John Hussman ( Hussman Funds)

[winston]

Hussman: Investors Guzzling Kool Aid by: Julie Crawshaw

John Hussman says if you look carefully at the economic data that shows improvement, and adjust it to reflect the impact of government outlays, it’s hard to see anything other than continued deterioration in private demand and investment.

"What we do see is a government that has run what is now a trillion dollar deficit year-to-date, representing some 7 percent of GDP," Hussman writes in a note to investors.

"That sort of tab will undoubtedly buy some amount of Kool-Aid, but it has been something of a disappointment to watch how eagerly investors have guzzled it down."

It is not at all clear that short-term, deficit-financed improvement spells economic growth, Hussman notes. “This is like somebody borrowing money from their Uncle and then celebrating that their income has gone up,” he says.

And while imagining a return to 2007 S&P 500 returns is pleasant, Hussman points out that investors should remember that those highs were based on profit margins about 50 percent above historical norms, combined with an elevated P/E multiple of about 19 against those earnings.

“Even if the economy is poised for a sustained recovery here, the belief that those joint outliers will be quickly re-established goes against historical precedent,” Hussman says.

Recent data dulled hopes for a consumer-led U.S. recovery, a trend some forecasters see as part of the "new normal" economy.

Markets need to get used to "a world without the U.S. consumer as last resort," Alan Ruskin, chief international strategist at RBS Securities told Reuters.

Source: Newsmax

[winston]

The Stock Market Has Never Been This (Intermediate-Term) Overbought
John P. Hussman, Ph.D.

One of the notable features of extreme overbought conditions is that investors rarely have much opportunity to get out, just like the fast and furious advances that clear oversold conditions tend to occur too quickly to capture unless one has already established a position.

As for the present, we have rarely seen 90% of stocks suspended above their 50- and 200-day moving averages for as sustained a period as we have now observed.

http://www.hussmanfunds.com/wmc/wmc091019.htm

[winston]

V-SHAPED RECOVERY? HOUSING BOTTOM? HUSSMAN ISN’T BUYING IT.

Two great pieces this weekend from John Hussman and William Hester at Hussman Funds. I would highly encourage readers to take a moment to read both pieces in their entirety. John Hussman’s piece attacks a topic we recently covered – the coming wave of mortgage resets that will create further headwinds for housing.

Hester’s piece shows how the leading indicators of the economy are far from justifying the v-shaped recovery theory – a view the ECRI would vehemently disagree with. With large secular risks still at play and valuations stretched Hussman’s funds remain largely hedged as they continue to focus on downside risk.

Although I’ve been very bullish at critical junctures during this rally (including the March 8th low and before each important earnings season) I still agree to a large extent with the secular argument that Hussman and Hester so eloquently elaborate on. We are still confronted with enormous structural problems in the U.S. economy and although money printing can alleviate pressures in the near-term, this has never proven to be a sustainable economic growth strategy.

Furthermore, we have directly addressed exactly none of the actual causes of the crisis – our bloated and omnipotent banking sector, the ever experimenting Federal Reserve and regulation.

http://pragcap.com/v-shaped-recovery-ho ... -buying-it

[winston]

Hussman: Investor Risk Rising Fast by Julie Crawshaw

For investors, the past decade has been like watching tanks rolling over the hilltop to attack the villagers celebrating below, says economist and mutual fund manager John Hussman.

"Repeatedly, one could observe these huge objects rolling over the horizon, with an ominous knowledge that things would not work out well," Hussman writes in his weekly market comment.

"But repeatedly, nobody cared as long as it looked like there might be a little punch left in the bowl."

"We are again at the point where we should be alert for tanks."

Investors should look for signs of risk should read the FDIC’s Quarterly Banking Profile out Tuesday and watch the departure of the chief financial officer of at least one major banking institution early next year, which “might be a sign that all hell could break loose.”

The FDIC reported that its balance fell to negative $8.2 billion in the third quarter, the first time since 1992 that it had a negative balance.

