Say no more. The next QE 3 is priced in. What could possibly go wrong here?
Full video below.
Market thoughts by John Hussman of Hussman funds.
For investors who don’t rely much on historical research, evidence, or memory, the exuberance of the market here is undoubtedly enticing, while a strongly defensive position might seem unbearably at odds with prevailing conditions. For investors who do rely on historical research, evidence, and memory, prevailing conditions offer little choice but to maintain a strongly defensive position. Moreover, the evidence is so strong and familiar from a historical perspective that a defensive position should be fairly comfortable despite the near-term enthusiasm of investors.
There are few times in history when the S&P 500 has been within 1% or less of its upper Bollinger band (two standard deviations above the 20-period moving average) on daily, weekly and monthly resolutions; coupled with a Shiller P/E in excess of 18 – the present multiple is actually 22.3; coupled with advisory bullishness above 47% and bearishness below 27% – the actual figures are 51% and 24.5% respectively; with the S&P 500 at a 4-year high and more than 8% above its 52-week moving average; and coupled, for good measure, with decelerating market internals, so that the advance-decline line at least deteriorated relative to its 13-week moving average compared with 6-months prior, or actually broke that average during the preceding month. This set of conditions is observationally equivalent to a variety of other extreme syndromes of overvalued, overbought, overbullish conditions that we’ve reported over time. Once that syndrome becomes extreme – as it has here – and you get any sort of meaningful “divergence” (rising interest rates, deteriorating internals, etc), the result is a virtual Who’s Who of awful times to invest.
Quick update on VIX ETP Products. By Vix and more.
Two thirds of 2012 passed before we saw the first new VIX-based exchange-traded product and it turned out to be an interesting one: the First Trust CBOE S&P 500 Tail Hedge Fund ETF (VIXH), which was introduced at the end of August. VIXH is essentially a portfolio consisting of 99-100% of SPY, augmented by a dynamic allocation of 0-1% of VIX options, with the amount of options determined by the level of the VIX at the beginning of each VIX expiration cycle. This is the first VIX-based ETP to included VIX options among its holdings and it is notable that this product bucks the recent trend and is an ETF instead of an ETN. There are other features of VIXH worth discussing and I will discuss these in future posts.