'..patient investors .. could also see asymmetrically large returns from tail-risk hedges as the market cycle is completed. That kind of position always has to be limited to a small percentage of assets, and should be limited mainly to conditions that join unfavorable valuations and internal dispersion.'<blockquote>'We'd be inclined toward exactly the opposite strategy. Given low option premiums, along with extreme valuations, interest rates above the zero-bound, and market internals showing continued dispersion, patient investors who can tolerate the potential risk of a slow and annoying drip of option decay over a shorter segment of the market cycle could also see asymmetrically large returns from tail-risk hedges as the market cycle is completed. That kind of position always has to be limited to a small percentage of assets, and should be limited mainly to conditions that join unfavorable valuations and internal dispersion. In the face of marginal new highs, it's also a reasonable concession to be slow about raising strike prices, since the main object of interest is the 50-60% gap from current valuations to historical norms. As a side note, yes, we did see "Hindenburg" on Thursday, so last week's high was sloppy internally, but we can't rule-out further short-term upside..
While about 80% of the market gain since the 2009 low occurred by the end of 2014, a sequence of novelties since then (particularly Brexit and the U.S. election) have worked to extend this high-level top-formation. Still, I continue to view this as a period of top-formation. Unlike Irving Fisher in September 1929, I have no expectation that the market has reached a “permanently high plateau.” '
- John P. Hussman, Ph.D.,
This Time is Not Different, Because This Time is Always Different, May 8, 2017</blockquote>
Context<blockquote>
'..investors’ fear of missing out is looking increasingly desperate..''Unsound Finance gets to the heart of the issue.''..Our central bank has clearly learned nothing from earlier crises..'</blockquote>