Tags: Hussman | Investing | Goat | Rodeo

Hussman: Welcome to Wild West — Investing Now a ‘Goat Rodeo’

Thursday, 02 Feb 2012 01:49 PM

Economist and fund manager John Hussman says investing is now a goat rodeo: Appalachian slang for a chaotic, high-risk, or unmanageable scenario requiring countless things to go right in order to walk away unharmed.

"My concern is that an improbably large number of things will have to go right in order to avoid a major decline in stock market value in the months ahead," Hussman writes in a note to investors.

Hussman presently estimates that the S&P 500 is likely to achieve a 10-year total return (nominal) of only about 4.7 percent annually, which reduces the likelihood that further gains will be durable even if they persist for a while longer.

“Once again, we now have a set of market conditions that is associated almost exclusively with steeply negative outcomes,” says Hussman. “In this case, we're observing an ‘exhaustion’ syndrome that has typically been followed by market losses on the order of 25 percent over the following 6-7 month period.”

Making this worse, Hussman notes, is evidence from leading economic measures that continue to be associated with a very high risk of oncoming recession in the U.S. — despite a modest firming in various lagging and coincident economic indicators, at still tepid levels.

“Compound this with unresolved credit strains and an effectively insolvent banking system in Europe, and we face a likely outcome aptly described as a Goat Rodeo,” he says.

But on the other side of the fence, strategists at the biggest banks are capitulating on their bearish forecasts after the best start to a year for global stocks since 1994 and gains of more than 7 percent in emerging-market currencies, Bloomberg reports.

Just two weeks after saying that investors should “remain cautious,” Larry Hatheway, the chief economist at UBS AG, raised his recommendations on global shares and high-yield bonds in a Jan. 23 note to customers entitled, “Wrong, but not too late.”

Royal Bank of Scotland Group Plc, and Benoit Anne, the global head of emerging-markets strategy at Societe Generale SA, said their estimates for developing nations were proven wrong.

The MSCI All-Country World Index climbed 5.7 percent in January, surprising strategists at Bank of America Corp., Goldman Sachs Group Inc. and Barclays Plc who had forecast first-half losses because of Europe’s debt crisis. JPMorgan Chase & Co. and Citigroup Inc., which predicted the rally in stocks, say it will continue as the U.S. housing market rebounds and China eases lending restrictions to bolster economic growth, Bloomberg reports.

Read more: Global Strategists Abandon Bearish Views After Missing Rally


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