John Hussman - Hussman Funds

[tsptalk]

The more glorious this bubble becomes in hindsight, the more dismal future prospects become. The likely 12-yr nominal annual total return on a conventional passive portfolio (60% S&P 500, 30% bonds, 10% T-bills) is now down to just 0.20%. Whatever this is, it isn't "investment."

https://twitter.com/hussmanjp/status/1215651093310513162

 

[tsptalk]

Maladaptive Beliefs

John P. Hussman, Ph.D.
President, Hussman Investment Trust

Among the most persistent questions I hear is why we don’t just adapt to the reality that the Federal Reserve will never again “allow” the market to experience a serious decline. The problem with this view is that it rests on the premise that Federal Reserve policy supports the market in a clear-cut and mechanical way, when its effectiveness actually relies on the speculative psychology of investors.

We can certainly concede, and indeed must concede, that replacing a mountain of interest-bearing Treasury bonds with a mountain of zero-interest base money can both manipulate and disfigure investor psychology. It’s a simple fact that once a dollar of base money has been created, someone in the economy must hold it at every moment in time, in the form of base money, until that base money is retired. Provided investors are inclined to speculate (so that they rule out the potential for meaningful capital losses), the discomfort with zero-interest base money encourages each successive holder to chase riskier securities that they imagine will provide them with a positive and higher return.

Each time a buyer puts the base money “into” the stock market, a seller takes it right back “out” – just like a hot potato. The zero-return base money has simply changed hands. The thing that “holds the stock market up” isn’t zero-interest liquidity, at least not in any mechanical way. It’s a particularly warped form of speculative psychology that rules out the possibility of loss, regardless of how extreme valuations have become. We’ve never seen this much zero-interest base money before, but we certainly have seen the speculative psychology it relies on, and it has always ended in tears.

https://www.hussmanfunds.com/comment/mc210912/

 

[tsptalk]

The Secret Life of Fed Pivots

I know that many of you believe that the current episode of speculative enthusiasm will persist forever –that the Fed will make it persist. We’ve already established that market returns are likely to be flat or poor even if the market achieves what Irving Fisher disastrously projected as a ‘permanently high plateau’ in 1929, and valuations remain forever above extremes never seen before last year. Investors should also consider what might happen if valuations merely touch their historical norms – even 20 years from today – and growth in fundamentals matches that of the past 20 years. The simple arithmetic implies that the S&P 500 would actually lose value on a total return basis.”

– John P. Hussman, Ph.D., November 8, 2021

More than two years have passed since these comments were published in 2021, and aside from a great deal of interim volatility, strikingly little has changed. It’s worth noting that despite the recent market advance, our own investment discipline, and even Treasury bills, have outpaced the S&P 500 and Nasdaq 100 during this period, with less volatility.

In my view, the downside resolution of the recent bubble remains in its early stages, and the advance that we’ve observed, particularly in recent weeks, reflects a nearly frantic expression of pent-up “fear of missing out” on a Fed pivot that investors hope will extend the bubble.

More: The Secret Life of Fed Pivots - Hussman Funds

 

[tsptalk]

This Is Where You Start Bear Markets From

Investors lose their discipline at market peaks. They become convinced that valuations are irrelevant. They become convinced that investment returns are somehow independent of the price one pays. As a rule, the more extreme valuations become, the longer it has taken to get to those extremes, the longer value investors appear to have been “proven” wrong, and the more evidence there seems to be that passive investing is a “sure thing.” Attending to market internals can certainly improve the situation, but in the end, there’s really no distinction between:

1. the observation that market valuations are at record highs, and
2. the opinion that value investing is obsolete and passive investing is for winners.

Reality sets in later. The arithmetic is straightforward. Over the past 10, 20, and 30 years, both nonfinancial corporate revenues and nominal GDP have grown at an average annual rate of about 4.5%, which includes the impact of the recent bout of inflation. Meanwhile, the dividend yield of the S&P 500 currently stands at 1.4%. Assuming that valuations remain at a “permanently high plateau,” prices would grow at the same annual pace as fundamentals. Add the dividend yield, and estimated long-term S&P 500 total returns – assuming permanently elevated valuations – come to about 5.9% annually.

This Is Where You Start Bear Markets From - Hussman Funds

 

[tsptalk]

Skating By The Trap Door (Motherlode II)

As I noted in late-2021, there are certain features of valuation, investor psychology, and price behavior that tend to emerge when the fear of missing out becomes particularly extreme and the focus of speculation becomes particularly narrow. Last Friday, we hit a fresh “motherlode” of these conditions.

Skating By The Trap Door (Motherlode II) - Hussman Funds

 

[tsptalk]

​The bearish take:

You Can Ring My Bell

John P. Hussman, Ph.D.
President, Hussman Investment Trust

I may as well just say it. Based on the present combination of extreme valuations, unfavorable and deteriorating market internals, and a rare preponderance of warning syndromes in weekly and now daily data, my impression is that the speculative market advance since 2009 ended last week. Barring a wholesale shift in the quality of market internals, which are quickly going the wrong way, any further highs from these levels are likely to be minimal. In contrast, current valuation extremes imply potential downside risk for the S&P 500 on the order of 50-70% over the completion of this cycle.

You Can Ring My Bell - Hussman Funds