Hussman Weekly Market Comment: The Good Without The Awful
In
the spirit of hope and optimism for the New Year, I’m going to depart a bit
from my usual concerns (which are no less pressing at the moment), and instead
discuss when to become bullish, why to become bullish, and how often to become
bullish. Using the word “bullish” three times in a single sentence may be a
record for me. Despite being a lonely raging bull for years coming out of the
1990 recession, and shifting positive in early 2003 after the 2000-2002
downturn, my defensiveness during the most recent cycle has lent far too much
to my characterization as a “permabear.” Any previous bearishness I've had was
validated by the 2000-2002 rout, and again by the 2007-2009 plunge, which wiped
out the entire total return achieved by the S&P 500 - in excess of Treasury
bill yields - all the way back to June 1995. While the S&P 500 - even with
the recent advance - has underperformed Treasury bills for nearly 14 years, the
stratospheric valuations of 2000 are well behind us. Valuations are still rich,
but they are now in the range we've seen near more typical bull market highs, so I also expect a more typical
frequency of bullish opportunities in the market cycles ahead. Looking over the
full span of history, the return/risk estimates from our ensemble methods have been
positive about 65% of the time, and would indeed have encouraged a leveraged
position (unhedged, plus a few percent in call options) about 50% of the time.
