From John Hussman:
At its core, a market crash is nothing but risk-aversion meeting a market that’s not priced to tolerate risk. We always become concerned about “trap door” outcomes when rich valuations are joined by deterioration in the uniformity of market internals – which is our most reliable gauge of speculation versus risk-aversion among investors. Our concerns about trap door conditions become even more pointed when investor confidence has been destabilized. We are presently on high alert for a possibly abrupt and cascading market and economic dislocation in the weeks ahead.
Don’t relieve the crap you hear from flimflam jackasses, Hussman has made some great plunge calls:
The Market Climate remains on a Crash Warning. We have to allow for the possibility of the usual fast, furious bear market rallies that can occur after the market becomes oversold. Overall, our position remains defensive, but we’re managing our positions in a way that accommodates a bounce. It’s unfortunate, in my view, that investors have so much faith that a monetary easing can and will bail out the economy and the stock market. My view is fairly simple – the economic boom we’ve enjoyed has been driven by an inordinate amount of leverage, much of it of very poor credit quality, and by capital spending financed through the import of foreign savings. In an environment where demand for new capital investment was strong, easy bank credit and ample foreign savings fed extremely good economic growth rates. But I believe we are past that point here.”
– John P. Hussman, Ph.D., Market Comment, December 19, 2000
It can be dangerous to attempt trading bear market rallies early into a decline – especially when valuations remain rich. It’s useful to remember that the 1929 and 1987 crashes started after the S&P 500 was already down about 14% from its highs. So emerging panic is not enough – there has to be some basis to believe that a positive shift in investor attitudes toward risk would be sustainable. What we do observe, however, is that prices are somewhat oversold on a very short-term basis, so it’s reasonable to allow for one of those fast, furious bounces to clear that condition… investors should not immediately abandon caution when they emerge.”
– John P. Hussman, Market Comment, June 23, 2008 |
