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Structural Growth and Dope Dealers on Speed-Dial
By John P. Hussman, Ph.D.

Unfortunately, like the tech bubble and the housing bubble before it, this gleeful romp into the land of “this time it’s different” is likely to collapse in a smoldering pile of ruins. The reason is that the very things that have created this glorious rear-view landscape have been obtained by ripping prosperity from the future. By following a dogma that treats debt-financed consumption and financial speculation as a substitute for actual economic growth, policymakers have encouraged obscene valuations, extreme debt burdens, and speculative malinvestment; front-loading market returns to the point where there is little but risk on the financial horizon for the coming 10-12 years (though there will undoubtedly be excellent opportunities much sooner, at points where substantial retreats in valuations are joined by early improvements in market action). We currently estimate S&P 500 nominal total returns averaging just 1.4% annually over the coming 12-year period. The higher investors have driven market valuations, the lower prospective future returns have become. What looks beautiful in the rear-view mirror has been torn from the abyss that lies ahead in the windshield.

http://hussmanfunds.com/wmc/wmc160926.htm

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