Hussman Says Equities Priced To Offer Low Returns, Accompanied by High Risk

[brewer12345]

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Originally Posted by haha Well, you don't really have to give him credence to read the chart, unless you think he is cooking the data. To me, with respect to the S&P, not some individual stock, his data are very clear. As he says, anything can always happen in some particular instance, but the chart shows what has tended to happen in similar conditions in the past. Also, there is a very important messsage buried in here- risk is seen to go down, as potential reward goes up. What would Jeremy "stocks for the long run" do with this? Ha

Suffice it to say that I stop bothering to look at any clock that only shows one time of day all the time.

With respect to the S&P/general market, IMO we are in a general economic recovery that is moderately sluggish and can be expected to have some fits and starts. That is what we should expect of a post credit crisis recovery: a lot of damage was done and it takes a long time to recover. But the recovery is taking place and firms seem to have the ability to generate quite a lot of cash overall and the environment serves as a moderate but sustained tailwind to business results. That is a scenario where I want to be long equities and patient through the kerfluffles that will inevitably happen.

When I look at the individual businesses I am invested in, I see lots of really positive devleopments, management teams executing on solid business plans, and strong cash flow generation and growth. None of this seems to be getting any respect from investors, but since I am a long term investor in what I own I don't really care in the short to medium term. YMMV.

[arebelspy]

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Originally Posted by samclem Or,

If that's what you want, sure.

Note that I did mention management when I mentioned the costs.

Like I said, some here are down on landlording.

[Gone4Good]

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Originally Posted by arebelspy Note that I did mention management when I mentioned the costs. Like I said, some here are down on landlording.

In my neck of the woods, I pay 2.5% of the monthly rent (less than 20bp of the property value) to have the property managed by a real estate company. They find new tenants when needed and deal with all requests, complaints, and issues. The only thing I've done in over a year is make sure the right amount is deposited into my account every month. Well worth the price.

[nun]

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Originally Posted by arebelspy If that's what you want, sure. Note that I did mention management when I mentioned the costs. Like I said, some here are down on landlording.

I have zero stress and almost zero management with my rental. The couple I rent to are really nice. As it's a two family the upkeep I have to do on my place covers a lot of the downstairs apartment too. The house is in very good shape so I don't have to fix things often. I basically sit back and collect the rent.....no worries.

Whenever I've needed to find new renters a quick Craigslist post (which is free) does the job and I'm also on the books with the local university so I get lots of enquiries form there too.

[dtbach]

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Originally Posted by brewer12345 Suffice it to say that I stop bothering to look at any clock that only shows one time of day all the time. With respect to the S&P/general market, IMO we are in a general economic recovery that is moderately sluggish and can be expected to have some fits and starts. That is what we should expect of a post credit crisis recovery: a lot of damage was done and it takes a long time to recover. But the recovery is taking place and firms seem to have the ability to generate quite a lot of cash overall and the environment serves as a moderate but sustained tailwind to business results. That is a scenario where I want to be long equities and patient through the kerfluffles that will inevitably happen. When I look at the individual businesses I am invested in, I see lots of really positive devleopments, management teams executing on solid business plans, and strong cash flow generation and growth. None of this seems to be getting any respect from investors, but since I am a long term investor in what I own I don't really care in the short to medium term. YMMV.

Warren Buffet is fairly confident that the economy is recovering and he is as good a barometer as I want. I remember him saying in around 2000 that the stock market would not generate much if any positive return in the next 10 years. Wish I had heeded that advice then. ..

[MichaelB]

Hussman has become emotionally committed to one outcome. This has compromised the value of his investment advice.

Confirmation bias is a substantial risk right now. I'm not suggesting this re Ha's original post, but in general. One analyzes, develops an expected outcome and then focuses on analysis that supports that conclusion.

Over the next few months a global economic slowdown seems likely. I would imagine the media will go into a frenzy. It may create some buying and selling opportunities. Beyond that, the global economy still appears to be in a growth phase greater than ever before, and betting against that could end badly for investors. This will be a good time to stick to one's investment plan.

