Hussman’s “Things I Believe.” He lists his insights on a dozen things. Here’s the first one, followed by the link…
1) Investors dangerously underestimate the risk of an abrupt and possibly severe equity market plunge
Look back over history at points in time where stocks were trading at a rich multiple to normalized earnings (the Shiller multiple is a useful gauge here, as forward operating and price/peak earnings are both corrupted by profit margins that are about 50% above their historic norms). Combine that with overbought, overbullish conditions and rising interest rates. What you will get is a list of most historical pre-crash peaks. Depending on precisely how you define your classifier, you may pick up one or two benign outcomes, such as April 1999 (which I noted in the Hazardous Ovoboby piece in early 2007), but ask whether, on average, you would have knowingly chosen to take market risk at those points.
http://www.hussman.n…c/wmc101220.htm
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