John Morgan: “John Hussman: Belief in Fed Miracles Is the Only Stock Market Prop” – Money News

Posted on :Dec 03, 2013

By: John Morgan

Money News

December 3, 2013

There is not a single valid monetary, economic or technical reason  — except for  “blind faith” in the Federal Reserve’s unprecedented quantitative easing  campaign — that would justify the posh gains in the stock market during the past  year, according to fund manager and Fed critic John Hussman.

In  his weekly commentary, Hussman, president of the investment advisory  firm that manages the Hussman Funds, wrote, “We’re faced with a speculative  advance that seems unstoppable, despite the absence of any reliable mechanistic  link between quantitative easing and stock prices — only a combination of  superstition and yield seeking that has repeatedly ended badly.

“What’s  driving capitulation here is not evidence, or even the faint memory of cycles as  recent as 2000 and 2007 — but pain, impatience, career risk, and the demand that  all discomfort must arise from conventional behavior.”

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Hussman predicted  the current bull market will end the way many of them do — that is, when  everyone is invested and there is no one left to buy stocks. He noted the  percentage of bearish investment advisors is now the lowest in about 25  years.

“We are observing overvalued, overbought, overbullish extremes  that are uniquely associated with peaks that preceded the worst market losses in  history,” he said, adding that stock speculators are grossly overleveraged, with  NYSE margin debt jumping in November to 2.5 percent of GDP in relative  terms.

“I believe that more than half, and perhaps closer to all, of the  market’s gains since 2009 will be surrendered over the completion of this  cycle,” Hussman asserted.

Ed Yardeni, president and chief investment  strategist at Yardeni Research, is considerably more bullish than Hussman. Yardeni  wrote on his blog that the bull market’s perma-bears have consistently  underestimated the rebound in earnings since 2009.

Yardeni said some  bearish strategists have adopted a pretzel logic whereby they claim stocks are  significantly overvalued relative to “normalized” earnings, which by their  estimation are lower than actual earnings.

“Of course, since the  perma-bears have been predicting an imminent ‘endgame’ scenario since the start  of the bull market, their latest spin is clearly just a variation on their  bearish theme,” he wrote.

USA  Today reported that in the huge 2013 stock rally, the rising levels have  not been led by a few overhyped “story stocks,” but by a broad participation of  nearly all stocks in the S&P 500, which is generally considered a very  bullish sign.

The breadth of the rally has been far superior than in  1999 and 2007, the years of the past two stock market tops, the newspaper  reported.

“The punch line is that narrow markets are more consistent  with market tops,” said Chris Verrone, analyst at Strategas. “Not much evidence  of that right here.”

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