Seeking Alpha

Hussman: Picture a stone going over a cliff

  • With Nouriel Roubini now preferring the moniker "Dr. Realist" to "Dr. Doom," and David Rosenberg turning optimistic, who's left to sell?
  • "If you picture a small child throwing a stone upward and out over the edge of the Grand Canyon, you’ll get a general idea of the market trajectory that we expect over the completion of this cycle," says John Hussman, remaining faithful to his fans.
  • He notes the S&P 500 price/revenue ratio of 1.6 is double the pre-bubble historical norm of 0.8. At the 1987 peak, the ratio was less than 1. At the 1965 and 1972 highs, it never breached 1.3.
  • "Also, take care to note that the price/revenue multiple is twice the historical median – not twice the level where bear markets have typically ended. No, the price/revenue ratio is closer to three times that level."
  • Total U.S. stock market ETFs: IYY, VTI, EXT, TOTS, EUSA, ITOT.
Comments (11)
  • King Rat
    , contributor
    Comments (585) | Send Message
     
    Well as long as $1trillion of QE keeps flooding the market with nowhere else to go, it's kind of hard to sell anything.

     

    In other words, the intrinsic value of assets may be 1/2 their current market value, but with QE-inspired asset inflation, what else can happen but a rise in stocks? When unemployment numbers come in worse than expected with only the underlying U-3 dropping because people give up and die yet the market pops, what else can you do except add more money to the market?
    22 Oct 2013, 03:37 PM Reply Like
  • Rope a Dope
    , contributor
    Comments (539) | Send Message
     
    If you didn’t follow the link and read Hussmann’s’ article, it is a worthwhile read. Here’s another link to the article - http://bit.ly/1dbnnPq

     

    Cut and pasted from the article –

     

    “Examining various historically useful fundamentals, the S&P 500 price/revenue ratio of 1.6 is now twice its pre-bubble historical norm of about 0.8. For perspective, it’s worth noting that the 1987 peak occurred at a price/revenue ratio of less than 1.0 and neither the 1965 secular valuation peak, nor the 1972 peak (before stocks dropped in half) breached even 1.3. Also, take care to note that the price/revenue multiple is twice the historical median – not twice the level where bear markets have typically ended. No, the price/revenue ratio is closer to three times that level.”

     

    And -

     

    “On a diverse set of reliable fundamentals, we now estimate a 10-year nominal total return for the S&P 500 of just 2.6% annually. Put another way, stocks are likely to achieve zero risk premium over 10-year Treasuries in the coming decade, despite having about five times the duration, volatility and drawdown risks. The entirety of that total return can be expected to arrive in the form of dividends, leaving the S&P 500 below its current level a decade from now. This would be a less depressing conclusion if I didn’t correctly say the same thing in 2000, and if even simple versions these valuation methods didn’t have a nearly 90% correlation with subsequent 10-year returns.”

     

    I think it is just a matter of time before we see a substantial pullback.
    22 Oct 2013, 04:24 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2327) | Send Message
     
    If this bull market goes on for another two years, we might be picturing the trajectory of Hussman himself leaping upward and out over the edge of the Grand Canyon.

     

    (No disrespect intended to the astute Mr. Hussman.)
    22 Oct 2013, 04:34 PM Reply Like
  • Rope a Dope
    , contributor
    Comments (539) | Send Message
     
    WSD - I see deteriorating company fundamentals and at some point you have to wonder when they will relieve QE as the driving force behind the stock prices. There are too many headwinds to our economy (BHO the largest) and I think it is just a matter of time before we begin to slide backwards, if that hasn’t already started.

     

    Remember that the new BEA accounting measures are being used to calculate GDP and although I saw numbers all over the map, it seemed that these new measures alone would add 2% to GDP. If we fall to 1% to 2% growth, does that equal contraction using the old accounting measures? Food for thought.
    22 Oct 2013, 04:46 PM Reply Like
  • Qniform
    , contributor
    Comments (2475) | Send Message
     
    Rope, he's a broken record. Or a broken watch - eventually right for a limited time. He certainly sounds good, but his record is atrocious.

     

    http://bit.ly/179nfwj

     

    We certainly will have a correction at some point, but listening to JH won't help to predict it or profit,
    22 Oct 2013, 06:39 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2327) | Send Message
     
    It's fair to wait until the end of the next bear market before judging him. That's how he pitches his fund--as an all-weather fund that will outperform the market in a full bull/bear cycle.
    22 Oct 2013, 07:45 PM Reply Like
  • Qniform
    , contributor
    Comments (2475) | Send Message
     
    Did you check that link? There's plenty of history to judge by.
    22 Oct 2013, 07:53 PM Reply Like
  • WallStreetDebunker
    , contributor
    Comments (2327) | Send Message
     
    His fund outperformed from 2000 to 2010, including a noteworthy minor decline in the worst bear market since the Depression. When the next bear market occurs, his fund will likely reverse the last two years quickly and substantially.
    22 Oct 2013, 08:06 PM Reply Like
  • Qniform
    , contributor
    Comments (2475) | Send Message
     
    You can always find a duration that looks good. Pick your poison on all weather funds:

     

    http://yhoo.it/19ZxSOQ;range=my;compare=prpf...
    22 Oct 2013, 08:24 PM Reply Like
  • Rope a Dope
    , contributor
    Comments (539) | Send Message
     
    Qniform, it’s not the individual I’m listening to but rather the overall message on valuation. I don’t necessarily agree with his Grand Canyon analogy but I do believe we are nearing the top of a parabolic curve. I see nothing to support (overall) continued upwards price movement.

     

    I see too much complacency on the part of investors. Everyone is relying too much on QE but it is becoming increasingly clear that QE is having little effect at improving the economy. Most of this money the Fed ‘printed’ is being parked at the Federal Reserve rather than being pushed out onto Main Street as was initially intended. If our economy begins to contract, I fail to see how parking even more money at the Federal Reserve will help.

     

    Federal Reserve policies alone cannot move our economy forward.
    23 Oct 2013, 06:18 AM Reply Like
  • The_Hammer
    , contributor
    Comments (3830) | Send Message
     
    Profit margins are fat and at or near record levels.
    22 Oct 2013, 09:14 PM Reply Like
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