Tags: Hussman | risk | return | short term

Hussman: Current Market Is Second Riskiest in History

Monday, 12 Nov 2012 11:10 AM

The prospective return/risk of the current stock market is the second riskiest in history, according to economist and fund manager John Hussman.

“[T]he present syndrome of market conditions — taken in its entirety — has regularly and throughout history been associated with some of the worst investment outcomes on record,” Hussman writes in a note to investors.

While some might discard his observations as just talk coming from a “permabear,” he says stocks appear to be oversold for the short-term.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

“I am most concerned about the combination of unfavorable valuation and unfavorable market action, including the breakdown in market internals and trend-following measures, immediately following an extended period of overvalued, overbought, overbullish conditions and other hostile syndromes.”

Stocks could still rise in the near term, but Hussman sees some “unusual danger more broadly.”

“Stocks certainly appear short-term oversold here, but the historical record doesn’t give much support to the idea of trading stocks for positive short-term mean-reversion in the face of such decidedly negative return/risk estimates.”

Treasury bills have outperformed the Standard & Poor’s 500, including dividends, for almost 14 years, he adds.

“The cycle since 2007 has been extraordinary in its economic, monetary and fiscal characteristics, not to mention the need to contemplate Depression-era data along the way,” Hussman says.

Futures magazine reports that stock market losses make a long-term uptrend doubtful even though price action in the major indexes have resulted in a series of higher highs until the most recent price peak on Sept. 14, 2012.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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