Hussman Weekly Market Comment: A Warning Regarding Broken Speculative Peaks

Frankly, I wonder whether any amount of arm-waving will incline investors to actually examine their risk exposures here, much less consider the prospect of a 40%+ decline in the S&P 500 Index that would be required simply to bring stocks to historically run-of-the-mill valuations. But at a time when our estimates of prospective risk are surging, I would be remiss not to observe that fact.

At present, we have what might best be characterized as a broken speculative peak, in that market internals (particularly interest-sensitive groups), breadth and leadership have broken down uniformly following an extreme overvalued, overbought, overbullish syndrome. If you recall, the market also recovered to new highs in October 2007, weeks after the initial, decisive break in market internals at that time. Presently, we’re looking at the same set of circumstances. On some event related to tapering or the Fed Chair nomination, we may even see another push higher. It isn't simply short-term risk, but deep cyclical risk that is of concern.

My main goal here is to encourage investors to look carefully at their investment positions, before they lose the chance to alter them advantageously. As I noted in the October 15, 2007 market comment Warning – Examine All Risk Exposures:

“Whatever market exposure investors accept today ought to be the same market exposure that investors are committed to maintain for the duration of a bear market, without abandoning their investment plan. Investors with no plan to own stocks through a market decline, holding them only in the hope of selling at market highs, may discover in hindsight that these were them.”

John Mauldin: Signs of the Top

The investment media seems obsessed with the question of whether the Fed will taper. The real question should be not about "tapering" but about credibility. What happens when fundamentals become the narrative as opposed to what the central bank is doing? What happens if the Federal Reserve throws a liquidity party and nobody comes? Today we look at some of the fundamentals. The market is in fact overvalued, but that doesn't mean it can't become more overvalued. Is this August 1987 or August 1999?

Chapter 1 of "The Manual of Ideas" book

I spent a little time this weekend digging into John Mihaljevic’s new book, The Manual of Ideas: The Proven Framework for Finding the Best Value Investments. I think it is a great addition to the value investor’s library. But you can decide for yourself after reading Chapter 1, which is available from Wiley via the link below (the table of contents is also available HERE).

Link to: The Manual of Ideas – Chapter 1

Chris Martenson interviews Michael Pettis

Link

Nassim Taleb quote

From Antifragile:

A Black Swan event and how it affects you—its impact on your finances, emotions, the destruction it will cause—are not the same “ting.” And the problem is deeply ingrained in standard reactions; the predictors’ reply when we point out their failures has typically been “we need better computation” in order to predict the event better and figure out the probabilities, instead of the vastly more effective “modify your exposure” and learn to get out of trouble, something religions and traditional heuristics have been better at enforcing than naive and cosmetic science.

Richard Fisher interview excerpts

Via ValueWalk:

On recent reports from the San Francisco Federal Reserve that suggest bond buying and money printing has a very minimal effect on the GDP: 

“I argued that when I argued against this program so I am happy to see and they have one of the best research departments in the entire Federal Reserve system. The point is we’ve gone through this program, interest rates have been at historic lows, we’ve had a secular trend as well as this final crescendo, which was assisted by the Federal Reserve program. I think it certainly helped corporations clean up their balance sheets. I don’t think there’s any question about that. At the same time, there were some costs. Savers have been hit, small banks and other intermediate bank sizes have been hurt in terms of their interest rate margins. It has exacerbated that decline in interest rate margins that occurred over the last 20 years. So there are costs and benefits. Again, the benefits of QE3 and the efficacy of that program are constantly being analyzed and we’ll just see what the committee as a whole, because it is a committee of 19 people, decides under Chairman Bernanke’s leadership in September and in subsequent meetings.”

Interview with David Epstein: How Athletes Get Great

Just train for 10,000 hours, right? Not quite. In his new book, author David Epstein argues that top-shelf athletic performance may be a more complicated formula than we’ve recently come to believe. 

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Related book: The Sports Gene

There is also a video interview, broken into a few clips, with Epstein on the book HERE.

For Jeff Bezos, a new frontier

Found via Abnormal Returns.

A newspaper represents not just a business but a “public trust,” Washington Post Co. chairman and chief executive Donald E. Graham has said more than once. In other words, the values that matter in owning a newspaper go beyond profit and loss. Bezos’s politics and sense of fairness may come to bear as the newspaper, in a perilous state of flux, takes on a new shape.

In a brief letter to employees, Bezos seemed to agree: The “values of The Post do not need changing. The paper’s duty will remain to its readers and not to the private interests of its owners.”

But exactly why he is acquiring The Post — and what he plans to do with it once he owns it — remains mostly a mystery.

Bezos declined to be interviewed for this article. Amazon declined to offer anyone for interviews.

For now, as a result, the best anyone can do to divine his motives is to look at his past.

What emerges from dozens of interviews with friends and colleagues from every stage of his life, combined with his own previous comments, is a portrait of a curious mind attracted to grand schemes. He is a tenacious businessman, too, tough on employees who don’t measure up, ruthless with competitors and willing to take risks.

Larry Ellison on Charlie Rose

Link

Gundlach dips toe into uber-indexing

DoubleLine Capital LP plans to launch an enhanced index fund based on Yale University economics professor Robert Shiller's cyclically adjusted price-earnings ratio. 

The DoubleLine Shiller Enhanced CAPE Fund will use derivatives — either swaps or futures contracts — to track the Shiller Barclays U.S. Sector Total Return Index, which invests equally in the four most undervalued U.S. stock sectors based on their CAPE ratio and their price momentum over the past 12 months.