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Hussman's Hint Of Advance Warning

Tyler Durden's picture




 

Excerpted from John Hussman's Weekly Market Comment,

Historically-informed investors are being given a hint of advance warning here, in the form of a strenuously overvalued market that now demonstrates a clear breakdown in internals. We observe these breakdowns in the form of surging credit spreads (junk bond yields versus Treasury yields of similar maturity), weakness in small capitalization stocks, and other measures.

These divergences have actually been building for months, but rather quietly. Note, for example, that as the S&P 500 pushed to new highs in recent weeks, cumulative advances less declines among NYSE stocks failed to confirm those highs, while junk bond prices were already deteriorating.

We don’t take any single divergence as serious in itself, but the accumulation of divergences in recent weeks should not be ignored. Notably, the majority of NYSE stocks are now below their respective 200-day moving averages (which again, isn’t serious in itself, but feeds into a larger syndrome of internal breakdowns in a market that remains strenuously overvalued).

After an extended and extreme compression of risk premiums, we’re now observing increasing divergences across a variety of market internals and security types (e.g. breadth, leadership, momentum stocks, small caps, junk bonds).

We’ve come to avoid pointed warnings in this market, because speculative conditions have extended much longer than in other cycles. Indeed, we’ve had a few deteriorations in recent years that reversed fairly quickly as investors shifted back to risk-seeking, particularly after fresh initiatives or assurances about monetary easing (though further initiatives may not be forthcoming in this instance). So we're open to a favorable shift on these measures, and if that was to occur following a somewhat greater retreat in valuations, it could even open up some amount of constructive opportunity. Meanwhile, despite our view of stocks as severely overvalued, our response is to remain defensive without taking a stance that greatly relies on immediate market weakness.

An awareness of divergence and uniformity is the bread-and-butter of signal extraction – inferring true information signals from the sea of random noise. We take the present breakdown of market internals seriously.

Whatever the crowd wishes to do about it, historically-minded investors should think carefully about whether a strenuously overvalued market with deteriorating market internals is a desirable environment for risk taking. For our part, the answer is a resounding “No.”

 

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Sun, 08/03/2014 - 19:52 | 5041960 Deathrips
Deathrips's picture

But John...its not a free market and the stocks are fractionalized?

 

Wheres the written contract? Its not in the DTCC?

 

Who is Cede and Co?

 

RIPS

Sun, 08/03/2014 - 20:19 | 5042071 Bluntly Put
Bluntly Put's picture

I actually got an article from wiki on Cede and Co, couldn't believe it.

 

http://www.scribd.com/doc/27585661/How-Corp-America-Ceded-Shareholders-t...

 

.

Sun, 08/03/2014 - 19:53 | 5041962 thamnosma
thamnosma's picture

This man is definitely worth listening to.

Sun, 08/03/2014 - 19:52 | 5041963 DoChenRollingBearing
DoChenRollingBearing's picture

Bearing Guy has been pessimistic since 1977!  And is glad he did not have the courage of his convictions to sell all his stocks THEN!

Sun, 08/03/2014 - 20:32 | 5042104 Escrava Isaura
Escrava Isaura's picture

The difference on the next financial meltdown is that, there's no coming back, DoChen. Prepare for WW-3.

Sun, 08/03/2014 - 20:42 | 5042134 DoChenRollingBearing
DoChenRollingBearing's picture

Working on it young lady!

Let's see:

-- enough CA$H / FIAT$ for three months: check!

-- gold, silver, platinum, Bitcoin: check!

-- guns & ammo (lots): check!

-- some medicines (tradeable!, smile): check!

-- "Plan B" landing place (Peru) all set: check!

***

Not Done: farm (we're too old anyway to farm), enough food & water and production systems, network of similar-mided people nearby...  Ah, well, no one's perfect!

 

 

Sun, 08/03/2014 - 20:48 | 5042152 Escrava Isaura
Escrava Isaura's picture

I never doubt you!

Just don't want to be near the coast line, especially on the Pacific Side.

