Tags: Hussman | Reward | Risk

Hussman: It's Worst Time Ever to Test High Risks for Rewards

Monday, 07 May 2012 07:20 AM

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Economist and fund manager John Hussman says if investors were to choose a time to test that risk would be well-rewarded, now is the worst possible moment.

Currently, there’s an absence of redeeming instances where things worked out well, and an abundance of starkly negative market outcomes that have accompanied similar conditions, Hussman notes.

“This uniformity of bad outcomes is why I keep using the word ‘warning’ lately,” Hussman writes in a note to investors. “The market's prospective return/risk tradeoff here is highly unbalanced toward the risk side.”

Editor's Note: The Final Turning Predicted for America. See Proof.

This isn't just a matter of advisory bullishness being high in one week or another, or even valuations being rich, or just economic risks appearing high, says Hussman.

Rather, it’s the number of red flags flying at the same time, such as: Rich valuations, overbullish sentiment, heavy institutional saturation in "risk-on" trades, near-panic levels of insider selling, a burst of new stock issuance, overbought conditions, a two-tiered market that couples speculation in a handful of momentum stocks with broadly deteriorating market internals, a variety of historically hostile syndromes and increasing likelihood of oncoming recession.

Reuters reports that economists are increasingly that 2012 will be another year when growth limps along at 2 percent.

Even though The United States is holding up better than Europe, where several countries have slipped back into recession, and American consumers increased their spending in the first quarter, growth in incomes is lagging, suggesting something has to give.

Editor's Note: The Final Turning Predicted for America. See Proof.


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