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John Hussman: The Market May Tank Like A Stone Going Over A Cliff:
Hussman continues to go against QE. He may eventually be right, but I think he could continue to be wrong for a while yet and be very wrong depending on where this time period goes.
Hussman's Strategic Total Return HSTRX has lost 2/3 of its assets in the last 3 years. And his Strategic Growth HSGFX has lost almost 3/4 of its assets. I wonder who will be crazy enough to be the last shareholder. Yes, he will be right at some point, but there won't be any assets left for him to manage. It must be hard to be humble when your funds are in the very bottom percentile for YTD, 1, 3, and 5 years. I have seen this before. High intelligence and book smarts does not qualify someone to manage money on a long-term basis. Give me managers who have had periods of time when they struggled and learned, but have proved over time they have what it takes and are not afraid to admit when they make mistakes.
Hussman is wrong and doesn't read our economy correctly, imho. He doesn't have the right macro view.
Since the crisis of 2008 the US economy has been in a credit deleveraging mode (consumers paying off debt). The credit that the Fed has released through QE expanded from the original base of about 7% of the total overall credit market. The rest of the money supply was with the banks. Because banks have constricted loans since the crisis, or credit, they have decreased their portion of the total money supply available in the economy. QE was a response or anticipation of this deleveraging that the FED correctly responded to.
The FED's expansion of the total money supply was an attempt to restore the total money supply: I.E. printing money from a base of only 7% of the overall money supply on the Fed balance sheet (this is a very small percentage of the overall money supply at the start of this process). The rest money supply being bank credit, guys making loans. This increased portion of the total money supply created by the FED via QE has not really entered the rest of the economy, which is the reason it has not caused inflation that so many, like Hussman, have been predicting> All this because banks been recapitalizing, and not lending.
QE is the FED's response to deleveraging, in the main economy. This has allowed the fed to expand its percentage of the total money supply beyond its original base of 7 percent. Hence, although it is a higher percentage money supply, due to the credit market not expanding, this action by the FED has not affected interest rates or caused increased inflation. The beast the FED is fighting, is not inflation, but deflation. Consider the ECB, who have lately considered QE for the same reason.
We are essentially in a depression, in which the deleveraging process is still on going. The present low interest environment will last for years until the deleveraging is done. Interest rates may inch down or decline more (offsetting the rise due to the FED's talk "tapering" ) from the low rates seen today. IMHO at least through 2015.
Reply to @VintageFreak: "I will be the last shareholder in Hussman."
Well, maybe you and this guy named Murphy (sorry, couldn't resist)
Murphy's laws * If anything can go wrong, it will * If there is a possibility of several things going wrong, the one that will cause the most damage will be the one to go wrong * If anything just cannot go wrong, it will anyway * Left to themselves, things tend to go from bad to worse
Murphy's Law of Thermodynamics Things get worse under pressure.
The Murphy Philosophy Smile . . . tomorrow will be worse.
And this one could be renamed Hussman's Law
Murphy's Law of Research Enough research will tend to support whatever theory.
10 % of my entire portfolio is insurance of sorts, people. Some L/S, some alterative, some inflation protection. Hussman is part of that. I'm sticking with it.
Comments
Since the crisis of 2008 the US economy has been in a credit deleveraging mode (consumers paying off debt). The credit that the Fed has released through QE expanded from the original base of about 7% of the total overall credit market. The rest of the money supply was with the banks. Because banks have constricted loans since the crisis, or credit, they have decreased their portion of the total money supply available in the economy. QE was a response or anticipation of this deleveraging that the FED correctly responded to.
The FED's expansion of the total money supply was an attempt to restore the total money supply: I.E. printing money from a base of only 7% of the overall money supply on the Fed balance sheet (this is a very small percentage of the overall money supply at the start of this process). The rest money supply being bank credit, guys making loans. This increased portion of the total money supply created by the FED via QE has not really entered the rest of the economy, which is the reason it has not caused inflation that so many, like Hussman, have been predicting> All this because banks been recapitalizing, and not lending.
QE is the FED's response to deleveraging, in the main economy. This has allowed the fed to expand its percentage of the total money supply beyond its original base of 7 percent. Hence, although it is a higher percentage money supply, due to the credit market not expanding, this action by the FED has not affected interest rates or caused increased inflation. The beast the FED is fighting, is not inflation, but deflation. Consider the ECB, who have lately considered QE for the same reason.
We are essentially in a depression, in which the deleveraging process is still on going. The present low interest environment will last for years until the deleveraging is done. Interest rates may inch down or decline more (offsetting the rise due to the FED's talk "tapering" ) from the low rates seen today. IMHO at least through 2015.
I will be the last shareholder in Hussman.
Well, maybe you and this guy named Murphy
Murphy's laws
* If anything can go wrong, it will
* If there is a possibility of several things going wrong, the one that will cause the most damage will be the one to go wrong
* If anything just cannot go wrong, it will anyway
* Left to themselves, things tend to go from bad to worse
Murphy's Law of Thermodynamics
Things get worse under pressure.
The Murphy Philosophy
Smile . . . tomorrow will be worse.
And this one could be renamed Hussman's Law
Murphy's Law of Research
Enough research will tend to support whatever theory.
and more:
http://www.murphys-laws.com/murphy/murphy-laws.html
John Hussman is not a loser. Even with the drop in AUM he earns millions every year. John's shareholder's have suffered the losses.