In the wake of the disappointing US employment report on Friday, John Hussman has some cautionary words for investors.
Four weeks ago, I noted that if indeed the economy is in recovery, we have already entered the “show me” phase. The jobs report was dismal on that front, with even overtime hours and temporary workers declining. Those are the first measures that should advance, well before we can expect any turn in headline employment. The unemployment rate met expectations at 9.8%, but only because 571,000 workers left the labor force, dropping out of the calculation entirely.
My view continues to be that the intrinsic condition of the U.S. economy has not improved, and that the green shoots we've observed are a transient artifact of green dollars poured out by the government...
Market internals, as well as the uniformity of action across major indices, should be monitored closely here. The probable economic concerns become quite pointed about 6 months out (when current delinquencies will be transformed into foreclosures and reportable balance sheet losses). That's about the horizon over which the market often begins to pay attention to oncoming trouble, so while we've known about the risk of a second wave of credit problems for a while, we may be at the point where investors begin to act on those prospects.
Nouriel Roubini also sees a possibility of a market correction soon. Bloomberg reports:
New York University Professor Nouriel Roubini, who predicted the financial crisis, said stock and commodity markets may drop in coming months as the gradual pace of the economic recovery disappoints investors.
“Markets have gone up too much, too soon, too fast,” Roubini said in an interview in Istanbul on Oct. 3. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year.”