Economist and fund manager John Hussman says we are most likely a single number of weeks away from either substantial market losses, or enough stabilization in market action to ease defensiveness.
"So far, hopes for massive bailouts and monetary interventions have allowed the market to forestall the more violent follow-through that it experienced in 1973-74, 1987, 2000-2002 and 2007-2009 from similar conditions," Hussman writes in a note to investors.
"Yet the market impact from various monetary actions has become progressively weaker, and the exuberance from various 'agreements' out of Europe has become progressively shorter."
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More importantly, in data spanning more than a century, including Depression, two world wars, rapid inflation, credit crisis, and numerous bubbles and crashes, that relevant global events show up in observable data such as market action, credit spreads, valuations, economic indicators, sentiment, and specific syndromes of conditions, Hussman observes.
"As a result, we don’t need a 'Euro breaks up' indicator, or a 'Bernanke bubble factor' in our data set, nor do we need a live feed showing constantly refreshed CT-scans of Angela Merkel’s spine," says Hussman.
Hussman says that a moderate continuation of constructive market action would likely be sufficient to soften his funds’ presently hard defense by retreating from a “staggered strike” option hedge.
However, “at present, conditions remain aligned with those that have preceded some of the most negative consequences in market history,” Hussman says.
According to Wall Street Cheat Sheet, the recent market rise came in response to euphoria driven by a perceived solution to the ongoing European debt crisis.
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