Hussman on the current awful time to invest. From Hussman Funds.
Last week, the estimated return/risk profile of the S&P 500 fell to the worst 2.5% of all observations in history on our measures. This is not a runaway bull market. Rather, it is a market that again stands near the highs of an extended but volatile trading range. I am convinced that the breakdown of the market from this range has been deferred only through repeated and extraordinary central bank actions.
Importantly, the market is again characterized by an extreme set of conditions that we’ve previously associated with a “Who’s Who of Awful Times to Invest.” The rare instances we’ve seen this syndrome historically are reviewed in that previous weekly comment. They include the 1972-73 and 1987 market peaks, and several instances since 1998. The more recent instances of this syndrome are shown by the blue bands on the chart below. Each of the separate instances in the 1998-2000 period were followed in short order by intermediate market declines of between 10-18%, and of course, ultimately by a plunge of more than 50% in 2000-2002. Likewise, the 2007 instance was followed in short order by a correction of nearly 10%, and a few months later by a plunge of more than 50% in 2007-2009. The more recent instances in 2010 and 2011 have also been followed by substantial market selloffs in each case, though with a longer lag in 2011 (due to ongoing QE2 operations). Aggressive monetary policy did not prevent the ultimate declines, though massive central bank interventions have undoubtedly helped to short-circuit the more violent follow-through that occurred in 1973-1974, 1987, 2000-2002, and 2007-2009, at least to-date.
We have heard it so many times, this time is different, but still this market is showing many similarities with last year’s market. SPX was churning higher last year, with decreasing volume and a collapsing volatility, just like this year, until it reached the “inflection” point .
Actually, the SPX was up some 13% from low to high since the start of the rally, almost identical percentage points to this latest momo rally. During the whole bull leg, the market was never below the 20 day average, just like this year.
Then we got that first sell off, followed by a nasty August. Let’s see what happens here, but yesterday was only the beginning. Chart below.
Must read on the Spanish Economy, statistics, and what “they” tell you. By Edward Hugh via Economonitor.
Like Leo Messi charging his way through a packed Real Madrid defense, twisting now this way, now that, never stopping without being stopped, so did the Spanish sovereign debt surge forward, breaking directly into the red zone near the penalty box, provoking confusion and consternation amongst horrified EU officials and regulators forced to look on as it blindly sought to touch down somewhere well beyond the authorised 100% finishing line.
Spain’s deficit has been much in the news in recent days. Both the target for this year and actual details of last year’s outcome have been the source of muchcomment, scrutiny, and consternation, but the deficit itself will not form the primary subject matter of this post. What we will be concerned with here is debt, sovereign debt, and the current trajectory of the Spanish variant. In a recent article in the Financial Times Victor Mallet draws attention to the situation and shows how an excessive emphasis on deficits may sometimes mislead people into missing the bigger picture, since at the end of the day deficits are only interesting as they add to debt, and in the long run what matters – as we have seen in the Greek case – is whether or not the debt itself is sustainable. (Full article here).
Lehman Brothers has ended the largest-ever corporate bankruptcy, emerging from Chapter 11 and announcing it will begin making its first payouts to clients next month, reports the FT. However, many disputes surrounding the defunct investment bank remain, http://ftalphaville.ft.com/thecut/2012/03/07/911741/lehman-emerges-from-bankruptcy/
Norway’s state-controlled energy group Statoil is in pole position to buy the Brazilian business of US-listed explorer Anadarko for about $3bn, which would mark the latest big foray by a global oil group into the South American country, http://ftalphaville.ft.com/thecut/2012/03/07/911721/statoil-leading-race-for-anadarko-assets/
Allen Stanford, the billionaire Texas banker who was once knighted by the government of Antigua, was convicted of stealing $7bn in customer money to fund a high end lifestyle that involved sponsorship of an international cricket tournament, http://ftalphaville.ft.com/thecut/2012/03/07/911641/stanford-faces-decades-in-jail-for-stealing-7bn-2/
Greece has threatened to default on any of its bondholders who do not take part in a €206bn debt restructuring that officials believe is key to returning Athens to solvency, a move that turns up the heat on potential holdouts ahead of a deadline on Thursday, http://ftalphaville.ft.com/thecut/2012/03/07/911621/athens-issues-threat-to-bond-holdouts/