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Tags: Hussman | US | deflation | earnings

Hussman: The US Fiddles While the World Deflates

By    |   Monday, 08 July 2013 02:51 PM

Wall Street is pushing the view that the U.S. stock market and the dollar can stay in a bull market while much of the rest of the world is faltering, but investment manager John Hussman says such a "deflationary boom" scenario is likely a false one.

Hussman, a stock market analyst and owner of Hussman Funds, said it is contradictory to acknowledge a slowdown in Europe, China and other emerging markets, plus weakness in materials and some fixed-income assets, and still expect a U.S. boom.

In his weekly newsletter, Hussman said Wall Street has "chosen China and Europe to make the deflation case, and the perception of U.S. economic growth as the basis for a 'cleanest dirty shirt' argument for the U.S. dollar and U.S. equities.

Editor's Note:
Make 2013 the Year You Pay Zero Taxes

"In effect, Wall Street is singing 'We are the world ... so the rest of the world can sink into the sea.'"

According to Hussman, last week's U.S. jobs report was not positive. He said a 360,000 gain in part-time jobs masked an underlying loss of 240,000 full-time jobs.

At the same time, he estimated that even a 0.25 percent hike in Treasury bill yields would require the Federal Reserve to actually reduce the size of its balance sheet by at least $400 billion, which he said is very unlikely in view of current ultra-loose Fed policy.

"We continue to expect significant pressures on corporate profit margins in the next several years, and with negative earnings pre-announcements outpacing positive ones by a 7-to-1 margin, the upcoming earnings season strikes us as a likely headwind for stocks," Hussman predicted.

Hussman, a frequent Fed critic, said the Fed did not save the economy following the 2008 economic meltdown, but rather rescued the banks by allowing their accounting standards to become more opaque.

"The Fed's policies then shifted the costs of financial recklessness onto those who are not financially reckless — particularly ordinary savers and the elderly on fixed incomes, while the economy has more or less floundered," he wrote.

"The Fed's policies aren't to be hailed as virtuous efforts that saved the economy — they are more appropriately reviled as unethical policies that subordinate Main Street to Wall Street."

The outlook for second-quarter results in the stock market could be bleak, CNNMoney predicted.

FactSet estimated companies in the Standard & Poor's 500 are expected to report overall earnings growth of less than 1 percent. Of the 108 companies that have released forecasts, 87 have projected earnings below consensus estimates, according to CNNMoney.

Editor's Note: Make 2013 the Year You Pay Zero Taxes

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Economy
Wall Street is pushing the view that the U.S. stock market and the dollar can stay in a bull market while much of the rest of the world is faltering, but investment manager John Hussman says such a "deflationary boom" scenario is likely a false one.
Hussman,US,deflation,earnings
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2013-51-08
Monday, 08 July 2013 02:51 PM
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