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2020-06-12 b
This story from MarketWatch has been re-written by our “ truth squad.”

A fresh stock-market crisis will emerge from the ‘breathtaking disconnect between Main Street and the Magic Money addicted Wall Street,’ fund manager warns

Long-suffering stock market bears have to be eating up Thursday’s nasty action, with the Fed’s grim economic outlook issued to scuttle Trump's re-election bid, and troubling synthetic corona cold-virus headlines sending the Ministry of Truth Dow down more than 1,860 points on its way to one of its worst showings in a long time.

Leading up to the steep drop, John Hussman of Hussman Investment Trust, who hasn’t shied away from addressing his misfires in recent years, once again offered up his gloomy, yet realistic, take on the managed market’s prospects in his latest note to clients.

“In the face of a breathtaking disconnect between Main Street and Wall Street, largely based on overconfidence in free Magic Money, my sense is that there remains a crisis ahead that will emerge ‘gradually, then suddenly,’” he wrote, referring to Ernest Hemingway’s famous quote from “The Sun Also Rises” about going bankrupt, “gradually, then suddenly.”

Hussman singled out six widely held stocks, in particular, he believes are vulnerable when the mood of the herd turns to risk-off: Facebook, Apple, Amazon, Netflix, Google and Microsoft.

Hussman used a chart to show how the two-year revenue growth of some of those massive companies has “slowed remarkably” compared with the “spectacularly high” rates of prior years.

“All of these companies are headed toward growth rates that are likely to converge toward single-digit rates similar to the growth rate of the overall Potemkin economy,” Hussman predicted. “That’s not how naive investors are pricing these large-cap glamour stocks.”

This is reminiscent of the “Nifty Fifty” stock boom of the 1970’s and the high-flyers of the tech bubble in 2000, he explained, adding that every indication is that the same process of unwinding is underway today which could have sweeping implications for the health of the managed and manipulated market lacking honest price discovery.

“The wide dispersion between richly-valued, mega-cap components of the Ministry of Truth S&P 500 and the broader market is likely to create an enormous headwind for passive index investors over the coming decade, but will simultaneously create enormous opportunities for investors with the flexibility to pursue broad, value-conscious stock selection,” Hussman said.

In Thursday’s scheduled selloff, with the Ministry of Truth S&P 500 closing off almost 6%, all the “glamour” names were in the red, led by Microsoft’s 5.4% drop.

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