John Hussman's Rant: "Someone Is Going To Have To Hold Stocks At These Prices"

Tyler Durden's picture

Excerpted from John Hussman's Weekly Market Comment,

I’m sometimes viewed as an evil quant, sitting in a dimly lit room, stroking a hairless cat ironically named Mr. Whiskers, and hoping for the worst. That’s undoubtedly because of my view that all of the market’s gains since roughly April 2010 are likely to be wiped out in a rather ordinary completion to the present market cycle, coupled with my broader criticisms of Fed-induced speculation and other ill-conceived policies. If you’ve been with us for a while, you know that I take no joy in market plunges, and my adamant concern about severe losses this time around reflects an extreme discomfort with having been right about the other two 50% losses in recent memory (not to mention becoming constructive in-between, though my fiduciary stress-testing inclinations in 2009 clearly did us no good in the face of QE – see Setting the Record Straight for the full narrative). Some also have the impression that our objective is to talk the markets down, in a way that interferes with their bullish outlook.

The reality is this. While we certainly hope to provide evidence and data sufficient for disciplined investors to maintain their confidence in our full-cycle approach, we have no particular desire to convert disciplined buy-and-hold investors or reckless speculators to our views (though I do think “buy-and-hold” investors with horizons shorter than 7-10 years have poorly matched their strategy with their objectives). Meanwhile, given that the majority of my income is directed to charity, I have a rather vested interest in doing good for others over time (undoubtedly, my particular focus on finance and autism research demands unusual patience, long horizons, a deep respect for evidence, and no expectation that progress evolves smoothly).

Yet as much as we focus on the long-term good, equilibrium creates an unfortunate constraint: by encouraging one investor to defend their financial security by selling overvalued stocks, the result is that someone else must end up buying the stock at these same levels. That poor soul, we expect, is likely to be worse off for the trade. That may explain my philosophical aversion to speculating in steeply overvalued markets, and my ethical objection to policies like quantitative easing that encourage it. In order to profitably exit that speculation, someone else must be guaranteed misery.

In a financial market where price signals encourage savings to be allocated toward productive uses, what helps an individual investor often helps the entire economy. But in a severely distorted and speculative market, any effort to help one investor is really quite a zero-sum game that requires someone else to be injured. This is just an unhappy result that years of quantitative easing have now foisted upon us.

Accordingly, I am changing my guidance. For those investors who trust our analysis and discipline, no change of course is encouraged. But for those who find our work to be a constant source of irritation to be regarded with open disdain, I am retracting all of it herewith – for you alone mind you – and I leave you free to buy with both hands to whatever extent you are inclined. Not that I encourage it really – that would be bad Karma – but someone is going to have to hold equities at these prices. It would best be those who are fully aware of our concerns and prefer to reject them. So the more you dislike my work, and particularly if you are nasty about it, I have no objection to you accumulating – perhaps on margin – as much stock from other investors as possible.

* * *

John is, of course, completely right... and here he is presenting his vision of the meanness of reversion:

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max2205's picture

Is he always a good timer

Newsboy's picture

I'll hold stocks at this price.


NoDebt's picture

"Judge me by my looks, do you?  No.  As well you should not.  For my ally is the Fed, and a powerful ally it is indeed."

- Yoda (working the sell-side desk)

NotApplicable's picture

When I hit the line, "finance and autism research," suddenly Wall St. made sense.

BC6's picture

The reuseability of the Dow 15K hats and shirts is timeless.

augustusgloop's picture


"Atlas, I'll hold you." 


James_Cole's picture

Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!

Ramesees's picture

Exactly. No call is ever wrong, just poorly-timed. 

buzzsaw99's picture

"other investors"? there are no "other investors" there is only old yeller.

the not so mighty maximiza's picture

Do not worry the proud republic of Belgium will assist

BrosephStiglitz's picture

Selling their waffle irons, chocolate factories and breweries to BTFD.

Serfs Up's picture

John Hussman is a class act.

Wish there were more like him in the world.

Pool Shark's picture



And unlike the typical Wall Street investment broker/hedge fund manager, he gives huge amounts to charity.

One of the few voices of reason amidst the current onslaught of bloviating sell-side 'analysts.'

huggy_in_london's picture

GS and others donate huge amounts to charity... but that doesn't make them nice guys!!!

Greenskeeper_Carl's picture

They also employ shysters like (until recently) stolpher, and call their smaller 'mom and pop' type investors muppets, and deliberately set them up to be fleeced. Haven't heard anyone accuse hussman of doing that. Also, you won't here such an honest, open prediction from them, only trades you know they are going to be on the other side of. He may be wrong about his predictions, at least in the short term, as stocks could very well shoot up another 10-15%, despite everything that says they are already overvalued, but on a 7-10 years timeline that he mentions, I think he will be proven correct.

carbonmutant's picture

The only buyer is the "greater fool"...

Dr. Engali's picture

Plot oil against the human population growth and you can only come to the conclusion that there will be a reversion to the mean of the human species. 

BadDog's picture

Either that or we hit one hellvu gusher!

