"Begging for Trouble"

An interesting article by John Hussman, who runs the Hussman Funds, that provides insight into his management strategy. His belief that companies are over-valued because “Wall Street is quite happy to look at the ratio of prices to near-term earnings estimates and conclude that valuations are satisfactory. But stocks are not a claim on one year of earnings. They are a claim on a very long stream of cash flows…” Investors are giddy about how great company profits seem to look right now forgetting that profit margins are roughly 70% above the long-term average and have a tendency to revert to the average over time. “Investors remain so addicted to the temporary high of monetary intervention that they continue to ignore very real downturn in global economic indicators, to an extent that we have not seen since the 2007-2009 recession.” His mutual funds reflect his cautious view – which in turn helps his investors keep a steady safety net under their portfolios when the stock market turns rough again.