"Still, it's helpful to be aware of how compressed risk premiums unwind. They rarely do so in one fell swoop, but they also rarely do so gradually and diagonally. Compressed risk premiums normalize in spikes.”
Those spikes will make it quite difficult to exit in the nice, orderly manner that speculators seem to imagine will be possible. Nor are readily observable warnings (beyond those we already observe) likely to provide a clear exit signal. Galbraith reminds us that the 1929 market crash did not have observable catalysts. Rather, his description is very much in line with the view that the market crashed first, and the underlying economic strains emerged later:"
Read his entire note at HussmanFunds.com.