Tuesday, November 19, 2013

Latest Hussman Column

Excellent Hussman column from Sunday:

"Stock valuations are far less sensitive to 10-year Treasury yields than Wall Street seems to believe. It turns out that the presumed one-to-one relationship between the 10-year Treasury yield and equity yields (specifically the 'forward operating earnings' yield) is nothing more than an artifact of a 16-year disinflationary period between 1982 and 1998, when bond yields declined diagonally and a secular bull market in stocks gradually morphed into a valuation bubble. Outside of that span, the tight relationship between stock yields and bond yields assumed by 'Fed Model' has a laughably dismal record, and yet Wall Street and Janet Yellen appear to reference it as fact because they are evidently too convinced by the rules-of-thumb in their heads to actually examine the data (see the August 2007 piece Long Term Evidence on the Fed Model and Forward Operating P/E Ratios for a trip down memory lane, as I tried to disabuse the same beliefs at that market peak. Spoiler alert - nobody listened, and the market plunged by 55%)."
The bulls don't have any analysis of market valuation that is as good as what's in this column. Sure, there's a disconnect between these columns and the way his mutual funds are run. Who cares? The analysis stands on its own.

1 comment:

whydibuy said...

The analysis stands on its own????

The analysis is little more than psychobabble. And following it would lead to poverty and/or very poor investing results. So Hussman knows enough not to eat his own cooking. Or believe in the poop he is slinging.
Yeah, we bulls pity the analysis types who followed such non sense as Tobins Q which would have put you out of the market from '92 through today . Yeah, out from dow 3800 to dow 16000. But they did have solid analysis that stood on its own, lol.