Hussmans incorrect about profit margins and Buffett
In the last letter, Hussman made a comment about Buffett needing to remember that profit margins are at record highs. First of all, its incorrect if hes referring to the heinz deal as 2/3 is preferred stock paying 9% yield. It also overlooks the fact that even in an overvalued market with high profit margins that companies can be found that are likely to be able to maintain their margins and competitive position. Buffett's bought in overvalued markets before, purchasing midamerican for $2.3 billion in early 2000, now a company that earns 1.5 billion a year. I think hussman is very good at estimating risk/reward of the market as a whole but overvaluation can sometimes last for a very long time and taking a "riskless" position can be even more dangerous than making quality long-term investments even in pricey markets.
I wanted to add that I dont think hes wrong that profit margins will revert, I believe they will. My point of contention is that opportunities emerge even in overvalued markets and I believe taking no exposure in these markets is a mistake.