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Excerpt from fund manager John Hussman’s weekly essay on the US market:

To a large degree, we already know that stock market risk is likely to be poorly rewarded over a period of several years – a period that starts today and ends at some point where stocks establish lower valuations. That description might seem unsatisfactory, since we don't know where that endpoint is, and it's unlikely that we'll be able to identify the precise bottom of valuations. Regardless, it will almost certainly be possible to gradually increase our exposure to market risk as valuations normalize. That's really all a long-term investor needs – to take greater amounts of risk when the likely return/risk profile of the market is relatively strong, and to limit risk taking when the likely return/risk profile is poor. Though I think that the quality of market action is a useful additional consideration, even the basic approach of basing risk exposure on prevailing valuations is enough. That's essentially what Warren Buffett has done over his professional lifetime, and it's why he has carried large cash positions in recent years...

Stocks tend to decline abruptly and steeply in the days and weeks before clear recession risks emerge. Presently, market action is mixed, with breadth (advances versus declines) and leadership (new highs versus new lows) appearing reasonably good. But we've also got a rich level of valuations, where inflation pressures persist, wage pressures are emerging, profit margins are unusually wide, the yield curve is flat, and investors are unusually bullish. With that combination of factors, the case for accepting short-term market risk is more tenuous.

Full essay here.

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Source: Be Like Buffett, Don't Take Stock Market Risk -- John Hussman