John Hussman is Bearish And I Don’t Blame Him

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Below is the latest commentary from John Hussman. Hussman gives 12 reasons to be bearish. Although, I never try to pretend to predict the market I am getting a bit pessmistic lately. While I am finding value in individual stocks (you can see my full portfolio here- the overall market looks rich. The shiller P/E is north of 20 and when that occurs market returns are about 2% for the next ten years.

Tobins Q is off the chart and indicates a really over-valued market. Individual sentiment is at a very high level, and my friends are asking me for stock tips! This is the ultimiate contrarian sign. I did not even get into the bond bubble, which when it bursts will result in huge costs for issuing Government debt, and the bubble starting to burst in China.

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Below is a brief excerpt:

1) Investors dangerously underestimate the risk of an abrupt and possibly severe equity market plunge

Look back over history at points in time where stocks were trading at a rich multiple to normalized earnings (the Shiller multiple is a useful gauge here, as forward operating and price/peak earnings are both corrupted by profit margins that are about 50% above their historic norms). Combine that with overbought, overbullish conditions and rising interest rates. What you will get is a list of most historical pre-crash peaks. Depending on precisely how you define your classifier, you may pick up one or two benign outcomes, such as April 1999 (which I noted in the Hazardous Ovoboby piece in early 2007), but ask whether, on average, you would have knowingly chosen to take market risk at those points.

2) Agreement among “experts” is not your friend

“Tarnished! Nobody expects gold prices to turn up soon: It’s difficult to find any positive news in the depressed gold market. At around $260 an ounce, the metal continues to trade near its cost of production, and almost no one believes it will rally soon. ‘Financing is tough to come by these days’ in the unpopular gold-mining sector, says Ferdi Dippenaar, Harmony’s director of marketing. ‘Unfortunately, there is nothing positive on the horizon.’”

Barron’s Magazine, Commodities Corner: February 12, 2001

“Not a Bear Among Them”

Barron’s Investment Roundtable, December 1972 (at the beginning of a 50% market plunge – No intent to pick on Barron’s – they’ve just been around the longest, so we have lots of back-issues)

“Wall Street Heavyweights Agree: Time to Get Back Into Stocks!”

USA Today Investment Roundtable, December 2010

3) Downside risk tends to be elevated precisely when risk premiums and volatility indices reflect the most complacency

I could go on, but nobody cares.

The rest of the article can be found at the following link-

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