PANIC BEFORE EVERYONE ELSE DOES

For the lazy people who don’t like to slog through Hussman’s entire data laden weekly tome, I’ve picked out the most pertinent sections. For the really lazy, I’ve bolded the most important sentences. When everyone on Wall Street is using the same algorithms in their HFT supercomputers, and John Q. Public isn’t even in the market, who will these supercomputers sell to when they all get the sell signal at the same time? When that time comes, and it won’t be long, I’ll be munching popcorn and watching the festivities unfold. The talking heads, government apparatchiks, and Ivy League educated big swinging dicks on Wall Street will declare a national emergency and demand another bailout. Will we be stupid enough to fall for it again, or will we start hanging bankers? 

The higher the price an investor pays for a given stream of expected cash flows today, the lower the return that an investor should expect over the long-term. As detailed below, investors have responded to zero interest rates by driving stock valuations up to the point where expected market returns over the coming decade are also zero. Given that outcome, one is quite free to say that stocks are reasonably valued “relative” to zero interest rates, but one should still expect zero 10-year returns on stocks.

My impression is that’s not how investors are thinking. Particularly at market peaks, investors seem to believe that regardless of the extent of the preceding advance, future returns remain entirely unaffected. The repeated eagerness of investors to extrapolate returns and ignore the Iron Law of Valuation has been the source of the deepest losses in history.

Current valuations are above the 2007 peak, and are now within about 15% of the 2000 extreme.

What we haven’t seen at any point in history is the combination of dismal projected returns for the S&P 500 coupled with a similarly dismal yield-to-maturity on bonds. The coming decade will be an underfunding disaster for corporate pension plans, endowments, and municipalities, most that still typically plan around an assumed rate of return closer to 8%. The most reliable measures we identify suggest that nominal total returns on a conventional asset mix are likely to be closer to 1% annually. Quantitative easing has already given investors, at least on paper, the gains that they would otherwise have waited years longer to achieve (again, at least on paper). Particularly in equities, investors who do not have a very long horizon and cannot actually tolerate a 50% loss should consider realizing those paper gains now and cutting exposure to a tolerable level. That’s not market timing – it’s sound financial planning that may be quite overdue. My impression is that the window of opportunity is closing quickly.

Recall that the 2000-2002 and 2007-2009 collapses were accompanied by Fed easing, not tightening. “Following the Fed” would have been disastrous in each case, as the Fed cut rates persistently and aggressively as the market lost half its value. Indeed, the Fed began cutting rates several weeks before the 2007 peak. The Fed also did not tighten within a year of the 1929 peak.

How many investors do you suspect will be available to absorb your shares at current price levels once they begin trying to exit simultaneously?

Look around, and all you’ll see are other bulls who share virtually identical beliefs despite the fact that many of those beliefs are contradicted by historical evidence. As I’ve detailed in recent weeks, stocks have been in a clear price-volume distribution pattern for nearly a year. The NYSE Composite has gone nowhere since last July, while the Dow and S&P 500 are back to their late-December levels. Soon, the only ones who will be available to take the buy side against sell orders are, well, value investors like me, and we don’t see value anywhere near current levels. The rule is simple. Once market internals have deteriorated, the exit rule for bubbles is that you only get out if you panic before everyone else does.

Frankly, history suggests that a rather ordinary completion to the present market cycle would involve the S&P 500 losing more than half of its value.

Based on the combination of obscene valuations and increasing deterioration across a wide range of market internals, our outlook remains hard-defensive here.

At present, market losses that may seem like “worst case” scenarios are actually quite run-of-the-mill expectations. As Santayana wrote, “Those who do not remember the past are condemned to repeat it.”

Read Hussman’s Weekly Letter

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81 Comments
Paulo
Paulo
June 8, 2015 9:03 am

In the past I would have forwarded this article on. I believe what it says, whole heartedly. I thought this sucker was going down 14 months ago. Now, I just keep my mouth shut. My buddies are big boys now, and I only hope they have exited. As of last month, by best friend was still crowing about his returns. He retires this month with a decent pension, but he could lose his substantial ‘gravy bucks’.

I have the popcorn ready.

Dutchman
Dutchman
June 8, 2015 9:35 am

Here in Minneapolis we are bombarded with On-Line Trading Academy radio ads. Make money in any market up / down / sideways…. I hear they charge upwards of $16,000 for the whole package. This kind of ‘stuff’ usually occurs just before the crash. I remember in the late 90’s when janitors were day trading stocks.

