Monday, July 29, 2013
Hussman Weekly Market Comment: Baked In The Cake
“I can feel it coming, S.E.C. or not, a whole new round of disastrous speculation… and finally the inevitable crash. I don’t know when it will come, but I can feel it coming, and, damn it, I don’t know what to do about it.”
Bernard Lasker, NYSE Chairman, 1972, just before the market fell by half in the 73-74 plunge
“The danger of mispricing risk is that there is no way out without investors taking losses. And the longer the process continues, the bigger those losses could be. That's why the Fed should start tapering this summer before financial market distortions become even more damaging.”
Martin Feldstein, President emeritus, National Bureau of Economic Research, July 1, 2013
The U.S. equity market is now in the third, mature, late-stage, overvalued, overbought, overbullish, Fed-enabled equity bubble in just over a decade. Like the 2000-2002 plunge of 50%, and the 2007-2009 plunge of 55%, the current episode is likely to end tragically. This expectation is not a statement about whether the market will or will not register a marginal new high over the next few weeks or months. It is not predicated on the question of whether or when the Fed will or will not taper its program of quantitative easing. It is predicated instead on the fact that the deepest market losses in history have
emerged from an identical set of conditions (also evident at the pre-crash peaks of 1929, 1972, and 1987) – namely, an extreme syndrome of overvalued, overbought, overbullish conditions, generally in the context of rising long-term interest rates.