People in the withdrawal phase should limit their equity allocation to what they can afford to lose.

[haha]

Quote:

Originally Posted by brewer12345 Suffice it to say that I stop bothering to look at any clock that only shows one time of day all the time. With respect to the S&P/general market, IMO we are in a general economic recovery that is moderately sluggish and can be expected to have some fits and starts. That is what we should expect of a post credit crisis recovery: a lot of damage was done and it takes a long time to recover. But the recovery is taking place and firms seem to have the ability to generate quite a lot of cash overall and the environment serves as a moderate but sustained tailwind to business results. That is a scenario where I want to be long equities and patient through the kerfluffles that will inevitably happen. When I look at the individual businesses I am invested in, I see lots of really positive devleopments, management teams executing on solid business plans, and strong cash flow generation and growth. None of this seems to be getting any respect from investors, but since I am a long term investor in what I own I don't really care in the short to medium term. YMMV.

Remember how well that worked in early 2008?

Anyway, accurate information cannot be harmful, one can always use it or not. And, as a matter of history, Hussman was not saying the "same thing" in March of 2009 that he is now saying. Although he did accurately point out that valuations, while better than earlier, were not anywhere close to some prior long term lows.

IMO this history remains to be written.

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Originally Posted by MichaelB Beyond that, the global economy still appears to be in a growth phase greater than ever before, and betting against that could end badly for investors. This will be a good time to stick to one's investment plan.

This may be true. However, I see my greater risk in continuing to hold all the equity that I feel income and taxation considerations recommend, rather than in being underinvested in equities.

If I were a tax free investor, I would be at least 80% cash right now, but I am not, so I am not.


Ha

[eytonxav]

Hussman's funds generally perform better in down markets and fall short in up markets. Really seem to be more or less designed to be market neutral. Once he adopts a view of the market he does not readily admit he missed it, at least thats my perspective of him.

[Gone4Good]

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Originally Posted by haha Remember how well that worked in early 2008?

I agree.

One thing I learned in 2008 is how easily liquidity can masquerade as good fundamentals. Unfortunately, I know of no good way to disentangle the two. So the only thing I can do is apply a higher discount rate whenever the liquidity spigot is open . . . like now.

[clifp]

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Originally Posted by Gone4Good In my neck of the woods, I pay 2.5% of the monthly rent (less than 20bp of the property value) to have the property managed by a real estate company. They find new tenants when needed and deal with all requests, complaints, and issues. The only thing I've done in over a year is make sure the right amount is deposited into my account every month. Well worth the price.

My that is a very low rate. In Vegas property management runs about 8% and can be as high as 10%.

[clifp]

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Originally Posted by nun When I developed my strategy for retirement income I decided that I didn't want to rely on the stock market casino. So I bought a rental property. Once the mortgage is paid off it will have cost me $170k in mortgage, taxes and upkeep...but I get $15k a year from it and I could sell the place now for $250k. It will cover half of my basic retirement costs.

I am off to Vegas next week where my intention is to buy a rent property or two, with the distinct possibility of adding a few more in the next year.

It is interesting that during the 2000 real estate was the equivalent of growth stocks it was all about appreciation. Now days in many markets real estate is equivalent to a dividend or value stock, the growth prospects aren't all that exciting at least in the short-term, but the yield is quite decent near 10%

[MichaelB]

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Originally Posted by haha This may be true. However, I see my greater risk in continuing to hold all the equity that I feel income and taxation considerations recommend, rather than in being underinvested in equities. If I were a tax free investor, I would be at least 80% cash right now, but I am not, so I am not.

Then why not sell? If your expectation is for a substantial decline in equity prices, the tax cost is less.

[Gone4Good]

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Originally Posted by clifp It is interesting that during the 2000 real estate was the equivalent of growth stocks it was all about appreciation. Now days in many markets real estate is equivalent to a dividend or value stock, the growth prospects aren't all that exciting at least in the short-term, but the yield is quite decent near 10%

Here's something to get you excited . . .

