The Bubble – Contains the Collapse – Contains the Resurgence

By John P. Hussman, Ph.D. – Hussman Funds

When investors approach the financial markets, there’s a tendency to imagine that conditions can be judged as favorable or unfavorable based on one single measure or another. The fact is that market conditions at any moment in time are a composite of interdependent forces. For example, if the market is declining steeply, trend-following measures will be dismal and unfavorable, but at the same time, valuations will be improving, sentiment might be bearish enough to serve as a positive contrary indication, and various technical measures might be so overextended that they suggest a strong – if ultimately fragile – advance to clear the compression.

Market conditions can’t be separated that cleanly. This is, because that is. This is not, because that is not. If you look deeply into a speculative bubble, you can see the market collapse in it. If you look deeply into a market collapse, you can see the bull market in it. Each is a continuation of the other.