Even if this five-year bull run does come to an end, it doesn’t mean that investors will spend too long in the throes of a bear market, MarketWatch’s Mark Hulbert says on MoneyBeat.

Category: Investing, Markets, Video

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7 Responses to “Hulbert: Preparing for the Next Bear Market”

  1. Concerned Neighbour says:

    I’ve noticed a number of well-known value investors, such as Klarman and the good folks at GMO, have sounded especially bearish lately. Hussman posted an interesting chart yesterday that does a pretty effective job of summarizing the bear case:

    http://www.hussmanfunds.com/wmc/wmc140310.htm

    To it I would add a dividend ratio well below 2%, small caps trading at a trailing P/E of 80+ (!!!!) and large caps ~20, historically high profit margins, and record high margin debt, among others. I would argue people buying at these levels are not being adequately compensated for risk; indeed, it is as if people no longer believe there is any risk at all. Well done Fed.

    It will be interesting to see how the media spins the “value story” as the “markets” are inevitably pushed higher and higher.

  2. MarkKlose says:

    Four years ago (3/2010) Hussman wrote “As of last week, the Market Climate for stocks was characterized by now strenuous overvaluation, strenuous overbought conditions, and hostile yield pressures. Under those conditions, even positive market breadth has not typically been sufficient to produce positive market returns, on average”

    It’s also worth remembering that 3 years ago (3/2011) Hussman wrote “Last week’s stock market advance placed prevailing conditions firmly back to an overvalued, overbought, overbullish, rising-yields syndrome that has historically been hostile for stocks”

    Two years ago (3/2012) he wrote “we presently view the menu of investment opportunities to be one of the most unfavorable in history. For equities, much of the bubble period since the late-1990′s has been worse in terms of valuations (predictably generating near-zero total returns during this span of time), but in terms of the overall overvalued, overbought, overbullish profile of the market, present conditions fall into a Who’s Who of awful times to invest.

    And then last year (3/2013) He wrote “As of last week, the market environment remained characterized by an unusually extreme variant of overvalued, overbought, overbullish, rising-yield conditions, with bearish sentiment among investment advisors falling to just 18.8%, a Shiller P/E (S&P 500 divided by the 10-year average of inflation-adjusted earnings) above 23, the S&P 500 at a 4-year high and pushing its upper Bollinger band (2 standard deviations above its 20-period moving average) at daily, weekly, and monthly resolutions, and the 10-year Treasury yield above its level of 6-months prior.”

      • ch says:

        Hussman is a very bright and thoughtful guy. What he has missed all the way up as noted above is that the market is no longer about economics, it’s about politics.

        If the Fed doesn’t do what it is doing, the people that are going to be right are not those sitting in cash like Mr. Hussman. They are going to be those sitting in K-rations and guns.

        The Fed is financing the US government because our foreign creditors won’t. If they stop, rates rise until they find a level where private capital steps back in. That level in all likelihood blows up real estate and therefore the banking system. Once that happens, it all unwinds quite quickly – see September 2008.

        Not good news in a nation where 50m people are on food stamps and there are 9 guns for every 10 people.

        The “Truman Show” economy as Seth Klarman recently called it is here because while painful for professionals, it beats the alternative.

        It is very hard for quantitatively focused guys like Hussman to wrap their minds around what has been happening to the currency and will continue to happen to the currency. When you have $120T in obligations like the US against $17T in GDP, the currency is already worthless. It just hasn’t been marked to market yet. That’s what the stock market is in the process of doing. The Fed has actually been pretty straightforward that is what they are trying to do…the Fed just can never admit how far they are actually going to have to take this to recap the system.

        But it’s implied by the levels of debt for those paying attention.

    • rd says:

      A hallmark of the past year or two of this bull market has been bears turning bullish.

      When Hussman rolls over to being neutral or bullish, then it will be time to go fully to cash and hide under a mattress.

      I don’t count Grantham in the group of bears that have turned even though he has indicated that he expects the stock market to rise over the next year or two. He has been following his models of predicted returns over the next 7 years which have generally been as good as anything else over that time frame but he freely notes that the stock market will follow sentiment and momentum over the realtively short-term. My take is that he views his models to be almost worthless for predicting market moves over time frames shorter than a few years but quite good when you start getting out towards 7 years.

    • Concerned Neighbour says:

      Yep, Hussman has been eating a lot of crow these last few years. I referenced him due to the chart, not as an endorsement of his track record :).

      • rd says:

        Based on his own chart with expected 10 year returns, you would have expected positive returns going out 10 years over the past 5 years. That is better than a money market fund and a short-term bond fund.

        I just got my 401k quarterly rebalancing statement today. They sold a bunch of my US and large cap international stocks and bought bonds and emerging markets with the proceeds.Buy low and sell high.