Anonymous
Anonymous
June 8, 2015 10:00 am

People aren’t going to sell everything they have (in the markets) and stuff their pillows with cash. It has to be kept somewhere and cash is a bad place to keep it, so the markets will not suffer that much no matter what unless there is something else available that will make equivalent gains.

Gold and metals meanwhile are still collapsing, probably heading towards $700 or so, since no one wants it and there are more sellers than buyers (which is what makes commodity prices go down, more buyers than sellers makes them go up).

What people need to start thinking about is the new super secret TPP the Republicans and Obama are forcing through will affect things: It isn’t about trade as such but the establishment of a new economic system where the U.S. will be a controlled component of it with directions and orders coming from an international body (which will operate largely in secrecy). This is going to be a game changer so using past historical data for making projections for future economic conditions is no longer valid and won’t be for at least another 30 – 50 years.

Evan
Evan
June 8, 2015 11:30 am

sorry administrator you still cant see very good when government and banks all over the world area playing russian rualt those on wallstreet are are so blind thinking preparer for thing for the worst pray for the highest God changes the hart and minds of all of you hell filed lusafearen beasterds on wallstreet you cant out think a computer that the largest banks in the world programming to rob stell and destroy rot in hell when the time comes calories will be valuable long term if you have eyes to see ears to hear run for your lives depends upon the your next move is going to be a bummer ride when governments are geared up for war this is nuts stop bring the banker’s of the world’s war and sit thim in the fuching battle fields of war mankind let’s them bleed over there greed

Dutchman
Dutchman
June 8, 2015 12:13 pm

Hey Evan, that was really uplifting. Looking forward to reading more of your creative thoughts.

Bostonbob
Bostonbob
June 8, 2015 12:21 pm

I think Evan had a stroke.
I want the IQ points I lost from reading that comment back.
Is there actually a reverse spell check.
Evan English can be a second language, just not yours.
Punctuation is not just for breakfast.
I went to Google translate to try to ascertain what Evan said and Google locked up.

Bob.

BUCKHED
BUCKHED
June 8, 2015 12:37 pm

Just got an e-mail from a guy named Evan in Nigeria…he said i have a million bucks waiting on me all I have to do is send him the taxes on it….let me re-read his post before I do .

starfcker
starfcker
June 8, 2015 12:50 pm

Kindness is a virtue. And the last 4 of you have been extremely kind

Bea Lever
Bea Lever
June 8, 2015 12:59 pm

Some people here at TBP are still playing in the toxic casino…….God help them when they watch their money vaporize. Do they stay because they don’t know what alternatives they have or do they think they have made bullet proof investments?

Do not wait for your financial planner/broker to warn you that you are about to be robed, it ain’t gonna happen.

Bea Lever
Bea Lever
June 8, 2015 1:05 pm

Evan- Can you tell us what country you are from? There is a little bit of a translation problem.

ragman
ragman
June 8, 2015 1:43 pm

Evan: that was one of the most coherent, profound posts I’ve seen on TBP. You are obviously a master at English composition, sentence structure and punctuation. Keep up the good work!

km
km
June 8, 2015 2:09 pm

The major players and the ones that run things, will end it the same way they started it – total control! The so-called analysts can analyse all they want to, they don’t run the show, so taking total stock in what they say could be dangerous to your financial health!

Westcoaster
Westcoaster
June 8, 2015 2:52 pm

I can translate Evan’s post for you guys. He’s saying things are fucked up and shit.

Anonymous
Anonymous
June 8, 2015 3:52 pm

Westcoaster- Ha, I think you nailed it. One thing is for sure, Evan is a little sharper than bb and Tits McGee.

Bea Lever
Bea Lever
June 8, 2015 3:54 pm

Above anon was I.