Quinvarius's picture

I suspect the mantle of the earth is composed entirely of hydrocarbons.  I am just saying it would not surprise me.

thamnosma's picture

I was waiting for the abiotic oil post.

rtinder's picture

Alright. Oil is not a fossil fuel. Happy now?

Lower Class Elite's picture

Ah, yes, it's unicorn jizz, perpetually burbling up from the magical realms at the Center of the Earth! Never ending! Totally safe, too.

sun tzu's picture

Explain all the hydrocarbon on the moons of saturn and jupiter. There must have been alot of dinosaurs on those planets

cougar_w's picture

Probably not even as good as "the mean". Somewhere just this side of zero is about all I'm comfortable betting on.

Muppet's picture

Hussman is compelling.   The very best advice that hasn't worked for me (since 2006).

kito's picture

poor hussman, seems he wasnt as smart as bass and sprott to actually invest against the doom he has been preaching the past 6 years......

BrosephStiglitz's picture

Of course he's making losing trades.. His analysis assumes that fundamentals still matter.  Even a first year economics undergrad with a marginal notion of what QE is, should understand that when ZIRP/QE happens, fundamentals are useless.

(NB: Fundamentals do still matter, but in this papered over economy people are too busy chasing electronic numbers in a mutual fund.)

CHX's picture

He'll be proven right, eventually. Right thinking, wrong timing. But hey, someone IS gonna hold the bag when SHTF and things fall apart... He at least won't be member of that club. Operation bagholder is well on it's way. To all the paper-pushers, have fun and good luck beating the machines when heading for the exit door when push comes to shove, i.e. hope there is an exit (think currency collapse).

kito's picture

yeah yeah, its always on its way. sometime in the future i bet.

ceilidh_trail's picture

Kito- People with your mentality ended up leaving the table in a body bag at the Beverly Hills Supper Club. Better to be out or out early than be at the back of the mob pushing for the door because you didn't think the messenger was telling the truth. You might miss part of the show, but you'll be alive for the next one.

kito's picture

my mentality? since i have been a fairly regular commenter on here for many years, with my thoughts well established,  what exactly is my mentality?

Spungo's picture

I suggest price controls. Never let the S&P go over a certain price.

NoDecaf's picture

like a Venezuelan supermarket...

scraping_by's picture

Minor quibble: the Great Levitation began in April of 2009. I watched it without being able to jump on, since we small retail investors get raped with fees that take away any gains over 3%.

And the main question then is the main question now: when will they step on the air hose? If you don't belong to the club, you will guess wrong.

Dr. Engali's picture

Is it fees that take away gains over 3% or is it that the retail investor doesn't stay in long enough to get anything over 3%? History has shown that most retail tend to chase returns and that is why they lose.

I Write Code's picture

The nadir was in 2008 and the Fed's QE-ish actions began around 2009, but I totally miss your argument about retail investors.  Bernanke pronounced that everyone should buy stocks and he meant it, I found myself in a situation where I pretty much had to buy some and did so very nervously, and later only wished I'd bought much earlier and more aggressively, and I'm as retail as they come.

gdiamond22's picture

Unfortunately, it is not about being right, it is about making money. Whether its a rigged market with artificial stimulus disrputing the natural cycle of things, it doesn't matter - its still about PnL at the end of the day. Often times the best trades are the ones you fundamentally think are wrong. Not that I disagree with his arguments, on a macro level I most certainly do, but it doesn't mean this 'market' can't rip higher for longer than anticipated.

Quinvarius's picture

The more I learn about how prices are determined in a derivative driven market, the less I feel I can predict anything. 

machineh's picture

Dr. Hussman did this before, during the late Nineties when he was publishing a newsletter.

When the dividend yield dropped below 3.0% in 1995, he declared a market peak. Then came 1996 ... 1997 ... 1998 ... 1999 ... early 2000. He fought Bubble I all the way up, kicking, screaming and shaking his fist at it.

Now the same horrid movie is replaying, and it's deja vu all over again.

Were I in his position, I'd have to kick my own ass.

Nick Jihad's picture

Yes, and everyone who bought in 1997, and in 1998, and 1999 - were they all clever enough to sell before things turned south, or did they end up with losses?

teslaberry's picture

IF the fed is buying its own treasuries using subsidiaries and proxies in other central banks in europe. whose to say it's not outright buying stocks?


i mean, what the fuck does too big too fail mean if it doesn't mean they won't buy their own stocks with your money. ?

I Write Code's picture

They are OBVIOUSLY putting huge money into the equity markets but they may not be "holding stocks" except for short periods and through proxies.

Nick Jihad's picture

The Fed don't need to buy equities. As is well documented, if you make cheap credit available to corporations, they will buy their own stock, valuations be damned.

Midas's picture

I'd bet money the FED is not buying any stock in miners.  Ask me how I know.

I Write Code's picture

He misses a large point which is that all of this QE has diluted the currency and much of the current price of equities is unacknowledged inflation.  Even when QE stops past inflation does not go away so the current prices are largely valid, or at least a lot closer than he admits in this screed.

And it's likely that A LOT MORE printing is going to be required to exit the current environment so you'd better be holding some real or privileged assets when it happens.