Loading ...Why a 60-65% Market Loss Would Be Run-Of-The-Mill
Worth a read and also why one should be careful out there in the near to mid-term … whether we see a blow off top in the future or not is anyone’s guess, but historically, we are already at very high valuations being led by a broad number of companies primarily in a nation with exorbitant levels of debt and large deficits.
Hussmand Funds – Why a 60-65% Market Loss Would Be Run-Of-The-Mill
https://www.hussmanfunds.com/comment/mc190503/
Summing up – we may see some further marginal gains, but a ‘crash’ is coming, with very large negative returns over a 10 year time frame.
Northstar … will a crash occur again in our lifetimes, I think so, the question is when. The next recession may not be a crash, just a mild recession. However, if current speculation in general markets grows creating a blow off top then a crash is in the cards. How does the Fed prevent a blow off top in the general markets … I suppose they can again go 180 degrees in the opposite direction and hike rates, right at the end of a business cycle … pretty incompetent!
I think what is interesting is Hussman sees negative returns over 10-years from current levels, the 60-65% retracement would put the S&P 500 at historical fair value. This highlights how excessively high current valuations are from historical norms. The problem from my viewpoint is the Fed, easy money, lower bound interest rates, and zero accountability in the financial system.
His discussion of excessive U.S. deficits is also revealing of how delicate the economy is, even after all the patchwork by world central banks. To imagine all it will take is the U.S. unemployment to rise ~1% from current levels, then GDP will turn negative and deficits will dramatically rise (potentially larger than those experienced during the financial crisis). We know what happens when the unemployment rate begins adjusting up or down, usually its a slow walk that eventually turns into a run. Also the fact GDP readings over the past quarters have been driven, in part, by inventory accumulation (0.7% of 3.2% GDP 1Q2019), which reflects a weakening economy.
Just how it plays out and precisely when is open to question. My view is that there will indeed be a huge financial crisis in the coming years. Debt is everywhere and it’s warped our financial system beyond repair I’m afraid.