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Important Comments From Dr. John Hussman

DlphcOracl
edited September 2011 in Fund Discussions
In his 9/5/11 Weekly Market Comments entitled: "An Imminent Downturn: Whom Will Our Leaders Defend?" on the Hussman funds website, Dr. Hussman gives a cogent discussion of why the financial systems in the U.S. and Europe remain distressed, why unemployment/underemployment persists at an extremely high rate, why measures enacted over the past three years have predictably failed, and what the solutions are if the economy is to begin recovery. HInt: neither the Fed nor the ECB are on the correct tack.

Dr. Hussman also states that based on his measureable and observable economic criteria we are in or about to be in a recession with near 100% certainty. This is discussed in his section "Measuring the Probability of Oncoming Recession". This is important to us as investors because if he is correct, I recall reading that:

1. a recession is always accompanied by a bear market.
2. the average peak-to-trough decline in a bear market is 40% or so.

If one take 1370 for the S&P peak then a 40% decline from that level brings the S&P 500 to 822, nearly 30% below current market levels. Read his comments and analysis carefully because if you agree with his comments regarding recession, you may want to begin lightening up on your equity fund exposure (and other volatile categories such as junk bonds, etc.) if you haven't already done so. Link to the Hussman website is given below. Click on the commentary title under "Weekly Market Comments".

http://www.hussmanfunds.com

Comments

  • BobCBobC
    Hussman may be right this time, but he has also been wrong. While I enjoy his commentary...it is well-written and entertaining...he has been a bear for most of the last three years and has underperformed compared to the long-short funds we track, such as MFLDX. If he is correct, he will likely do better than MFLDX, but probably not by much (if 2008 is any indication of bear-market performance). Just something to consider. My suggestion is that unless an investor is willing to bet the house on Hussman's predictions (and those of similar bears like John Mauldin and others), a truly diversified portfolio seems to make the most sense. Having 20-30% in alternative strategies like long-short, precious metals, currencies, etc., and being sure to own some non-dollar bonds...emerging market bonds in local currencies, for example, will go a long way to reducing volatility and keeping losses manageable. On the other hand, some folks don't need to have any money in the stock markets, since they can do just fine with very minimal risk. Taking precaution makes sense, but I would be sure to do some legwork on how some of these funds have really done during market meltdowns. After all, large cap stock fund FVALX dis amazingly well in 2008, but that is how the fund has always been managed. So there are ways to be careful without running for the exits.
  • [Deleted User]
    The user and all related content has been deleted.
  • scott
    edited September 2011
    Hussman did not believe that QE1/2/2.5/etc would have the effect it did and that logic and fundamentals still had a place of any significance in the market. Silly Hussman. I don't think Hussman doesn't believe what he says; he certainly makes thoughtful, well-researched arguments, but his playbook was not what was required for the last couple of years. Different era/time, maybe. I believe he even discussed that he was adjusting his methods a few months back.

    The thing about Hussman that I find rather curious is that he hedges against names like Panera, Amazon, Chipotle and Bed Bath; if he's negative on his outlook, why not go a little more boring/less volatile with the stock selection and maybe hedge a little less? I don't know, while the fund is hedged, I think there are some rather interesting names in there for someone who doesn't have the most vibrant outlook.

    I'm sure his opinion isn't going to change, even if Chicago Fed President Evans - who has been screaming on financial media, including to Fed puppet Steve Leisman, for more QE while saying the Fed isn't responsible for anything bad - gets his way.

    http://www.zerohedge.com/news/when-fed-doves-cry-chicago-feds-evans-urges-very-significant-amounts-added-accommodation
  • JoeNoEskimoJoeNoEskimo
    The man has made millions in mgmt fees from HSGFX, a fund that is hedged against...itself. He's a permabear, plain and simple.

    HSTRX is a simple fund (mostly Treasuries) that has performed consistently.

    Huss also does fitness on the side: http://www.hussmanfitness.org/
  • scott
    edited September 2011
    Reply to @JoeNoEskimo: "Huss also does fitness on the side: http://www.hussmanfitness.org/

    WTF! That's hilarious!
  • JoeNoEskimoJoeNoEskimo
    Reply to @scott:

    C'mon, Scott, these are things you look for in a portfolio manager!

    And you might see him in some late night infomercials next.
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