John Hussman’s weekly comment today said that due to a math error, he has been recommending a bearish position by mistake. He wrote, “Now is one of the best times in history to buy stocks. We have thrown out our models (and our put options) and are buying stocks as fast as we can. We now actually have an 'undervalued, under-loved, nobody-appreciates-it' market that is ripe for extensive gains going forward. And oh, by-the-way,” he said, “that Shiller guy doesn’t know what he is doing” – OK, it’s a bad joke. April fools. Here’s what John Hussman really said:
“Overvalued, overbought, overbullish. When in history have we seen the
Shiller P/E (S&P 500 divided by the 10-year average of inflation-adjusted
earnings) above 23, the S&P 500 over 60% above its 4-year low and 10% above
its 52-week average, with investment advisory bears below 20% for at least two
weeks running? Three times: the April 2010 peak, the March-May 2011 peak – both
followed by corrections approaching 20% – and today. Even if one ignores the
historical evidence suggesting the potential for significant bear market losses
over the next couple of years, speculators should be aware that present
conditions have been hostile even in the context of the recent bull market
advance...I use the word “speculators”
intentionally, as the historical evidence overwhelmingly indicates that there
is little in the way of “investment” merit at present valuations.” – John
Hussman, PhD, excerpted from the Weekly Market Comment, for 1 April 2013 at…
http://www.hussmanfunds.com/
ASSIGNING PROBABILITY TO ECONOMIC PREDICTION
I have been reading The Signal and the Noise by Nate Silver on
making predictions. He suggests that
good predictions should include a margin of error or probability associated
with the prediction. Think weather forecasts.
He points out that Economists don’t assign probabilities or ranges to
their estimates because there is so much noise in the data that assigning a margin
of error (or a scientifically derived probability) would be too
embarrassing. For example, from 1965 to
2009 initial Government GDP estimates were eventually revised by 1.7
points. As stated in the book: “...the
range of possible changes in each quarterly GDP is higher still and the margin
of error on an initial quarterly GDP estimate is 4.3 percent. That means there’s a chance that the economy
will turn out to have been in recession even if the government had initially
reported above average growth.” (Signal
and the Noise, pg 194)
Further details on why I think the market is topping - here’s
another one:
INVESTMENT COMPANY INSTITUTE (ICI)The ICI reported inflows in domestic long-term mutual funds for the weekly reporting period ending 13 March 2013. ICI has seen inflows in US stock funds since January 2013.
As previously noted, the only time significant amounts of money went into domestic stock funds over the past 2-years
(before January of 2013) was at the last top in February 2011, right before the
stock market corrected. The following
graph shows that data. The ICI data is a
weekly data set with zeros for the other 4-days of the week without data. (This is hard to read, but I think you get the
idea.) The red data points above the green zero line (inflows) are few and far
between…except shortly before the tops.
MARKET RECAP
Monday, the S&P 500 finished down 0.5% to 1562 (rounded) on very low volume. I think the very low volume means everyone on Wall Street is on vacation.
Monday, the S&P 500 finished down 0.5% to 1562 (rounded) on very low volume. I think the very low volume means everyone on Wall Street is on vacation.
VIX rose 7% to 13.58.
NTSM
Monday, the NTSM analysis remained HOLD at the close. The numerical analysis has not yet confirmed
my “off-the-grid” top-call.
Sentiment is a sell; Price is a buy; and Volume and VIX are
neutral. VIX flattened today, so there
isn’t currently much of a threat of sell signal this week unless we see some
big moves.
MY INVESTED POSITION
I remain about 20% invested in stocks as of 5 March (S&P 500-1525),
due to my risk tolerance rather than the numerical NTSM analysis. To put it bluntly, I currently have no
tolerance for risk. (If I were strictly
following the NTSM numbers, I'd still be heavily invested in stocks.) My
reasoning may be found at…http://navigatethestockmarket.blogspot.com/2013/03/why-i-got-mostly-out-of-stock-market.html
