Hussman Weekly Market Comment: An Angry Army of Aunt Minnies

As of Friday, the S&P 500 was within 1% of its upper Bollinger band at virtually every horizon, including daily, weekly and monthly bands. The last time the S&P 500 reached a similar extreme was Friday April 29, 2011, when I titled the following Monday's comment Extreme Conditions and Typical Outcomes . I observed when the market has previously been overbought to this extent, coupled with more general features of an "overvalued, overbought, overbullish, rising yields syndrome", the average outcome has been particularly hostile:

"Examining this set of instances, it's clear that overvalued, overbought, overbullish, rising-yields syndromes as extreme as we observe today are even more important for their extended implications than they are for market prospects over say, 3-6 months. Though there is a tendency toward abrupt market plunges, the initial market losses in 1972 and 2007 were recovered over a period of several months before second signal emerged, followed by a major market decline. Despite the variability in short-term outcomes, and even the tendency for the market to advance by several percent after the syndrome emerges, the overall implications are clearly negative on the basis of average return/risk outcomes."

As it happened, April 29, 2011 turned out to mark the exact high of the S&P 500 for the year, and was followed by a steep intermediate market plunge. My impression is that despite the recent run of speculation the market has enjoyed - largely reflecting a reprieve in European debt concerns and what appears to be a drawing-forward of jobs into the first quarter due to unseasonably favorable weather - the extended implications of present market conditions remain decidedly negative.

If you examine the components of the S&P 500 individually, you'll quickly find that the majority of those stocks are also at or through their own upper Bollinger bands. In overvalued, overbought, overbullish, rising-yield conditions, those extensions are often resolved in unison, which is what produces the characteristic "air pocket" where the index can give up weeks or sometimes months of upside progress in a handful of sessions (though we often see a knee-jerk reaction to buy that initial dip before more serious follow-through occurs).

John Mauldin: Where Will the Jobs Come From?

Each month investors and politicians in countries all over the world obsess over the release of the monthly employment numbers. Even though these numbers are likely to be revised significantly from the original release, the markets can't help responding to the variations from the expected number. Why the focus on numbers that are likely to be proven wrong in the coming years? Because the single most important factor in the direction of an economy is employment. Consumer spending, personal income, tax revenue, corporate profits, and a host of other variables all swing on rising and falling employment.

This week we begin a series of letters on employment. I have been researching the topic more than usual for the book I am writing with Bill Dunkelberg (the Chief Economist of the National Federation of Independent Businesses) on the entire employment issue. We will look at why employment is so critical. How are jobs created and what policies can be adopted to help foster more jobs? Should the US try and keep jobs that are going overseas, or develop whole new industries? Who exactly is the competition globally for jobs?

We will find that billions of jobs will disappear in the coming decades and even more will be created. There are today some 1.2 billion good jobs, but 1.8 billion people want them. Over the next 30 years the world economy will double and then almost double again. Where will the new jobs be and who will get them? What should you and you children be doing today to be sure that you have jobs in the future?

In order to try to answer these questions, we will start with a general view of the employment situation in the US. What has it looked like in the past and where is it going? Today, we will look at the direction of employment in the US and then focus on both what employment is likely to be in the next few years as well as the dynamics of the labor market. There is a lot to cover.

Simoleon Sense Episode #1

Congrats on the first episode Miguel! (Click the link below to be taken to the video.)

I’m happy to announce the first episode of our online talk show. Today we talk about the limits of multitasking with my friend Daniel Simons Co-Author of The Invisible Gorilla & Other Ways Our Intuitions Deceive Us.

Chris Martenson Interviews Marc Faber

Link

Stephen Colbert Interviews Neil deGrasse Tyson

Funny and educational. The interview starts around the 6:30 mark.

Link

Nassim Taleb on explanation-seeking humans

"...we are explanation-seeking animals who tend to think that everything has an identifiable cause and grab the most apparent one as the explanation. Yet there may not be a visible because; to the contrary, frequently there is nothing, not even a spectrum of possible explanations. But silent evidence masks this fact.....we are too brainwashed by notions of causality and we think that it is smarter to say because than to accept randomness." -Nassim Taleb, The Black Swan

The Most Astounding Fact About the Universe

Astrophysicist Dr. Neil DeGrasse Tyson was asked by a reader of TIME magazine, "What is the most astounding fact you can share with us about the Universe?" This is his answer.

Link

Dylan Grice Explains When To Sell Gold

Via Zero Hedge:

It’s a lump of metal with no cash flows and no earnings power. In a very real sense it's not intrinsically worth anything. If you buy it, you're forgoing dividend or interest income and the gradual accumulation over time of intrinsic value since a lump of cold, industrially useless metal can offer none of these things. That forgone accumulation of wealth is like the insurance premium paid for a policy which will pay out in the event of an extreme inflation event.

Is there anything else which will do that? Some argue that equities hedge against inflation because they are a claim on real assets, but most of the great bear market troughs of the 20th century occurred during inflationary periods. A more obvious inflation hedge is inflation linked bonds, but governments can default on these too. More exotic insurance products like sovereign CDSs, inflation caps, long-dated swaptions or upside yield curve volatility all have their intuitive merits. But they all come with counterparty risk. Physical gold doesn’t. Indeed, during the “6000 year gold bubble” no one has defaulted on gold. It is the one insurance policy which will pay out when you really need it to.

Sex-deprived flies turn to booze

NEW YORK -- Guys, when your sweetheart says “No thanks” to sex, do you knock back a few stiff drinks to feel better? Turns out fruit flies do pretty much the same thing.

That's the word from a new study that may explain why both species react that way.

In Friday's issue of the journal Science, researchers propose a biological explanation for why “Not tonight, dear” may lead to “Gimme another beer.” If it proves true in people, it may help scientists find new medications to fight alcoholism.

In that case, we can thank thousands of frustrated flies.

One by one, these eager Lotharios were put into a container with a female that had just mated. So she was really, really not interested in doing it again anytime soon. She would run away. She would kick the male. She would stick out her egg-laying organ to hold him at bay.

The male flies went through three hour-long sessions of this every day for four days, enough rejection to discourage them from trying any more.

After that experience, rejected flies were put in vials and given a choice of regular food or alcohol-laced food. They consistently went for the alcohol more than did the male flies that had just mated. In fact, they evidently got plastered.

Some rejected males were moved to a different environment, where groups of guys mingled with receptive females. After the guys had sex, their yen for alcohol declined.

The researchers also paired thousands of other male flies with dead virgin females, so that they didn't experience rejection but didn't have sex either. They still hit the sauce.

What's going on here?

Vanguard Founder Bogle on Strategy, U.S. Tax Laws (video)

About a 30-minute video that took place a month ago.

Feb. 17 (Bloomberg) -- John Bogle, founder of Vanguard Group Inc., talks about financial markets, investment strategy and U.S. tax policy. Bogle, speaking yesterday with Bloomberg's Betty Liu at the Bloomberg Link Portfolio Manager Mash-Up conference in New York, said lower tax rates for certain types of gains earned by private equity firms are "ridiculous."