Hussman argues that the ongoing equity rebound is just the latest in a storied history of head-fakes that have kept traders invested in the market prior to major downturns. And if investors keep buying into these rallies — which Hussman expects to keep occurring as long as they remain overly exuberant — he argues the market is increasingly setting itself up for disaster.
What's more, Hussman says the sharp rebound in stocks right now reminds him of the periods before the last two market crashes. , whose historically easy monetary conditions helped drag the US economy out of its worst modern recession. While their actions did have their intended effect, Hussman says they also created an unsustainable bubble of investor speculation.
He continued:"It purchased interest-bearing government securities, and paid for them by creating $4 trillion in zero-interest bank reserves, which someone had to hold at every point in time. The effort by each successive holder to get rid of that zero-interest money created a game of 'hot potato,' by which other securities were bid up until their long-term expected returns were also driven toward zero. And here we are.
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