives for this weeks comment are very specific. First, to demonstrate using a very simple model that investment returns do indeed vary systematically with market conditions. Second, to demonstrate that overvalued, overbought, overbullish conditions have historically dominated trend-following measures when they have emerged. Third, to demonstrate the impact of accepting investment exposure in proportion to the return/risk profile that is associated with a given set of market conditions.
When Rich Valuations Meet Poor Economic Data
by John Hussman of Hussman Funds,
Given the full set of market conditions that we observe, including the persistent overvalued, overbought, overbullish syndrome that has developed in recent months, our concerns about stocks are not dependent on the direction of the economy over the coming quarters. An economic downturn would simply add immediacy to those concerns.
Increasingly Immediate Impulses to Buy the Dip (or, How to Blow a Bubble)
by John Hussman of Hussman Funds,
A tendency toward increasingly immediate attempts by investors to buy every dip in the market reflects a broadening consensus among investors that there is no direction other than up, and that any correction, however, small, is a buying opportunity. As investors clamor to buy ever smaller dips at increasing frequency, the slope of the markets advance becomes diagonal or parabolic. This is one of the warning signs of a bubble.
Results 301–350
of 522 found.
