Hussman Weekly Market Comment: 2009 vs. 2013

Just a note – On Tuesday, June 11, I’ll be joining John Mauldin, Kyle Bass, Mohamed El-Erian, Barry Rithholz and David Rosenberg in a free online video event at 2PM Eastern – Investing in the New Normal (click the link to register). The panel is moderated by Ed D’Agostino of Mauldin Economics. It will be a wide-ranging conversation on markets, economics and investing. Aside from the company of great thinkers (no other compensation necessary), I had the added fortune of meeting Art Cashin, who joined several of us for dinner last Wednesday and regaled us with the stories of a true Wall Street veteran, all in the glow of his kind, warm personality.

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When in history has consumer confidence been at a 5-year high, with fewer than 30% bears among investment advisors, a Shiller P/E* greater than 18 (it’s presently 24), and the Dow Utility average down more than 5% from its 6-month high? 2013 (today), mid-2007, early 2000 and Aug-Sep 1987. Nobody cares. That indifference is probably unwise.

My opinion? I expect that by the end of the next bear market, the S&P 500 will have surrendered the entire total return that it has achieved, in excess of Treasury bills, since about 1997. That’s assuming the next decline is simply run-of-the-mill for a cyclical bear in a secular bear.

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Former Fed Chairman Paul Volcker gave an insightful summary of the present economic situation last week at the New York Economic Club:

“Beneficial effects of the actual and potential monetization of public and private debt, the essence of the QE program, appear limited and diminishing over time. The old ‘pushing on a string’ analogy is relevant. The risks of encouraging speculative distortions and the inflationary potential of the current approach plainly deserve attention. All of this has given rise to debate within the Federal Reserve itself. In that debate, I trust sight is not lost of the merits – economically and politically – of an ultimate return to a more orthodox central banking approach.

“I know that it is fashionable to talk about a ‘dual mandate’ – that policy should be directed toward the two objectives of price stability and full employment. Fashionable or not, I find that mandate both operationally confusing and ultimately illusory: operationally confusing in breeding incessant debate in the Fed and the markets about which way should policy lean month-to-month or quarter-to-quarter with minute inspection of every passing statistic; illusory in the sense it implies a trade-off between economic growth and price stability, a concept that I thought had long ago been refuted not just by Nobel prize winners but by experience.”