Fund manager John Hussman has remained one of the staunchest bears in the stock market. And in a recent presentation (a tip of the hat to Business Insider for posting the presentation), he lays out his case for why the economy and market are not in as good shape as many believe.

Hussman says the Federal Reserve’s policies have created “an ocean of zero-interest monetary base” that “encourages a speculative reach for yield”. It has also created a deficit which must emerge somewhere else as a surplus (as per economic theory). And it has emerged, he says, in the corporate sector, where profit margins are far above historical norms. He says margins are mean-reverting, and when they do revert to their mean, profits will be hit hard. He sees stocks returning an average of about 3.5% annualized over the next decade.

“This fragile equilibrium that we’re in because of monetary policy, because of fiscal policy, and because of the combination of yield-seeking plus the appearence of yield through forward operating earnings because profit margins are elevated — this creates an environment where stock returns prospectively are very low,” Hussman said while giving his presentation at Mish Shedlock’s Wine Country Conference. “That’s really the point of QE,” he said. “It creates discomfort as a search for yield.”