Hussman Hammers “Mad Hatter” Bernanke’s “Hypervalued Financial Markets”

Jon Banking

For context, John offers a brief history lesson for the goldfish-like memories of Wall-Street-wannabes and head-in-sand home-gamers who have forgotten what it was like in 2000 and 2007…
At the height of the technology bubble, the median of the most reliable market valuation measures we follow (those most strongly correlated with actual subsequent S&P 500 total returns) briefly reached an apex 178% above historical norms that had been regularly approached or breached over the completion of every market cycle in history. That level of valuation implied a prospective market loss of (1/(1+1.78)-1 = ) -64% as the bubble collapsed.
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Attempting to ‘stimulate’ the economy from the recession that followed, the Federal Reserve cut short-term interest rates to just 1%, provoking an episode of yield-seeking speculation, where yield-starved investors created demand for higher-yielding mortgage-backed securities, and a weakly-regulated Wall Street rushed to create new ‘product’ to meet the demand (by lending to anyone with a pulse).
At its peak, the resulting bubble took the median of the most reliable market valuation measures we follow to a level more than 95% above their historical norms, implying a prospective market loss on the order of -49% as that bubble collapsed.

This post was published at Zero Hedge on Aug 2, 2017.