Sun, 08/03/2014 - 19:59 | 5041992 drinkin koolaid
drinkin koolaid's picture

To repeat!!!!!!!!!!! Wrong again JH. I'll be happy to buy into stocks in a few weeks/months lower from here. No way a stock crash  --  YET.

Sun, 08/03/2014 - 20:06 | 5042023 Winston Churchill
Winston Churchill's picture

Copper, and now oil are giving you a message.

A dead cat bounce tomorrow, maybe.

Sun, 08/03/2014 - 21:11 | 5042224 disabledvet
disabledvet's picture

Those are traders issues. Of course they wan to terrify everyone into selling...scoop that paper up dirt cheap.

Detroit has gone bankrupt...that says to me "Tis not a risk free world m'lady." I agree the Fed Chair-mum is going easy on us here. "Like English diplomacy after the American Revolution." I'm not looking a gift horse in the mouth. We should be in a true Great Depression right now...Sun also Rises too though.

Sun, 08/03/2014 - 20:03 | 5042008 Carpenter1
Carpenter1's picture

Warning or no warning,  this bull is old, tired, and always was a cow with fake horns strapped to her head. I'll take my chances on missing out on another leg up, odds favor a leg down,  and there's far more downside potential than upside. 

Sun, 08/03/2014 - 20:10 | 5042038 WTFUD
WTFUD's picture

I suggest Tyler(s) encourage market participants to go all in, thereby, assisting the rest of us to come out sweeter and sooner on the other side of meltdown.

Sun, 08/03/2014 - 20:11 | 5042041 Yen Cross
Yen Cross's picture

  ker >Plunk

Sun, 08/03/2014 - 20:14 | 5042054 starman
starman's picture

Things are looking up!If you turn everything upside down. Get some sleep ladies and gents who knows what tomorrow will bring.

Sun, 08/03/2014 - 20:16 | 5042061 Yen Cross
Yen Cross's picture

 Hey Starman, ever heard of this thing called a "globe"?  I'm on the other side of it, and It's game ON!

Sun, 08/03/2014 - 20:21 | 5042076 Yancey Ward
Yancey Ward's picture

Any serious breakdown in the stockmarket/junk bond market, and Yellen will stop taper and start Operation Shane Diesel to QE.

Sun, 08/03/2014 - 20:31 | 5042105 Joebloinvestor
Joebloinvestor's picture

About time for another money injection.

Sun, 08/03/2014 - 20:51 | 5042168 luna_man
luna_man's picture

 

 

Been taking risk all along, why not?...

 

my chance to hit that big "short" and ride it down to who knows how low

Sun, 08/03/2014 - 20:52 | 5042176 Burticus
Burticus's picture

Re-visit a chart of the Weimar stock market.

You could make a wheelbarrow full of marks...then burn them to stay warm more economically than using them to buy wood.

Sun, 08/03/2014 - 21:05 | 5042207 ramacers
ramacers's picture

 if the phony system models you (zuckerberg) as $ 60B man, you already take out say 3B and market activity brings the total say 100B+, who of the ponzi criminals really lose when it all comes tumbling down?

Sun, 08/03/2014 - 21:05 | 5042209 disabledvet
disabledvet's picture

Be aggressive with your risk management (hire the best bond fund manager you can buy...and an economist who simply isn't incompetent) and look for tactical entry points on any panic selling/forced disgorgement.

Buffet remains the Master...someone not afraid to take tremendous risks when everyone else agrees "the world is coming to an end."

I'm not saying go hog wild on General Electric here...but Boeing and the entire aircraft manufacturing complex looks like rock stars to me here. Fuel is by far heir biggest expense and insofar as the USA is concerned "that expense has dropped considerably."

Needless to say the planes being made today are vastly more reliable and fuel efficient...save for the occasional missile strike sadly.

Pre Cold War we had entire passenger liners being attacked and sunk. The US Navy seems to have that under control though...and this Iron Dome looks like it might actually be working.

The "counter battery fire" of course leaves a lot to be desired...but I'm just a war criminal like everyone else is these days.

