John Hussman is Not Optimistic

From yesterday’s weekly commentary, fund manager semi-perma-bear John Hussman looks at some of the parallels between today’s equity market enthusiasm and that seen six years ago.

As a sign of how warped this celebration has become, Gordon Chang appeared on CNBC on Friday, noting the troubling difference between exports reported by China to other countries and imports reported by other countries from China, as well inconsistency between low cargo numbers and high reported export numbers. In response, the CNBC anchor said – and I am not making this up – “You know Gordon, I agree with you, but let me take a different tack on this, alright? Let’s say you believe that China is making up the numbers. But if the stock market there keeps going up because of it, and you believe the government will keep priming the numbers, isn’t that sort of a reason to bet on the Chinese stock market?”

… and that’s why we’re all gonna die.

That question is like encouraging people to invest with Bernie Madoff because he keeps “putting up the numbers.” The troubling similarity between the late-1990’s bubble, the housing bubble, and the present central-bank induced advance is that the speculative nature of each was largely recognized, but people took the same attitude: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance – We’re still dancing.” Those were the famous last words of Citigroup’s former CEO Chuck Prince at the mid-2007 peak, just before the financial markets began to implode.  

One of these days, he’s sure to be correct in urging caution, something that he’s been doing for quite some time now. But, between now and then, there’s likely to be a lot more dancing.