This is from Hussman's recent market comment:
So what was legitimately “different” about the recent advancing half-cycle? The difference wasn’t about valuations. It wasn’t about market internals. It was about limits. In prior market cycles across history, a particular set of market conditions offered a reliable warning that speculation had reached its limits. Once market action was characterized by a full syndrome of “overvalued, overbought, overbullish” features, the market typically became vulnerable to air-pockets, panics, and crashes. If market internals hadn’t already deteriorated, they typically did shortly after those “overvalued, overbought, overbullish” warning signals emerged. So historically, one could respond to those warning signals pre-emptively, adopting a negative market outlook even before internals had explicitly deteriorated. Not this time. Once interest rates hit zero, unlike previous market cycles, these warning signals posed no limit to continued speculation.
Wrong. No bull market top has ever occurred over the last 100 years without the internals diverging or deteriorating. The cumulative A/D line has always diverged with price before a major market top has been registered. Now with that kind of overwhelming evidence, what's the need to pre-empt the market, based on an unproven valuation model ?
In hindsight, imagining there was some limit to speculative recklessness was my greatest error in over three decades as a professional investor.
That's 100% correct !. Wise men like Richard Dennis talked about this way back in the 80s, when he said "Never put a boundary on how high or how low a market can go". Finally he admit's that it was his imagination and had nothing to do with reality.
Folks thought that the market was extremely overvalued when the S&P P/E hit 26 in 1991. When it hit 33 in 1999, they thought it was insanity. Finally it topped out at 46 in 2000. Never pre-empt a bull market.
Late last year, we adapted our methods to prioritize the condition of market internals ahead of those “overvalued, overbought, overbullish” warning signs, with no exceptions.
Finally he learns that market internals trumps valautions.
Edited by NAV, 10 July 2018 - 01:16 AM.