If you are familiar with mutual fund manager John Hussman
, president of Hussman Investment Trust, you are probably aware that he is bearish on the U.S. economy and stocks.
In a recent market commentary, he explains why.
- "The U.S. has become a nation preoccupied with consumption over investment; outsourcing its jobs, hollowing out its middle class and accumulating increasing debt burdens to do so," Hussman writes.
- "U.S. wages and salaries have plunged to the lowest share of GDP in history, while the civilian labor force participation rate has dropped to levels not seen since the 1970s. Yet consumption as a share of GDP is near a record high."
- As for stocks, "the most reliable stock market valuation measures . . . suggest that the S&P 500 index is likely to be lower a decade from now than it is today (though dividend income should bring the total return to about 1.5 percent annually)."
It's unclear which measures Hussman has in mind. But Robert Shiller's cyclically adjusted price-earnings ratio for the S&P 500, which includes 10 years of earnings, stands at 27.3, topped only by 1929, 2000 and 2007. Those, of course, were periods that preceded market crashes.
"Making our country stronger will require us to turn our backs on paper monetary fixes that discourage saving while promoting speculation and debt-financed consumption. It will also require us to turn toward policies that encourage productive investment — public (e.g., infrastructure), private (e.g., capital investment and R&D) and personal (e.g., education). The good news is that these policy options are within reach if we are enlightened enough to choose them."
Many stock market participants agree with Hussman that share prices are close to a peak, and here's a piece of evidence to back their view
U.S. stock funds have suffered a $44 billion outflow so far in 2015, the worst start for a year since 2009, according to a report from Bank of America Merrill Lynch (BAML) obtained by MarketWatch
And what caused the move? Weaker-than-expected economic data, the dollar's upward surge and overly bullish sentiment, according to the BAML strategists.
Earnings reports need to improve for stock fund inflows to increase. "Restoration of EPS [earnings-per-share] confidence" is "needed for US inflows."
As for the economy, growth slowed to 2.2 percent in the fourth quarter from 5 percent in the third quarter, and many analysts think it will shrink further this quarter. When it comes to the dollar, it has hit multi-year highs against a range of currencies in recent weeks.
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