<div dir="ltr"><div class="gmail_quote"><br><br><div dir="ltr"><div class="gmail_quote"><div dir="ltr"><div class="gmail_quote"><div dir="ltr"><div class="gmail_quote"><div dir="ltr"><div class="gmail_quote"><div dir="ltr"><div class="gmail_quote"><div dir="ltr"><div class="gmail_quote"><div dir="ltr"><div class="gmail_quote"><div dir="ltr"><div class="gmail_quote"><div dir="ltr"><div class="gmail_quote"><div dir="ltr"><div class="gmail_quote"><div dir="ltr"><div class="gmail_quote"><div dir="ltr">Michel,<br><div><br></div><div>For your files.</div><div><br></div><div>The next recession is near and will be ferocious, just so it's on your radar.Those prepared, of course, will make a ton of money</div><div><br></div><div>Kind regards,</div><div><br></div><div>Christopher</div><div><br></div><div>------------------------------<wbr>------------------------------<wbr>------------------------------<wbr>------------------------------<wbr>------------------------------<wbr>------------------------------<wbr>------------------------------<wbr>----------</div><div><span class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-greenArticleHeadline"><b><i>October 2, 2017</i><i></i></b></span><b></b>
<p><b><i>Blissful Delusion<br>
</i></b><b><i><br>
</i></b><i class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">John P. Hussman, Ph.D.<br>
All rights reserved and actively enforced.</i><br>
<span class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText"><a href="http://www.hussmanfunds.com/html/reprints.htm" target="_blank">Reprint Policy</a></span></p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">The present moment of blissful delusion is remarkable to witness. Take it in. A few words and updated charts will do.</p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">The first chart below updates our variant of
Robert Shiller’s cyclically-adjusted P/E (CAPE), where we’ve adjusted
the measure to account for variation in the embedded profit margin; an
adjustment that substantially improves the correlation of the resulting
measure with actual subsequent market returns across history. Few
investors recognize that one of the reasons why valuation multiples were
so rich in 2000 is that profit margins were actually <em>below</em>
historical norms at the time. It's also worth noting that the benefit
of normalizing the embedded profit margin comes not just from muting
margins that are <em>above</em> historical norms, but also from normalizing margins in periods where they are <em>below</em> historical norms. </p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText"><img src="https://www.hussmanfunds.com/wmc/wmc171002a.png" height="503" width="564"></p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">The next chart shows the margin-adjusted CAPE on
an inverted log scale (left, blue line), along with the actual
subsequent S&P 500 nominal average annual total return over the <em>subsequent</em> 12-year period (right, red line). </p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText"><img src="https://www.hussmanfunds.com/wmc/wmc171002b.png" height="489" width="563"></p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">The next chart updates our best estimate of the
likely 12-year prospective total return on a conventional portfolio mix
invested 60% in the S&P 500 Index, 30% in Treasury bonds, and 10%
in Treasury bills. The current projection is the lowest in history, and
I expect these weak passive investment returns, as they unfold, to
trigger a rather broad crisis of pension underfunding in the years
ahead. To estimate the S&P 500 component here, we’re using another
measure I’ve introduced over time: the ratio of nonfinancial market
capitalization to corporate gross value-added (including estimated
foreign revenues). </p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText"><img src="https://www.hussmanfunds.com/wmc/wmc171002c.png" height="540" width="563"></p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">While we’re on the subject of corporate gross
value-added (which essentially measures corporate revenues without
double-counting intermediate inputs), I’ll add that another feature of
Wall Street’s blissful delusion is the notion that “U.S. corporate
taxes are the highest in the world.” It’s striking how disingenuous
this claim is. The fact is that among all OECD countries, <em>the U.S. is also the only country that does not levy any tax <u>at all</u> on corporate value-added in the production of goods and services</em>.</p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText"><img src="https://www.hussmanfunds.com/wmc/wmc171002d.png" height="547" width="563"></p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">Without getting deep into the relative merits and
challenges of a value-added tax, suffice it to say that 1) the
“incidence” of a value-added tax (whether it’s paid by consumers in the
form of higher prices, or corporations in the form of lower profits)
varies depending on the demand and supply characteristics of each
sector, and 2) because a value-added tax tends to be “regressive” all
by itself (hitting lower income individuals proportionally more since
it functions much like a tax on sales), the appropriate way to
introduce a value-added tax is to require additional features of the tax
code such as low-income exclusions. Countries can also use policies
such as tax credits for investment, R&D, job training, and other
arrangements to strengthen incentives for productive investment and job
creation.</p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">The main point is this. The argument that U.S.
taxes on corporate profits are somehow oppressive relative to other
countries is an apples-to-oranges comparison. It wholly ignores that
the U.S. levies no value-added tax on corporations <em>at all</em>,
whereas the value-added tax is the principal revenue source for most
other countries. The rhetoric on corporate taxes here is unfiltered
effluvium.</p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">The chart below presents a clearer picture of U.S.
