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Hussman - March Commentary

Pretty compelling analysis. I’d be curious to hear a retort from the likes of BS or MLA (if you have one that is). As much as I want to find a hole or proclaim “it’s different this time”, I just can’t…

Link: https://www.hussmanfunds.com/comment/mc190303/

Yes, there’s actually a link this time!

Hey Hamilton, have a holly jolly Christmas.

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Does he not realize Trump has (at least) 6 more years? 

Funny thing is I don’t even have to read it to know what it’s about. He’s been bearish since 2013 and his performance reflects that! He’s like Marc Faber but with a PhD! 

https://www.hussmanfunds.com/strategic-total-return-fund/

Eventually a wrong clock will be right at some point! 

I love my cheese. I got to have my cheddar.

Those returns seem pretty good for a short fund

Track record aside, I can’t find any holes in his analysis.

Well one maybe - a valuation metric he uses is US market cap/US GDP and while it is near all-time highs, it doesn’t take into account the fact that companies are becoming increasingly multinational, which would naturally increase the ratio over time.

Hey Hamilton, have a holly jolly Christmas.

Nerdyblop wrote:

Eventually a wrong clock will be right at some point! 

Dear lawd, that hurt. Just search for the quote if you cannot remember it, Nerdy!

you basically need to come from a target school pedigree/work at prestigious firm in the US/have a really good connection.

- AF hivemind

haha. i def butchered that quote.

also hes not a short fund. hes just bearish all the time. his returns are really **** when compared to the benchmark: S&P 500 TR.

I love my cheese. I got to have my cheddar.

his analysis has always been good but he works on incredibly long-term trends so he’s going to be wrong 95% of the time and right 5% of the time, just by the sheer nature of his analysis. i believe his view of valuation is largely correct but cannot be used for timing anything.

further, the full reversion to the mean he is calling for relies on labour attaining a bigger piece of the earnings pie after losing to capital for three decades. it appears labour could be making strides with the populist movement (i.e. rising minimum wages, more concern about universal HC, calls for lower drug prices, and other things) but so far these gains have been offset by technology, relative gains also made by corps (i.e. taxes) or labour’s obsolescence in many industries. then there is the fact that, as ITA mentioned, the world is incredibly globalized and dominated largely by US companies and it is reasonable to expect US companies to trade at premium valuations relative to the distant past due to US corps’ more global reach compared to the past.

he is calling for a ~70% decline from peak. i think 35%-50% is more reasonable this time around as i think US equities shouldn’t incorporate valuations from a century ago when US corporate dominance was largely non-existent globally and when labour was much stronger. this 35%-50% decline incorporates some labour strength IN recession (counterintuitive but labour gets handouts in recession) but not any “de-globalization”. i also see the US financial sector as very healthy so 60%+ liquidity driven declines are unlikely though contagion from Europe is very much possible in the next downturn.

biggest wildcard is china. they could forestall a recession for several years if they wanted to. it’s really up to them whether we experience this decline in 2019 or in 2025. that said, the longer they stall it, the bigger the ultimate decline and the slower the recovery following the decline.

Matt Likes Analysis wrote:

his analysis has always been good but he works on incredibly long-term trends so he’s going to be wrong 95% of the time and right 5% of the time, just by the sheer nature of his analysis. i believe his view of valuation is largely correct but cannot be used for timing anything.

further, the full reversion to the mean he is calling for relies on labour attaining a bigger piece of the earnings pie after losing to capital for three decades. it appears labour could be making strides with the populist movement (i.e. rising minimum wages, more concern about universal HC, calls for lower drug prices, and other things) but so far these gains have been offset by technology, relative gains also made by corps (i.e. taxes) or labour’s obsolescence in many industries. then there is the fact that, as ITA mentioned, the world is incredibly globalized and dominated largely by US companies and it is reasonable to expect US companies to trade at premium valuations relative to the distant past due to US corps’ more global reach compared to the past.

he is calling for a ~70% decline from peak. i think 35%-50% is more reasonable this time around as i think US equities shouldn’t incorporate valuations from a century ago when US corporate dominance was largely non-existent globally and when labour was much stronger. this 35%-50% decline incorporates some labour strength IN recession (counterintuitive but labour gets handouts in recession) but not any “de-globalization”. i also see the US financial sector as very healthy so 60%+ liquidity driven declines are unlikely though contagion from Europe is very much possible in the next downturn.

biggest wildcard is china. they could forestall a recession for several years if they wanted to. it’s really up to them whether we experience this decline in 2019 or in 2025. that said, the longer they stall it, the bigger the ultimate decline and the slower the recovery following the decline.

