John Hussman: Corporate "Cash" - Cheering the Asset and Ignoring the Liability

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Aug 09, 2010
In this week's Weekly Market Commentary, Investment Guru John Hussman provided the following assessment on market valuation, market internal action and macro economic data:
As of last week, the Market Climate for stocks was characterized by unfavorable valuations, generally favorable trend action, weak price-volume sponsorship, strongly overbought conditions, moderate but not yet overbullish sentiment, and hostile economic pressures. Overall, this is not a favorable set of conditions in terms of the expected return/risk profile for the market, but urgent downside concerns would require more internal damage than we have at present. Over the short-term, the market appears likely to be driven by speculative considerations such as whether the S&P 500 crosses above or below some technical support or resistance level. This is clearly the most prevalent "game" that investors are playing at present, but that game is likely to end abruptly if we observe further deterioration in new unemployment claims, ISM data and other coincident measures.


As I noted last week, the deterioration we've seen in various leading economic composites would be consistent with a sharp deterioration in the ISM figures for August and September, as well as a spike in new unemployment claims closer to the September - October time frame. Last week's jump in claims was still a bit "early" from the standpoint of typical lag times, so I'll actually be somewhat surprised if the data continue to deteriorate right away. Still, the overall weight of the data suggests a much greater likelihood of economic weakness than investors seem to be anticipating. If we don't observe clear weakness in the economic data in the next couple of months, we'll clearly move with the data toward a more constructive economic outlook - particularly if the leading measures improve as well. For now, however, regardless of very short-term speculative factors, I view the present window as a very dangerous one. The Strategic Growth Fund remains fully hedged.


Last week, Hussman treated the topic of Valuing the S&P 500 Using Forward Operating Earnings, which he urge readers not to miss. This week, he recycled some of his previous argument and pointed out the alleged corporate "cash on the sidelines" are not as readily deployable as one would expect.


Read the complete weekly Hussman Weekly Market Commentary here.


Check out Hussman's stock portfolio here


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