Hussman: "We Have One of the Most Overvalued, Overbought, Overbullish Equity Markets in History"

John Hussman, President of the Hussman Investment Trust, is extremely bearish in his recent note titled "Baked in the Cake". I don't see how he could get more bearish than this (emphasis mine).

The U.S. equity market is now in the third, mature, late-stage, overvalued, overbought, overbullish, Fed-enabled equity bubble in just over a decade. Like the 2000-2002 plunge of 50%, and the 2007-2009 plunge of 55%, the current episode is likely to end tragically.

With respect to the present, mature, overvalued, speculative half-cycle, I don't expect this cycle to be completed with a 20% loss, or a 25% loss, but instead a loss in the 40-55% range. Again - this isn't even a dire forecast. A 40% market loss is the central expectation. Even run-of-the-mill bear markets average a loss of about 32%, while run-of-the-mill cyclical bear markets in a secular bear context average a loss closer to 38%.

In short, we have one of the most overvalued, overbought, overbullish equity markets in history, but one where investors are under the illusion that stocks are appropriately priced, because they are being sold a valuation benchmark (forward operating earnings) that reflects profit margins 70% above historical norms – a direct result of unsustainably large deficits in combined government and household savings. As government deficits recede from the historic extremes that marked the post-crisis response to the worst economic downturn since the Depression, and household savings rebound from among the lowest levels in history, corporate profit margins cannot and should not be expected to persist at anywhere near recent record levels. A century of economic data provides evidence on both corporate profit margins and broader valuation measures.

Read his full Weekly Market Comment at
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