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when this construction cycle will have run its course, the United States will have first have spent an excess $300 billion, and then fallen short of trend by a cumulative $2 trillion of construction spending not undertaken. The net effect will be an at least $1.7 trillion construction shortfall in the United States: $1.7 trillion of houses, apartment buildings, offices, and stores not built. . . . When incomes, production, and employment in the United States return to their trend levels, Americans will demand an extra $1.7 trillion worth of buildings to live in. And those buildings will not be there.

[haha]

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Originally Posted by MichaelB Then why not sell? If you expectation is for a substantial decline in equity prices, the tax cost is less.

The usual reasons, one never knows for certain, my tax picture will be better next year, hard to replace the income especially after paying a substantial tax, etc.

Anyway, my expectation is not for a substantial decline. My "expectation" derives from that under these circmstances in the past, returns going forward were modest, but risks considerable. This is quite different from calling for a large decline.

IMO holding is different from new buying, and there are different burdens of proof.

Ha

[REWahoo]

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When If incomes, production, and employment in the United States return to their trend levels...

Fixed it for ya him...

[clifp]

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Originally Posted by MichaelB Then why not sell? If you expectation is for a substantial decline in equity prices, the tax cost is less.

I went through a tax analysis in earlier post. You have to be pretty much certain that equity prices are going to be lower in 5 years than they are now to sell and stick the money in a CD, since the CD rates are so low you'll loss 5% of your money after taxes. Back in 2007 if you were nervous of correction you could sell pay capital gains and stick your money in a 6% 5 year CD. In 2012 those CD would mature and you'd have ~25% more after tax money.

That's way HaHa strategy of selling off equities in tax deferred accounts makes so much sense, and why I started copying it today.

[Gone4Good]

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Originally Posted by REWahoo Fixed it for ya him...

Yup, an obvious fly in the ointment.

Although I don't expect 9% unemployment to last forever. And once those people find work, I imagine they'll want to move out of their relative's basements.

[arebelspy]

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Originally Posted by Gone4Good Here's something to get you excited . . .

I read too much Patrick.net to believe all that, but I sure hope it's true.

Though I think Real estate will be depressed for the next 4+ years, with the giant shadow inventory. Meaning low new construction for years to come. Meaning that graph will only get worse. At some point one figures it has to come back, unless our economy totally collapses...

[MichaelB]

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Originally Posted by Gone4Good Here's something to get you excited . .

From DeLong's post

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When incomes, production, and employment in the United States return to their trend levels, Americans will demand an extra $1.7 trillion worth of buildings to live in. And those buildings will not be there. And demand for construction will come roaring back. The next decade will be likely to see--if we do recover to the previous long-run trend, that is--a construction boom to put the mid-2000s construction boom in the shade. But that is not now. And that is not for some years to come.

Brad DeLong frequently rails against the Greenspan monetary policies – but they inspired much of the rally ion housing investment he references. The implication of his analysis is a current unfilled demand of 8.5 million housing units ($1.7T @ 200K per unit). I am doubtful.

[samclem]

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Originally Posted by Gone4Good Here's something to get you excited . . .

But the whole argument hinges on the slope of that blue line. I couldn't find the original article at the St Louis Fed, but I'd bet it is based on average rate of new construction since WW-II or some such. Those were some fairly heady years for the US economy--it seems far more likely that we'll have reduced demand for new and bigger houses, folks will probably learn to like what they have longer. The same demographic trend that is hurting SS--oldsters getting older and fewer young-ones coming up, will lead to the availability of more existing houses in the future. I think in a future with more restrained earnings growth and a reduced government push for artificially low mortgage rates (if we've learned anything . . .), maybe folks will find existing houses to be entirely satisfactory. We'll build more houses, but there's a considerable stock of existing homes that will hurt the building biz.