In addition, the number of banks on the FDIC's "problem list" rose 33 percent during the third quarter to 552, the highest level since 1993.

Hussman warns that though much of the subprime mortgage crisis has passed, the U.S. economy currently faces a coupling of weak employment conditions with a mountain of resets on adjustable rate mortgages.

Those loans, written at the height of the housing bubble, undoubtedly carry the highest loan-to-value ratios, Hussman points out.

“The assumption that the credit crisis is behind us is completely out of line with what possibly could result. . . the inevitability of profound credit losses here is unnervingly similar to the inevitability of profound losses following the dot-com bubble,” he says.

According to the Mortgage Bankers Association, nearly one in 10 homeowners with mortgages were at least one payment behind in the third quarter, up from about one in 14 mortgage holders in the third quarter of 2008.

This number is the highest since the association began keeping records in 1972.

Source: Newsmax.

http://www.moneynews.com/streettalk/hus ... 90352.html

[winston]

Reckless Myopia

"We face two possible states of the world. One is a world in which our economic problems are largely solved, profits are on the mend, and things will soon be back to normal, except for a lot of unemployed people whose fate is, let's face it, of no concern to Wall Street.

The other is a world that has enjoyed a brief intermission prior to a terrific second act in which an even larger share of credit losses will be taken, and in which the range of policy choices will be more restricted because we've already issued more government liabilities than a banana republic, and will steeply debase our currency if we do it again.

It is not at all clear that the recent data have removed any uncertainty as to which world we are in."

http://www.investorsinsight.com/blogs/j ... yopia.aspx[code][/code]

[winston]

Stock market is overvalued, overbought and overbullish, according to Hussman by Prieur du Plessis

“Last week, we observed a subtle shift in yield pressures, which has historically been associated with fairly abrupt ‘air pockets’ in which stocks have typically lost 10% or more within the span of about 6 weeks. As usual, this isn’t a forecast, but given that we are already defensive on the basis of broader considerations about overvaluation and the overbought status of the market, the pressures we’re seeing on the yield front make our aversion to market risk somewhat more pointed.

“Consider the following conditions:
1) market valuations above their historical norm by any amount at all - for example, a dividend yield on the S&P 500 anything less than 3.7%, and;
2) The 10-year Treasury bond yield and the year-over-year CPI inflation rate higher than their levels of six months earlier (regardless of whether their absolute levels have been high or low).

“If you look at market history since 1940, this condition has been in effect nearly 20% of the time. Yet this set of factors alone has made an enormous difference in the returns achieved by the market. When the above conditions have been in effect at the same time, the S&P 500 has actually lost ground on a price basis, and has delivered an annualized return of just 0.28%.

In contrast, when those conditions have not been in effect, the market has advanced at an average annualized rate of 14.94%. Of course, these averages mask a lot of volatility, but it is clear that even the most basic combination of low stock yields and rising yield pressures is hostile to total returns.

“To the above conditions, if Treasury bill yields are also higher than six months earlier (again, regardless of the absolute level of yields), the annualized return drops to -0.83%. Add a discount rate higher than 6 months earlier, and the annualized return drops to -2.22%.

“Now add overbought conditions (say, a 12-month advance in the S&P 500 of greater than 30%), and the annualized return turns sharply negative, to -39.17%. Overvalued, overbought, conditions with rising yield pressures are trouble. Given those conditions, excessive bullishness only worsens the situation. Now, this combination of conditions has never persisted for an entire year, so the actual loss sustained by the market is not so extreme, but suffice it to say that the typical loss has been in excess of 10%.

“Based on the current overbought status of the market, there are only three similar periods that we can identify in post-war data: August-October 1999 (which was followed by an abrupt air pocket of greater than 10%), September-October 1987 (no comment required), and September-December 1955 (which was followed by a 10% correction, a brief recovery, and a secondary decline to re-test the initial low).

“Again, this is not intended as a forecast, but rather to note a historical regularity that seems relevant in a market environment where we are already defensive on the basis of other considerations.”