Interesting take (as expected). Thanks!

Hey Hamilton, have a holly jolly Christmas.

Nerdyblop wrote:

haha. i def butchered that quote.

Yes, but you know what they say: if you can’t subdue somebody then you should become part of their team!

you basically need to come from a target school pedigree/work at prestigious firm in the US/have a really good connection.

- AF hivemind

There’s an old saying in Tennessee, I know it’s in Texas, probably in Tennessee, that says, fool me once, shame on - shame on you. Fool me - you can’t get fooled again.

#FreeCVM #FreeTurd #2007-2017

Basically what MLA said, this kind of analysis is pretty useless as is a fund that returns ~4% since inception and 2.4% over a decade when asset values basically doubled.  It boggles my mind these little circle jerks of permabears that form with cult figures like Hussman.  These guys charge significant fees and crank out these arrogant letters their investors gobble up full of tales of less savvy investors.  They’re so intent on attaining some moral high ground catching a contrarian dip nobody’s asking what kind of investor pays fees like that to stay with a guy that has at best performed in line with a mid length treasury over any period.

I mean he cherry picked a few metrics that are prone to distortion and at best have ~50% correlations with market values, ignores the impact of low rates / low inflation on most of those metrics themselves and basically grandstands.  The worst part is these guys still operate under some Sunday school guise that fundamentals are more likely to drive markets even over the mid term than technicals which they wholly ignore.  Maybe at some point he’ll be right, I hope he manages to outperform on that day because most fail to actually do that (Peter Schiff?). 

Fact is, without a financial crisis you’re pretty much guaranteed not to have the kind of drop he’s talking about and while he spent a lot of time blabbering about how quickly things dropped he largely ignored how much money quickly stepped in to pick up the pieces.  There’s really no strong argument for a major systemic financial crisis.  Across commodities, energy, industrials you just had a mini recession in 2015/16with pricing action tha twas in line with the 2000 tech bust so they’re all delevered and efficient and feel more early stage.

Is volatility here?  Yes.  Will things go up and down? Yes.  While some sector probably find a way to implode?  Yes.  But I don’t see the mid term setup as all that different now than it has been in any of the past few years.  Healthy consumer, recovering lat am, some issues in China to sort out.  Next major crisis is most likely to be sovereign driven and I see that as a mid 2020’s at best.

#FreeCVM #FreeTurd #2007-2017

And just as an aside the guy bases most of his analysis on the Fed model.  Which basically says earnings yield should be above treasury.  This indicator is horrible at best and has been repeatedly shown to have no correlation to returns.  It said markets were undervalued leading into 2008.  It also ignores growth and reinvestment of earnings completely.

#FreeCVM #FreeTurd #2007-2017

This was Hussman’s  bulletproof analysis in mid-February 2016 literally weeks from a two year mega rally…

http://www.hussmanfunds.com/wmc/wmc160215.htm

#FreeCVM #FreeTurd #2007-2017

lol all the **** about labor and peak corp margins has been the case since 2013 if i am recalling correctly. basically this **** is regurgitated info with updated data and news.

also 70%~+ decline prediction is hilarious. out of like 200 yrs of data that **** only happened durign the great dep. with that said, even a 50%+ decline is kinda rare, and it happened twice in the same decade! 00-03 and 08-09. but honestly, i think a 20 to 40% decline is reasonable to expect.

lastly we are overdue for a fin crisis. happens a couple times every decade. runaway valuations followed by steep markdowns due to a lack of increase in productivity/income.

I love my cheese. I got to have my cheddar.

You have to look at lending standards and capitalization levels for a real financial crisis, hard for anyone to make that case right now.

#FreeCVM #FreeTurd #2007-2017

it’s all europe and its the same song we faced in 2012-2013. this time it’ll be italy vs. the ecb. eventually one side will cave as extreme financial crisis will be the alternative. maybe they won’t cave. this is where your 70%+ comes from but only this. and it would be a decision.

us financials are clean. china can instantly eat losses and transfer downside broadly via currency.

at current rates you are right. but if inflation were to tick up (asset inflation is the only thing that occured, not so much regular people inflation). fed will be forced to raise rates. even if we just normalize rates at 5% from the current 2.5%, you are lookin at a 20% decline in 10 year bond prices. 

couple that with the govt’s need to raise taxes in order to keep pace with rising rates, and you are looking at a **** show. bond prices falling, asset prices rising, and govt taking a larger cut of your productivity!

I love my cheese. I got to have my cheddar.