'The key lesson of the recent half-cycle advance was only that deranged central bank policies are capable of extending speculation..'<blockquote>'In prior market cycles across history, rich valuations were rarely enough to crater the market all on their own, but sufficiently extreme “overvalued, overbought, overbullish”
syndromes did reliably signal periods of oncoming trouble, even if a bull market ultimately had longer to run. That regularity was captured by our post-crisis stress-tests against Depression-era data, but turned out to be our Achilles Heel in the speculative half-cycle since 2009. In recent years, deranged central bank policy encouraged continued speculation despite these syndromes, particularly after 2011. One had to wait for market internals to deteriorate
explicitly before adopting a hard-negative outlook. That consideration is the only thing that was truly “different” about this half-cycle.
Investors will draw dangerously wrong lessons from the half-cycle advance since 2009 if they conclude that a) valuations don’t matter, or b) central bank easing is capable of preventing a market collapse once investor preferences shift toward risk-aversion. The key lesson of the recent half-cycle advance was only that deranged central bank policies are capable of extending speculation, even in the face of “overvalued, overbought, overbullish” extremes,
provided that investors remain inclined toward risk-seeking. Investors are begging for trouble if they ignore the deterioration in market internals here, because we are observing a shift toward risk-aversion among investors at a point where the most reliable valuation measures we identify have been driven to some of the most obscene levels in history.'
- John P. Hussman, Ph.D.
Far Beyond Double, October 31, 2016</blockquote>
Context<blockquote>
'Our nation and the world are paying a very heavy price for a failed experiment in Inflationism..' - Doug Noland</blockquote>