John P. Hussman Of Hussman Funds On Employment, Leading Indicators And Valuations

Another brilliant commentary by John P. Hussman of Hussman funds.

Impulse Response by John P. Hussman of Hussman funds (

…So what is the most likely outcome of this situation? In my view, the next three months represent the most serious window for the U.S. economy and labor market. The typical 23-26 week lag between leading indicator deterioration and new unemployment claims deterioration suggests that we may observe upward pressure on new claims for unemployment beginning about mid-October…

…Yet even the near-term risks to employment and the economy are not the greatest risks that investors face. Rather, the most serious risk for investors here is the persistent and misguided eagerness of Wall Street to value long-term assets based on short-term earnings results. Investors have priced the S&P 500 in a manner that is far too dependent on the achievement and maintenance of profit margins about 50% above historical norms. This is a mistake. Profit margins normalize over time, and on the basis of normalized earnings, the S&P 500 is about 40% above robust historical valuation norms (and even further above valuation levels that have represented “generational” buying opportunities such as 1974 and 1982, when well-covered corporate dividend yields averaged about 6.7%, versus the current 2%)….

This entry was posted on Tuesday, September 14th, 2010 at 8:13 am and is filed under Markets. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

Comments are closed.


Get Adobe Flash player