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Hussman: Don't Jump Back Into Stocks Right Now

Monday, 13 Dec 2010 09:58 AM

If you think now is a great time to invest, think again, warns economist and fund manager John Hussman.

"In recent weeks, the U.S. stock market has been characterized by an overvalued, overbought, overbullish, rising-yields syndrome that has historically been hostile to stocks," Hussman writes in a note to investors.

Last week, according to Hussman, the situation became much more pointed.

Investors should be exceedingly wary when the S&P 500 is more than 8 percent above its 52-week (exponential) average and more than 50 percent above its four-year low, and when the Shiller P/E is greater than 18, the 10-year Treasury yield is higher than six months ago and advisory bullishness hits 47 percent.

“The market's recent embrace of the ‘risk trade’ can be traced to the apparent endorsement of risk-taking by the Fed,” says Hussman.

Hussman says it's wise to remember that while Fed chairmen have proven to be apt encouragers of bubbles over the short term, the “Greenspan put” certainly didn't avoid the 2000-2002 mauling, nor did the “Bernanke put” avoid the even deeper 2007-2009 plunge.

“The only put options that investors can rely on here are the contractual kind,” Hussman says.

The San Francisco Chronicle reports that, according to data from Bloomberg, most of the 47 percent stock rally during the past two years came on days when the Fed pumped money into markets through bond buying.

Since the $1.7 trillion first round of quantitative easing began on Dec. 5, 2008, the S&P 500 Index has climbed a combined 267 points on the 211 days when the Fed was adding stimulus, compared with 128 points on the 297 days when it wasn't.

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If you think now is a great time to invest, think again, warns economist and fund manager John Hussman. In recent weeks, the U.S. stock market has been characterized by an overvalued, overbought, overbullish, rising-yields syndrome that has historically been hostile to...
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Monday, 13 Dec 2010 09:58 AM
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