Monday, 4 June 2018

Hussman: Economy a Ponzi scheme, market faces open trap door

John Hussman, president of Hussman Investment Trust, thinks that the current economic system is a Ponzi scheme.

In his latest monthly commentary, he wrote that a Ponzi economy involves “the constant creation of low-grade debt in order to finance consumption and income shortfalls among some members of the economy, using the massive surpluses earned by other members of the economy”.

“This is where we find ourselves, once again,” he said.

Hussman said that his measures of stock market internals are “unfavorable” and his most reliable measures of valuation are at “offensive extremes”.

As a result, there is “an open trap door” in the market and he expects the S&P 500 to reach 1,100 or lower over the completion of this cycle and to post negative total returns over the coming 12-year horizon.

He concluded: “The debt burdens, speculation, and skewed valuations most responsible for today’s lopsided prosperity are exactly the seeds from which the next crisis will spring.”

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