Must Read

As most of you know I’m a purely technical trader at heart and very rarely do I venture into the world of fundamentals. Two rare exceptions I grant myself are Karl ‘No Slave To Fashion’ Denninger and then there is John Mauldin who is highly regarded among his own ranks. Once a week John publishes his ‘Out Of The Box’ column in his newsletter – and this time around he presents a remarkable piece by John Hussman of the eponymous Hussman Funds. Very rarely do I do this, but I would consider this a must read piece for my stainless steel rates – in particular in the context of one of my milestone charts I have posted here on several occasions:

Please consider my ‘daring’ projection while reading his piece and then let me know if it is as outrageous as many surely deem it to be in the context of an eight month bull run:

Reckless Myopia

John P. Hussman, Ph.D.

I was wrong.

Not about the implosion of the credit markets, which I urgently warned about in 2007 and early 2008. Not about the recession, which we shifted to anticipating in November 2007. Not about the plunge in the stock market, which erased the entire 2002-2007 market gain, which was no surprise. Not about the “ebb and flow” of short-term data, which I frequently noted could produce a powerful (though perhaps abruptly terminated) market advance even in the face of dangerous longer-term cross-currents. I expect not even about the “surprising” second wave of credit distress that we can expect as we move into 2010.

From a long-term perspective, my record is very comfortable. But clearly, I was wrong about the extent to which Wall Street would respond to the ebb-and-flow in the economic data – particularly the obvious and temporary lull in the mortgage reset schedule between March and November 2009 – and drive stocks to the point where they are not only overvalued again, but strikingly dependent on a sustained economic recovery and the achievement and maintenance of record profit margins in the years ahead.

I should have assumed that Wall Street’s tendency toward reckless myopia – ingrained over the past decade – would return at the first sign of even temporary stability. The eagerness of investors to chase prevailing trends, and their unwillingness to concern themselves with predictable longer-term risks, drove a successive series of speculative advances and crashes during the past decade – the dot-com bubble, the tech bubble, the mortgage bubble, the private-equity bubble, and the commodities bubble. And here we are again.

You can find the rest of this article over at InvestorsInsight.com.