corporate profits taxation. Actual taxes paid by U.S. companies, as a
share of pre-tax profits, have never been lower, outside of the depths
of the global financial crisis.</p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText"><img src="https://www.hussmanfunds.com/wmc/wmc171002e.png" height="509" width="563"></p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">As for the stock market, understand that total
annual U.S. corporate taxes presently amount to only about 1.2% of
current U.S. equity market capitalization, and even if a cut was to
pass, it would be unlikely to endure for more than a few
administrations. The potential effect of even a substantial percentage
reduction in statutory rates for several years is quite small when the
present value of the tax reduction is compared with existing equity
market capitalization. The likely cumulative impact comes to just a few
percent of stock market value. </p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">Against that, consider that the most reliable
market valuation measures we identify (as measured by their correlation
with actual subsequent S&P 500 total returns in market cycles
across history) are currently between 2.5 and 2.7 times their
historical norms (that is, 150% to 170% above those norms). </p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">Put simply, it seems misguided to imagine that
“tax reform” will somehow make the most obscene speculative bubble in
U.S. history something other than the most obscene speculative bubble
in U.S. history. Corporations are <em>already</em> enjoying strikingly light tax burdens from a historical perspective, and investors are <em>already</em> paying extreme valuation multiples on elevated earnings.</p>
<span class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText"> We are observing an episode that will make
future investors wince. Just like the two closest analogs, the 1929 high
and the tech bubble, I expect that future investors will shake their
heads in wonder at the stark raving madness of it all, and ask what
Wall Street could possibly have been thinking. In any event, I've
shared what I see as my truth, and I experience no need to change
anyone's mind. I remain content to abide our value-conscious,
historically-informed, full-cycle discipline, and to follow our path.
Others are free to continue along their own.</span>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-regularText"><em><strong>The foregoing comments represent the
general investment analysis and economic views of the Advisor, and are
provided solely for the purpose of information, instruction and
discourse. Please see periodic remarks on the <a href="https://www.hussmanfunds.com/wmc/wmpfn_recent.htm" target="_blank">Fund Notes and Commentary</a> page for discussion relating specifically to the Hussman Funds and the investment positions of the Funds. </strong></em></p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText">---</p>
<p class="m_-1765532466092975063m_-7266745478389394039m_692852361669867344m_7075073657016912302m_-1390465383882775023m_490691573200224891m_-8460262761622460877m_8485259623772196821m_-8255554691051595220m_-3469753033070535303m_47938423153789300m_-8755765695288273032gmail-largeText"> Prospectuses for the Hussman Strategic Growth
Fund, the Hussman Strategic Total Return Fund, the Hussman Strategic
International Fund, and the Hussman Strategic Dividend Value Fund, as
well as Fund reports and other information, are available by clicking
"The Funds" menu button from any page of this website.<br><br>
Estimates of prospective return and risk for equities, bonds, and other
financial markets are forward-looking statements based the analysis
and reasonable beliefs of Hussman Strategic Advisors. They are not a
guarantee of future performance, and are not indicative of the
prospective returns of any of the Hussman Funds. Actual returns may
differ substantially from the estimates provided. Estimates of
prospective long-term returns for the S&P 500 reflect our standard
valuation methodology, focusing on the relationship between current
market prices and earnings, dividends and other fundamentals, adjusted
for variability over the economic cycle (see for example <a href="http://www.hussmanfunds.com/wmc/wmc130318.htm" target="_blank">Investment, Speculation, Valuation, and Tinker Bell</a>, <a href="http://www.hussmanfunds.com/wmc/wmc050222.htm" target="_blank">The Likely Range of Market Returns in the Coming Decade </a> and <a href="http://www.hussmanfunds.com/wmc/wmc100802.htm" target="_blank">Valuing the S&P 500 Using Forward Operating Earnings </a>).<br></p></div></div>
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</div><br><br clear="all"><div><br></div>-- <br><div class="gmail_signature" data-smartmail="gmail_signature"><div dir="ltr"><div><div dir="ltr"><div>Check out the Commons Transition Plan here at: <a href="http://commonstransition.org" target="_blank">http://commonstransition.org</a> </div><div><br></div>P2P Foundation: <a href="http://p2pfoundation.net" target="_blank">http://p2pfoundation.net</a> - <a href="http://blog.p2pfoundation.net" target="_blank">http://blog.p2pfoundation.net</a> <br><br><a href="http://lists.ourproject.org/cgi-bin/mailman/listinfo/p2p-foundation" target="_blank"></a>Updates: <a href="http://twitter.com/mbauwens" target="_blank">http://twitter.com/mbauwens</a>; <a href="http://www.facebook.com/mbauwens" target="_blank">http://www.facebook.com/mbauwens</a><br><br>#82 on the (En)Rich list: <a href="http://enrichlist.org/the-complete-list/" target="_blank">http://enrichlist.org/the-complete-list/</a> <br></div></div></div></div>
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