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from John Hussman

As John Kenneth Galbraith wrote in 1955, “Of all the mysteries of the stock exchange there is none so impenetrable as why there should be a buyer for everyone who seeks to sell. October 24, 1929 showed that what is mysterious is not inevitable. Often there were no buyers, and only after wide vertical declines could anyone be induced to bid … Repeatedly and in many issues there was a plethora of selling orders and no buyers at all.”

Illiquidity is a very unpleasant thing when you’ve got an inappropriately speculative position and you’re under pressure to close it out. The very high beta exposure taken by managers and institutions lately (see Unbalanced Risk) strikes me as particularly dangerous in an environment where we continue to estimate the market’s return/risk profile among the most negative 0.5% of historical instances.

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