I have also maintained that US valuation levels are a headwind to stock market performance and will become an even bigger negative once the monetary authorities start removing the “juice”. Although, overall market returns may not be exciting off these levels, old-fashioned cherry-picking of individual stocks could still yield good results.

Source: John P Hussman, Hussman Funds, March 8, 2010.

http://www.hussmanfunds.com/wmc/wmc100308.htm

http://www.investmentpostcards.com/

[winston]

Hussman: Overvalued Stocks In for a Painful Correction By: Julie Crawshaw

Economist John Hussman says stocks are seriously overvalued and that they are poised for a painful correction.

Hussman says that, at current valuations, the S&P 500 is priced to deliver a total return of only about 5.7 percent annually over the coming decade.

But, because stocks are seriously overvalued now, returns will probably be 2.97 percent once the market corrects itself.

"Wholly on the basis of current valuations, stocks are priced to deliver unsatisfactory returns in the coming years — a situation that is worsened by strenuous overbought conditions and upward yield pressures here," Hussman writes in a note to investors.

“This outcome is not dependent on whether or not we observe a second set of credit strains, but is instead baked into the cake as a predictable result of prevailing valuations. The risk of further credit strains simply adds an additional layer of concern here.”

Investors, Hussman notes, have chased risky securities during the past year to the point where the risk premium for default risk has eroded to the levels at the peak of the credit bubble in 2007.

“My sense is that this is a mistake that will be painfully corrected,” Hussman notes.

“Investors now rely on a sustained economic recovery and the absence of any additional credit strains — and even then would be likely to achieve only tepid long-term returns from these levels.”

At today's level, about 1,210 on the S&P, stocks are trading at a cyclically adjusted price/earnings ratio that’s about 30 above the long-term average, says Business Insider CEO Henry Blodgett.

“We've just descended from the longest period of extreme overvaluation in history, suggesting … that the next multi-decade cycle is likely to be below average,” Blodgett says.


http://moneynews.com/StreetTalk/John-Hu ... /id/356409

[winston]

JOHN HUSSMAN ISSUES A RECESSION WARNING
28 June 2010 by TPC

John Hussman is officially sounding the double dip siren. He issued a similar call in November of 2007:

Based on evidence that has always and only been observed during or immediately prior to U.S. recessions, the U.S. economy appears headed into a second leg of an unusually challenging downturn.

A few weeks ago, I noted that our recession warning composite was on the brink of a signal that has always and only occurred during or immediately prior to U.S. recessions, the last signal being the warning I reported in the November 12, 2007 weekly comment Expecting A Recession.

While the set of criteria I noted then would still require a decline in the ISM Purchasing Managers Index to 54 or less to complete a recession warning, what prompts my immediate concern is that the growth rate of the ECRI Weekly Leading Index has now declined to -6.9%.

The WLI growth rate has historically demonstrated a strong correlation with the ISM Purchasing Managers Index, with the correlation being highest at a lead time of 13 weeks.

http://pragcap.com/john-hussman-issues- ... on-warning

[winston]

Wolf ! Wolf !

RARE INTERVIEW WITH JOHN HUSSMAN: WHY HE IS BEARISH RIGHT NOW
7 July 2010 by TPC 6

In a rare interview with Morningstar John Hussman recently elaborated on his recession call and details why he is turning even more cautious than the has been.

Hussman says the March 2009 lows are likely to be broken and that stocks are grossly overvalued right now:

http://pragcap.com/rare-interview-with- ... -right-now

[winston]

HUSSMAN: THE MARKET IS 40% OVERVALUED
13 July 2010 by TPC

I’m not generally one who dwells on market valuations, but when particular investors begin talking about a substantially overvalued equity market my ears perk up.

In his latest weekly missive John Hussman describes why he believes the market is grossly overvalued. I have been a long-time critic of the way Wall Street analysts value equities, but Mr. Hussman explains the flaws in this methodology far better than I can:

http://pragcap.com/hussman-the-market-is-40-overvalued