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Hussman warning of steep decline


hardincap
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http://hussmanfunds.com/wmc/wmc120319.htm

 

 

As of Friday, the S&P 500 was within 1% of its upper Bollinger band at virtually every horizon, including daily, weekly and monthly bands. The last time the S&P 500 reached a similar extreme was Friday April 29, 2011, when I titled the following Monday's comment Extreme Conditions and Typical Outcomes . I observed when the market has previously been overbought to extent, coupled with more general features of an "overvalued, overbought, overbullish, rising yields syndrome", the average outcome has been particularly hostile:

 

"Examining this set of instances, it's clear that overvalued, overbought, overbullish, rising-yields syndromes as extreme as we observe today are even more important for their extended implications than they are for market prospects over say, 3-6 months. Though there is a tendency toward abrupt market plunges, the initial market losses in 1972 and 2007 were recovered over a period of several months before second signal emerged, followed by a major market decline. Despite the variability in short-term outcomes, and even the tendency for the market to advance by several percent after the syndrome emerges, the overall implications are clearly negative on the basis of average return/risk outcomes."

 

As it happened, April 29, 2011 turned out to mark the exact high of the S&P 500 for the year, and was followed by a steep intermediate market plunge. My impression is that despite the recent run of speculation the market has enjoyed - largely reflecting a reprieve in European debt concerns and what appears to be a drawing-forward of jobs into the first quarter due to unseasonably favorable weather - the extended implications of present market conditions remain decidedly negative.

 

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Good one Sanj, lol.

 

The problem with using the S&p at the moment is that it is not a case of a rising tide raising all boats.  It is a case of Apple, IBM, and MSFT raising the index, with a little help from the general market. 

 

Using the S&P for past analysis is also replete with problems.  The biggest companies in the index have grown market cap based on worldwide increases in business over the last 20 years. To compare it to US GDP is not the same comparison as 20 years ago.

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I can't even believe I'm saying this (perhaps a contrarian indicator in and of itself), but given Adam Hamilton's unbelievable call on the market since the bottom last year and his current bullish stance, I have to take the opposite side of Hussman on this one and go with Hamilton and Moore. Basically the wall of worry is alive and well (unfortunately I was part of the worry for awhile).

 

See here: http://zealllc.com/2012/eustrec.htm

 

Ned Davis also remains quite bullish at the moment.

 

Adam Hamilton and Ned Davis were both cautious on the market last year when Hussman "called the top". Given Hussman's atrocious anaylsis, timing, trading (whatever you want to call it), i gotta side with the proven track records on this one.

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Using the S&P for past analysis is also replete with problems.  The biggest companies in the index have grown market cap based on worldwide increases in business over the last 20 years. To compare it to US GDP is not the same comparison as 20 years ago.

 

Yes, it's a shame that the earnings of KO, JNJ, KFT, GE, MSFT, AAPL, IBM, PFE, PG, and ... cannot grow faster than US GDP.

 

 

 

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