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How To Climb Out of the Global Financial Hole
Old 02-22-2009, 08:59 AM   #1
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How To Climb Out of the Global Financial Hole

Hussman Funds

Worth your time to read.
Explains last week's stock market action and alternatives to how the gov't is handing the crisis

You might not want to read this one - scary.
http://www.decisionpoint.com/ChartSp...20_retest.html

Thinking about this financial situation, I feel stupid - I read history but still got caught by the same things that happened in the past.

"Those that don't know history are destined to repeat it." E. Burke

I think that the above quote needs to be changed to:
"Those that DO know history are just as likely to repeat it as those who don't." Dex


http://www.kwaves.com/kond_overview.htm
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Old 02-22-2009, 09:48 AM   #2
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I often find that "good luck" is a byproduct of "hard work".

Hussman gives three explanations for the "Great Moderation" and seems to conclude that "Good Luck" is the most important. While this theme seems to fit well with the dour mood of the moment, I don't find his arguments all that strong.

While he admits that a shift to a service sector economy from a manufacturing economy is proving more stable his dismissal of better inventory management is unconvincing. This is not an inventory led recession, as was the case in many of the prior downturns. So the fact that excess inventory build didn't cause the recession is evidence against his thesis.

That inventory / sales is building more quickly now than in the past two recessions is a reflection of the rapidity with which economic activity stopped because of the collapse in credit. This was unprecedented in modern times. Apply a similar collapse in demand to prior periods and compare inventory build on an apples to apples basis. And then compare the speed with which inventory imbalances correct. Unless we assume that future downturns will witness a similarly abrupt halt in economic activity, it's hard to see how structural changes in inventory management, and a shift away from manufacturing, are anything but stabilizing.

Similarly, his argument about the Fed's rule based policy is undone by his very own article. Greenspan's abandonment of the "Taylor Rule" seems to have been a large ingredient in this very mess. So rather than undermining better Fed policy as a contributor to the "Great Moderation" the evidence supports it in so much as Greenspan went off the reservation. Future Fed President's be warned, stick to the rules!
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Old 02-22-2009, 12:32 PM   #3
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Quote:
Originally Posted by dex View Post

"Those that don't know history are destined to repeat it." E. Burke

I think that the above quote needs to be changed to:
"Those that DO know history are just as likely to repeat it as those who don't." Dex
It's tough to recognize history when you are in the midst of it.

Just like right now, if the market jumps up from here, it would be so easy to look back and say "buying OP of the Century! Man, if that ever comes along again, I am going to jump on it! Anybody could have seen that! Buy low, sell high!".

But, many of us are unsure if this is a bottom, or will be an extended downturn.

DCA, AA rebalance. W/O a crystal ball, what can you do?

-ERD50
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Old 02-22-2009, 12:42 PM   #4
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Amen. I thought I was a seasoned investor, but I've been noticing a very strong correlation between the stock prices and my outlook. In other words, when prices are up I feel like buying, and when prices are down I feel like holding! I've been rebalancing from fixed income into equities steadily now for a year, but I've recently stopped. The two most likely scenarios from here: we head over another cliff, or a long flat spell, favor a conservative stance. I've set up a modest monthly purchase of equities (automated, so I don't have to predict market lows), and the rest of my cash flow is staying as cash.
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Old 02-22-2009, 12:52 PM   #5
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Quote:
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The two most likely scenarios from here: we head over another cliff, or a long flat spell, favor a conservative stance. I've set up a modest monthly purchase of equities (automated, so I don't have to predict market lows), and the rest of my cash flow is staying as cash.
Why are these more likely than any other sequences?

The economy is down, things look dire and the markets are down. Not an unusual combination, the markets are rarely down when the economy is humming along.

I don't say that recovery is necessarily in the cards, but the one absolute fact that we know is that you don't find a large selection of cheap stocks when earnings are up, unemployment is low and the future looks rosy.

I do understand that if we buy now and the market makes another big drop we will likely feel like dopes.

Ha
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Old 02-22-2009, 07:25 PM   #6
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Good points. I do understand the perils of trying to predict future market moves. But I simply don't see any catalyst for a quick recovery (and quite a few possible catalysts for things to get worse). I'm not done buying equities, just throttling back the pace.
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