Tags: Hussman | ingredients | market | crash

Fund Manager Hussman Sees 'Ingredients of a Market Crash'

By    |   Monday, 29 September 2014 10:37 PM

You can add mutual fund manager John Hussman, president of Hussman Investment Trust, to the list of those who think stocks are forming a bubble similar to the last two market peaks.

"Our concerns at present mirror those that we expressed at the 2000 and 2007 peaks, as we again observe an overvalued, overbought, over-bullish extreme," he writes in his weekly commentary.

The S&P 500's trailing price-earnings ratio stood at 19.4 Friday, far exceeding its long-term average of 15.5, according to Birinyi Associates.

This scenario "is now coupled with a clear deterioration in market internals, a widening of credit spreads, and a breakdown in our measures of trend uniformity," Hussman says.

Many investors think they will be able to get out of the market in time before it stumbles. "But history teaches that the market doesn’t offer executable opportunities for an entire speculative crowd to exit with paper profits intact," he explains.

"Hence what we call the Exit Rule for Bubbles: you only get out if you panic before everyone else does."

Bottom line: "We currently observe the ingredients of a market crash," Hussman writes.

Though the S&P 500 has nearly tripled from its March 2009 low, MarketWatch columnist Jeff Reeves doesn't think it will crash.

He offers several reasons why:

  • The economy is strong.
  • Skepticism is more prevalent than irrational exuberance in the market.
  • "Valuations are fair," Reeves writes. The S&P 500's forward price-earnings ratio stood at 16.85 Friday, significantly below its 15-year average, according to FactSet.
  • Interest-rate hikes by the Federal Reserve almost always have been accompanied by rising stock prices since 1960.

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You can add mutual fund manager John Hussman,president of Hussman Investment Trust, to the list of those who think stocks are forming a bubble similar to the last two market peaks.
Hussman, ingredients, market, crash
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2014-37-29
Monday, 29 September 2014 10:37 PM
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