nohomehere
nohomehere
June 8, 2015 4:08 pm

I hear many say, that people are expecting a new world order.A replacement to this current corroding financialized economic system. It has been tweeked by the club so that distortion (like a house of mirrors) cause’s many in the investing world, to run into walls. One can not use normal standards of judgement in investing today. I am not an investor , yet, I`m devouring every available resource to further solidify my current understanding of how to make money by investing. It seems there was mention of valuations back when such things were trusted and mark to market could apply. But, the very institutions that were the trusted gate keepers of the financial world have betrayed the average joe investor rather John Q. public’s trust. The FCC seems to be out to lunch and Politicians are some how intwined in the filthy mess that has made insider trading look like a game of tiddly winks in the size and scope of the amounts of money that can be made with computers and logorithems not to mention forced bailouts tbtf QE’s and the rest of the shmiel. The next big fix will be the TPP and its brothers and sisters . Why for example can no one read this historic act that Mr. O wants to so ernestly iniciate ? I’v seen excerps and caught a wiff of it when reading a comment about a oil company caught ruining a rain forest . How a company could been cleared of any recourse OF A the soveriegn , all on the judgement of a three selecties to the panel that will preside over any hearings . I might be a novise but I know when something doesn’t smell right and this stinks. I can’t be the only one who sees this and it is probable detroying the confidence of millions which ( I say ) will lead to a downfall and then what can we trust for a store of “ value ation “ Gold, Silver, Old coins,expensive artwork like 170 million something paintings, diamonds, or maybe JUST GETTING AWAY TO A FARM ON SOME ISLAND, that loss of trust will include our trust in our souls very own celestial navegational points of what is reality , what is up or down , what is true north . Maybe that is what is meant by the phrase ( ORDER OUT OF CHAOS ) I have a funny feeling that there is a motive behind this mess that we are experiencing , bigger than anyone can concieve , more important than money. I was recalling to my wife about the old movie conan and how James Earl Jones was saying, he used to trust in the riddle of the steel, but, he called for a young girl to jump to her death and as she crashes to the ground, he exclaimes, NOW THATS POWER. Unfortunately, conan chopped off Jones head with a brokin steel sword at the end of the movie, but , you can kind of glean the meaning can you not? Total power over mans destiny is the ultimate ego trip . Yet, we are confined to our destiny’s within a clay vessel an earthen pot if you will a prison or a boundry a limit to our machinations . in other words we all die sometime. I jumped around alot tryin to keep it a post maybe someone can glean someting out of this mess were in . What is a true store of value ect?

Nickname
Nickname
June 8, 2015 4:24 pm

How to predict the stock market? It goes up till it comes down, and remember, “Those who do not remember the past are condemned to repeat it.”

Evan
Evan
June 8, 2015 4:34 pm

thank you all for letting my tirade be welcomed hear. yes my spelling my be off may have had to much coffee. lm made and im mad ass hell for letting those getting this worldwide war hell on earth going over there greed money of this world needs to change ask yourself this what is value things you can touch and see so to the simple people food water purification and rare earth metals and a way to protect it and your family your lives depends upon your next move think offensive and defense and to those that have may the

criticism of the structure of this then get Evan phonics my the lord lord gide your next move

Dutchman
Dutchman
June 8, 2015 4:41 pm

Hey I think NoHomeHere must be Evan’s dad.

Put those rants together, along with the JFK assassination, 9/11 conspiracies, and you have one hell of a logical argument for just about everything.

Is it a full moon?

Evan
Evan
June 8, 2015 4:45 pm

there thanks there’s someone who can say what my mind and hart is feeling nohomehere God’s speed be with you.

Bostonbob
Bostonbob
June 8, 2015 4:46 pm

Admin,
Ask and you shall receive. The scary part is I almost understood Evan’s second comment. I think I have had too much coffee today.
Bob.

Bostonbob
Bostonbob
June 8, 2015 4:49 pm

Dutchman,
I was thinking the same thing. Nohomehere could you just pretend to know what a paragraph is, your comment makes my eyes hurt.
Bob.

Evan
Evan
June 8, 2015 4:53 pm

no my friend Dutchman a bad moon is rising worldwide war not good for any one of use of this world greed is coming home to everyone everyone up close and personal peace be with you until you have no peace left then what are you going to do pray now while you can

European American
European American
June 8, 2015 4:59 pm

Armed (law abiding) Citizens and a Militarized Fascist Police State cannot coexist.

dc.sunsets
dc.sunsets
June 8, 2015 5:09 pm

So Admin, are you an Elliottician?

FTR, I have Prechter’s newsletters going back (off and on) to 1995, I have most of his books including a signed copy of his “magnum opus” (The Wave Principle of Human Social Behavior.

I also have a review of his Pioneering Studies in Socionomics that still sits on their website:
http://www.socionomics.net/press/book_reviews/Calderwood_TomorrowsHeadlines.html

That said, I’d be a richer man if I had never encountered Prechter’s work. I think Elliott Wave and Socionomics reveal something important about collective human behavior, but I am dead certain that they do not offer a more useful financial forecasting system than simple trend-following and very, very simple momentum-based Technical Analysis. Just the other day I came across on of my paid-subscription Interim Reports saying, “This is IT, this is THE top!” from several years ago.

dc.sunsets
dc.sunsets
June 8, 2015 5:15 pm

For the Record, also, let’s review:

When stock prices fall, the money doesn’t go somewhere else. It disappears.

