Dr. John P. Hussman is the founder and president of Hussman Strategic Advisors. John also directs the Hussman Foundation, a 501©(3) charitable foundation that supports medical research, education, and assistance to vulnerable individuals with urgent needs or significant disabilities.
Hussman defined a “bubble” as a period when investors set their expectations for future investment returns by extrapolating past returns with little concern for valuations, allowing prices to become untethered from underlying fundamentals. Valuations across asset classes are high, and the estimated 12-year nominal return on a 60/30/10 (stock/bond/cash) portfolio is approximately -2.3%. “The valuations are the highest that we’ve seen across all measures,” he said. We are looking at valuations that have historically led to “very long interesting trips to nowhere,” according to Hussman. While low interest rates are currently accompanied by high stock market valuations, those valuations also imply similarly low expected returns for stocks. The structural shift in the U.S. economy to more profitable service companies explains only a small part of current valuations. Valuations are slightly more attractive outside the U.S., he said, and investors should diversify internationally. Hussman also favors hedged equity strategies that can increase market exposure when downward “spikes” in valuations improve expected returns.
A conversation with Dan Solin and Bev Flaxington. Dan discussed the research in the fields of psychology and neuroscience underlying The Solin Process. He emphasized the importance of setting aside your agenda, not trying to “spin” the conversation in any direction, and empowering prospects to talk about any issues of concern to them. He also explained why taking notes during the initial meeting impairs your ability to emotionally connect. As an expert in human behavior and advisor growth, Bev shared tactics to help advisors reframe the selling process to “sell” more comfortably and productively. Her insights on how teams can work together cohesively to deepen client relationships are focused on leveraging behavior style and the resulting improvement in communication.
Brian Smedley is a senior managing director at Guggenheim Investments, where he is Chief Economist and Head of Macroeconomic and Investment Research.
Smedley forecasts robust economic growth of around 8% this year, but he thinks most investors are overestimating the risk of high inflation. He assigns a 75% probability to a new stimulus package being passed sometime this year. He expects low interest rates for an extended time based on the Fed’s new framework for managing monetary policy that was introduced in August of 2020. “They are going to be a lot more tolerant of a really tight labor market and above-target inflation,” he said. He noted that this will result in a favorable backdrop for risky assets like stocks and credit, but also for government bonds given his view that the market is pricing in premature Fed rate hikes. He also predicted that new home construction and renovations are going to be an important driver of growth for years to come. The shortfall in new home construction since the housing bubble burst, he said, “is finally catching up to us.” Single-family home prices will continue to rise rapidly because it will take a good while for supply to catch up with demand, according to Smedley.