John Hussman

Weekend Reading: Time To Be A Contrarian?

Currently, there is little argument the “bullish trend” remains intact. As such the mainstream analysis, if you can actually call it that, continues to the tout the inherent benefits of low cost, passive indexing and the ultimate “chase for yield.” However, it is here the real danger lies. Much of the monetary flows into passive indexes is actually NOT PASSIVE. When the eventual reversion comes, and it will, the pain inflicted on individuals, as is always the case, will turn “passive indexers” in “panicked sellers.”

10-Trillion-Dollar Bye-Bye - The Calm Before The Storm

"We don’t expect the current situation to end well for investors who insist on taking larger investment exposures than they’re actually willing to hold, with discipline, through a period of severe market losses. From present valuation extremes, a 40-55% market loss would represent a fairly run-of-the-mill resolution to the current market cycle... By the completion of the current cycle, I expect over $10 trillion of what investors count as paper “wealth” in U.S. equities to disappear without a trace."

Weekend Reading: Market Breaks Support, Time To Worry?

“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.”

Greatest. Fools. Ever!

“In the ruin of all collapsed booms is to be found the work of men who bought property at prices they knew perfectly well were fictitious, but who were willing to pay such prices simply because they knew that some still greater fool could be depended on to take the property off their hands and leave them with a profit.- Chicago Tribune, April 1890. Nothing... ever... changes.

Weekend Reading: Back Where We Started

"Acknowledge the complexity of the world and resist the impression that you easily understand it. It’s a basic fact of life that many things ‘everybody knows’ turn out to be wrong."

The Economy, The Stock Market, & The Fed

Currently no-one expects the Fed to hike today and it probably won’t. It is definitely possible though that the FOMC statement will contain a strong hint regarding a likely rate hike in November or December, since the Fed for some reason no longer wants to surprise markets. Such an announcement could well have the same effect on the markets as an actual hike though.

Weekend Reading: A Market In Stasis

The market hangs in a virtual stasis. Over the past couple of months, we have continued to drift from one economic report, or Central Bank meeting, to the next. The bulls and the bears have met at the crossroad.

Fed Vice-Chairman Admits Fed Sponsors Wealth Inequality

Federal Reserve Vice-Chairman Stanley Fischer made a couple of controversial statements this week regarding negative interest rates. Fisher stated negative rates “seem to work” while admitting they are bad for savers but they “typically they go along with quite decent equity prices.” There are two problems in play. The first is an explicit admission that the Fed sponsors wealth inequality. The second problem is Fisher does not understand how markets even work.

Weekend Reading: The Coin Flip Market

The problem for individual investors is the “trap” currently being laid between the appearance of strong market dynamics against the backdrop of weak economic and market fundamentals. There will be a collision between the fantasy of asset prices and the reality of the underlying fundamentals. This will particularly be the case if the much anticipated rebound of economic growth and earnings fails to materialize.

Bulls, Bears & The Broken Clock Syndrome

“Put simply, most apparent “opportunities” to obtain investment returns above zero in conventional assets over the coming decade are based on a misunderstanding of valuations, total returns, and historical yield relationships. At current valuations, virtually everything is priced for a decade of zero. The unwinding of these speculative extremes is likely to be chaotic, and will likely occur over a shorter horizon than investors imagine."

Weekend Reading: Willful Blindness

The problem for individual investors is the “trap” that is currently being laid between the appearance of strong market dynamics against the backdrop of weak economic and market fundamentals. Ignoring the last two to chase the former has historically not worked out well.

"It's Only Like This, Until It's Like That"

It is not surprising that after one of the longest cyclical bull markets in history that individuals are ebullient about the long-term prospects of investing. The ongoing interventions by global Cental Banks have led to T.I.N.A. (There Is No Alternative) which has become a pervasive, and “Pavlovian,” investor mindset. But therein lies the real story...