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« Weighing the Week Ahead: Evaluating Risks | Main | ETF Update: Dr. Chu Points to Nuclear Energy »

December 15, 2010



Hussman notes that his recent update includes "equivalent" criteria. I think he has scraped the price/peak earnings, haven't heard much about that in while. Also the 4 year high in the S&P 500 index is obviously not in effect currently. I agree that he is data mining, but at the end of the day he is trying to justify his overbought/overly bullish/overvalued/rising yields syndrome concerns.


Mike C -- Here are two suggestions if you are going to defend Hussman:

Explain his change in methods and throwing out data that he does not like.

Explain the scenario that would lead to "another brutal" decline. Do you predict earnings of $50 on the S&P? A P/E multiple dropping to 7? Interest rates going to 14? Oh -- I forgot. That is not relevant in the Hussman/Shiller approach. Rates don't matter.

I look forward to your answers to these questions, but I am NOT going to respond to a lot of obscure arguments that adduce even more variables to explain why we should ignore the method Hussman advocated in 2005.

Aren't you even interested in the question I originally posed? Why not respond to that?

Just a thought.


Mike C

I hope that Georg will publish his results soon. To summarize, his methods confirm the first nine Hussman examples but disagree violently with the current case. How interesing!

Thanks for the Georg link. I downloaded the pdf and am looking forward to studying it.

Perhaps the situation above points that just one or a few variables are what are really relevant to the outcome?

I've been thinking a lot about this as to me one of the highest value adds one can bring to the table is effective market timing along with individual stock alpha.

Here is an interesting thing I think. The bear markets in the 80s and 90s were fairly mild compared to the 50% drop in 00-02 and 60% drop in 07-09. Perhaps Hussman's valuation metric and Shiller's P/E are ONLY RELEVANT in telling you how far a decline might go once an actual bear decline starts, but that they are useless for gauging the duration and magnitude of the upcycle.

In other words, maybe other metrics right now would indicate a run to 1500-1600 is likely (just hypothesizing), and that the Shiller P/E simply indicates once a decline starts it is likely to be yet another brutal one?

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