When bond yields rise (and their prices fall), the money doesn’t go somewhere else. It disappears.

When land or home prices fall, the money doesn’t go somewhere else. (Yes, you guessed it.)

I read comments here and elsewhere that continually inform me that most people simply don’t understand this principle. They look at Warren Buffet’s net worth and think if markets fall he’ll still have the same amount of wealth, just sitting somewhere else.

This is not true. The “on paper” wealth of our Ruling Elite is all a figment of their imaginations. It is like Schrodinger’s Cat, “there” only as long as everyone doesn’t attempt to cash out. If everyone cashes out, the Cat is dead (the wealth evaporates.)

I wonder how many people with tens or hundreds of millions of dollars in wealth realize this? I wonder if they feel the icy breath of Mr. Market on their necks, as he stands behind them awaiting the perfect time to drive a dagger into their backs?

Easy come, easy go.

dc.sunsets
dc.sunsets
June 8, 2015 5:25 pm

@ Paulo,
Pensions all rest on 7-8% annual return funding assumptions.

What is coming will make the collapse of the USSR (and the pensions it was paying to old people) look tiny by comparison. Soviet people were used to hard times. When hard times got hard as granite, they could survive.

People in the USA are fat and soft. Hard times here are having to drive a 10 year old car instead of a new car, or eating out at Chili’s instead of Morton’s. Lots of pensioners are living on meager annual incomes of like $50,000-$80,000 (Oh, the horror!) This is a Middle Class conditioned to ease, and outraged if their retirement isn’t full of restaurant meals and 18 holes before 3 PM.

Worst of all, most people know nothing about finance and live right to the limits of their incomes. Cut the incomes by half and they will lose EVERYTHING….and then (as Gerald Celente says) “They lose it.”

I am vested in a pension, as is my wife. I have “social security” coming. My financial planning assumes I’ll get entirely stiffed by both of those. They are all Ponzi schemes based on compound annual rates of return that are both exponential and (in the long run) fantastically impossible.

People who are dependent on pensions are like those who think crime suppression is something they can order, like a pizza, for delivery. Dependence on others is for slaves.

BEA LEVER
BEA LEVER
June 8, 2015 5:35 pm

And in other news………..The Dow is in the red for the year, posted on Drudge Report.

The wheels are coming of the bus, I don’t care what anyone says or predicts, the unraveling has begun.

BEA LEVER
BEA LEVER
June 8, 2015 5:38 pm

Uhh, that would be off the bus/

Overthecliff
Overthecliff
June 8, 2015 5:49 pm

The trend is your friend. The trend is up until it isn’t. It is still up.

Re: Evan

All you bb haters, he is not that bad is he?

dc.sunsets
dc.sunsets
June 8, 2015 6:17 pm

Overthecliff, the WEEKLY trend is still up. The daily has turned down, and prices are sitting on support. Much more decline and the probability that this is a Real Thing rises dramatically.

There are cracks in the narrative.

Evan
Evan
June 8, 2015 6:53 pm

wiser men and women have come and gone the bigger thay think thay are the harder thay fall the NWO is the old world order

BEA LEVER
BEA LEVER
June 8, 2015 7:27 pm

The owners have a rule, NEVER let them see it coming. The crash will come as a thief in the night, swift and without warning. Be prepared that tomorrow could be the day, every day. Don’t leave your ass hanging out in the breeze so to speak and you will have a chance at holding on to what you have worked for your whole life.

I am amazed that people take a beating in financial markets and they just shrug it off, why? If a thief came in to your home and stole money from your wallet you would be outraged but banksters get a pass, WTF.

nohomehere
nohomehere
June 8, 2015 7:27 pm

“Last month, five banks pleaded guilty and paid a total of $5 billion in fines to settle a Justice probe into rigging Libor rates.

Treasuries are a bedrock of the US financial system. Their sale raises money to fund the US government and the rate attached to their sale affects a range of borrowing costs — including home mortgages, auto loans, credit cards and corporate bonds.They are considered the most easily traded and trusted debt in the world.” As I was saying, you destroy the trust you destroy the market you destroy the market you destroy the way investors make money . Conspiracy ? Oh. The { motive} part of the second part of the first part of the original rant was a philosophical lean , just an attempt to unify the two theories of singularity . Also, I don`t know how to write so could you suggest a free online learning center for paragraph disfunctional disorder PDD.

