John Hussman: 'The Speculative Market Advance Since 2009 Ended Last Week'

And stocks could fall 50-70% as a result

There's an old saying on Wall Street that "no one rings a bell at the market top"

This is why so many surprised investors got so badly burned when the DotCom and 2008 stock bubbles burst.

But those who noticed the extreme market conditions beforehand, whose analysis of history convinced them that defense was more prudent than fear of missing out, these few avoided most of the losses -- and some even gained mightily from those crashes, having been positioned wisely in advance.

Today's guest is one of those who smartly navigated the past 2 great market corrections.

He now thinks we stand at the precipice of a 3rd -- and he's ringing a bell for anyone who will listen. 

To hear why and what he advises we do about it, we have the great fortune to speak today with Dr John Hussman, founder of Hussman funds, economist, health scientist and philanthropist. He also plays a mean guitar.

John gives interviews very rarely. So it's a true privilege for Thoughtful Money that he's was willing to give us so much of his time in this important discussion.

To learn why he’s just issued the warning that “the speculative market advance since 2009 ended last week”, click here or on the image below:

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Adam’s Notes: John Hussman (recorded 6.25.24)

EXECUTIVE SUMMARY

• John sees current market conditions as highly overvalued. Current valuation extremes parallel past market corrections and bubbles, and he calculates the risk of a 50-70% decline in the S&P 500 based on historical precedent.

• For those wondering why his models started performing less well in the post-GFC recovery: John admits that his investment strategy during the recent bubble was too defensive, a stance influenced heavily by the environment following the global financial crisis. He conducted stress tests that suggested certain market syndromes, historically reliable indicators of downturns, should prompt a defensive position. However, the unique conditions of quantitative easing (QE) and zero interest rates altered typical market behaviors, encouraging continuous speculation despite overextended valuations. This led to a prolonged period where traditional indicators of downturns did not apply as they had in past cycles.

• Since 2021, market internals have not been favorable, suggesting a cautious approach is warranted. John ties this observation to broader economic indicators, particularly in the labor market. The gradual reduction in job openings, a creeping increase in unemployment rates, and a rise in new unemployment claims are signs he watches closely, indicating the potential for recession is rising.

• The historical increases in corporate debt, especially during periods of low interest rates, have heightened the impact of interest expenses on profit margins. He highlights the trend of companies taking advantage of these lower rates to increase leverage, which could pose risks as interest rates rise and debt needs to be refinanced. This could potentially squeeze profit margins in the coming years as higher refinancing costs take effect.

• John is skeptical about the efficacy of any Federal Reserve future rate cuts, emphasizing that