Sun, 08/03/2014 - 23:33 | 5042567 WillyGroper
WillyGroper's picture

Buffet the master?

JHC are you on drugs?

Insider crony, nothing more.

Sun, 08/03/2014 - 21:09 | 5042219 crazybob369
crazybob369's picture

No one asked me, but here goes. The market won't crash until some time in the first, or early 2nd quarter of 2015. Why? The market has already factored in the taper that will end later this year, so that's a non factor. Buoyed by the fact that the market is behaving correctly, Yellen will then try to be a hero and contain inflation by ending ZIRP some time next year. As soon as the market gets a whif of that; LOOK OUT BELOW. At which time she will totally panic and put the printing presses in overdrive. Alas, it will be too late as a full blown financial clusterfuck will be in full bloom.

Sun, 08/03/2014 - 21:31 | 5042279 ekm1
ekm1's picture

I explained to Hussmann on twitter several times why his "forecasts" didn't work. Of course he ignored my tweets.

He doesn't understand Human Made Systems.

That is not just with Hussmann.

 

A lot of brilliant people like Hussmann think Human Made Systems are like Natural Made Systems and can be modelled.

 

The problem is that most people do not read theology. If people read theology, they'd understand how humans function, how Human Made Systems function and how Natural Made Systems function.

Sun, 08/03/2014 - 22:06 | 5042393 Professorlocknload
Professorlocknload's picture

"Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego's meaningful response to stimuli and to the conditions of its environment, is a person's conscious adjustment to the state of the universe that determines his life."
Ludwig Von Mises

Sun, 08/03/2014 - 23:28 | 5042557 the grateful un...
the grateful unemployed's picture

its the difference between a policy base approach and an empirical approack. 2008, credit crashes what do you do if you're the fed head? raise interest raties to reflect the real level of risk, or manipulate them artificially lower through policy. now after 6 years of wrong way policy decisions, wtd do you do? you raise rates the way you should have done in the first place, but you make sure all the players are properly positioned for the change.

Sun, 08/03/2014 - 21:51 | 5042354 ReactionToClose...
ReactionToClosedMinds's picture

mark these words..............

Hussman is not all seeing....no one is

but he is prudent and honorable .......how many in the financial world do you know like that?     very few

if John Templeton were alive......my guess is he would not be in this market.  hence, Hussman, is probably in very good company.

 

 

Sun, 08/03/2014 - 23:27 | 5042555 Professorlocknload
Professorlocknload's picture

Sir John Templeton was one of a kind!

Sun, 08/03/2014 - 21:53 | 5042365 Professorlocknload
Professorlocknload's picture

Was it Will Rogers said 'It's easy to make money in the stock market. Just buy a stock, wait 'till it goes up, then sell it.'

Get that last part? 'Sell it?'

Sun, 08/03/2014 - 23:12 | 5042524 I should be working
I should be working's picture

Wow, Hussman is bearish and the sky is still blue...

Sun, 08/03/2014 - 23:23 | 5042546 the grateful un...
the grateful unemployed's picture

read all of his missives, he said recently (WITH ALARM!) that the fed is making FISCAL policy, a case of mission creep, and we should notice. notice this, the fed is making FOREIGN POLICY, together with the EU in Ukraine, finally obama is really a grocery clerk (gosh i didnt like my boss Bernanke, this Yellen woman seems a lot nicer)

here's the real drag, Yellen doesn't know what she's got, which is of course beautiful, because these people are just fronts for the global banking cartel. bush didn't know, obama hasn't a clue, yellen is puzzled. oh my

Sun, 08/03/2014 - 23:32 | 5042565 Professorlocknload
Professorlocknload's picture

++, greatful,,,,it really is all by the seat of the pants these days.

As always, when she blows, no one will have seen it coming. 'Till then, all's well.

Mon, 08/04/2014 - 03:50 | 5042791 devilsdictionary
devilsdictionary's picture

Hussman's performance hasn't been quite stellar:

http://quotes.morningstar.com/fund/hsgfx/f?t=HSGFX

A money market fund would have protected you better from the 2008 disaster.

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