Evan
Evan
June 8, 2015 7:53 pm

if a shit storm is on it way to the dollar being the world reserve curency and the doolar claps like the traid towers did on 9/11 and 220 trillion in unfunded government liability your ass should pucker.when the bubbles pop youl get nuvus ordo seclorum order out of caos fuch you banker’s and wallstreet and the military industrial complex save your own soles by the deth of others how can anyone recommend to protect yourself from eval that has no compation other than Jesus that is true welth

Evan
Evan
June 8, 2015 8:28 pm

thank you Dc sunset yes thay eaten the hart’s of there own soles basterds broker means you if yor in the market. if you have eyes to see and ears to hear welth preserve welth by what you can food water purification and a way to get ass fare away from the public as you can before thing go boooom love and peace doses not exist in today’s world and protection because ther coming to eat your hart’s and your family’s let’s say little girl had a silver dime and a sandwich then Paris Hilton and a bank account and the computer at the bank locked up with many more of her and the bank will not open for some time witch one

Evan
Evan
June 8, 2015 8:30 pm

would have more welth sorry

EL Coyote
EL Coyote
June 8, 2015 8:54 pm

Never let it be said the president doesn’t care about bankers, Bankers’ Lives Matter.

llpoh
llpoh
June 8, 2015 8:59 pm

Holy fuck!

Evan – do yourself a favor and 1) get a spell checker, and 2) learn about paragraphs.

nohomehere – paragraphs, man, paragraphs!

You two may have something worthwhile to say, but unless you put them up so that people can read them without going blind, and so that important points highlight by the use of paragraphs, your points will be skipped over.

Evan
Evan
June 8, 2015 9:02 pm

Dutchman minnesota political class has stolen 2 billion from the taxpayer in the last 2 years think someone with a egotistical mind fram will not ask for more or can anyone say reco action should have been filed to no end will anyone put up with this vial if you have guts then guts will be enough for me war is coming to this country please people God gave use the way to be forgiven banker’s don’t

Dutchman
Dutchman
June 8, 2015 9:54 pm

Evan: I wish I could write like that! I could out class the bastards on this site.

Evan
Evan
June 8, 2015 11:19 pm

some of you see past my inability ovension by compation nonetheless have a great day

Evan
Evan
June 8, 2015 11:21 pm

some of you see past my inability ovension by compation nonetheless peace be with you at the time of reckoning

Evan
Evan
June 8, 2015 11:42 pm

fox holes will have value probably grammar will be a bit low on value

EL Coyote
EL Coyote
June 8, 2015 11:51 pm

Syntax is so over-rated.

EL Coyote
EL Coyote
June 9, 2015 12:09 am

Evan says:

Thank you, DC Sunsets. Yes they [have] eaten the hearts of there own souls. Bastard broker, means you if your in the market. If you have eyes to see and ears to hear, wealth preserves wealth.

Buy what you can: food, water purification and [plan] a way to get [you’re] ass as far away from the public as you can before things go ‘boooom’. Love and peace does not exist in today’s world and [you should seek] protection because their coming to eat your heart and your family’s [hearts].

Let’s say [a] little girl had a silver dime and a sandwich. [And] then [if] Paris Hilton [had] a bank account [but] the computer at the bank locked up [and left her without access to her money – which is a lot more than a silver dime,] and the bank will not open for some time, which one…

Miggy
Miggy
June 9, 2015 12:51 am

Anonymous says gold heading toward $700. Nothing personal but you still don’t get the mindset. You are still comparing gold to literal paper cooked up by a printing press.

The gold bugs’ argument, and I think its a good one, is that paper will become worthless and a new frontier will need to be created. In the meantime the only thing that will hold real value is hard assets, like gold and silver. Paper it aint.

Gold is not part of one of the rigged markets, other than the price is clearly being manipulated down, which cannot last.

John 3:16

Evan
Evan
June 9, 2015 1:19 am

if grammar is my failure of communication to one another sorry war eglish mother fuckers do you speak it or is your brain so far up yor ass that you cant hear my fluctuations this is way past normal to teach someone value before during and then after if you make it to the after part so can someone please explain to me the three things to my questions

stanistan
stanistan
June 9, 2015 3:26 am

Your banks are safe no false flag needed for crash once Fukushima’s 3 nuclear cores that are killing the pacific ocean and all its food for the world comes to light then you will see world wide panic it’s happening and will for 200,000 years. Maybe a food stock is the way to go. {sarc} http://enenews.com/ THE TRUTH IS HERE