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Hussman warning...
Old 06-28-2010, 09:28 AM   #1
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Hussman warning...

John Hussman: Recession Warning -- Seeking Alpha

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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...
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Put bluntly, I believe that the economy is again turning lower, and that there is a reasonable likelihood that the U.S. stock market will ultimately violate its March 2009 lows before the current adjustment cycle is complete.
A voice of reason, or more Hussman bearishness? I think things look moderately hopeful, but Hussman's model suggests another downturn...

I'm gonna need some more meds...
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Old 06-28-2010, 09:37 AM   #2
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I thought Hussman had been warning non-stop for the last 12 months - throughout the market recovery rally.

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Old 06-28-2010, 11:07 AM   #3
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That plus the decision yesterday by the leaders of the World's larger countries and this article makes me a little less optimistic:

Op-Ed Columnist - The Third Depression - NYTimes.com
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Old 06-28-2010, 11:16 AM   #4
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That plus the decision yesterday by the leaders of the World's larger countries and this article makes me a little less optimistic:

Op-Ed Columnist - The Third Depression - NYTimes.com
I agree with Krugman's conclusion. I still think inflation was the last war...
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Old 06-28-2010, 11:23 AM   #5
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I believe the world backed itself into a corner. It was unconscionable to be sustaining massive deficits and racking up massive debt during GOOD economic conditions. That empties your quiver of available options when the market and the economy turn really bad.

To the extent Keynesians like Krugman are advocating massive deficit spending as a stimulus, that can only work if we build massive surpluses to pay down the deficits in an economic boom -- something that almost never happens. You can't overspend at times if you aren't underspending at other times (or at least not increasing the debt faster than GDP per capita).
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Old 06-28-2010, 11:26 AM   #6
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Quote:
Originally Posted by audreyh1 View Post
I thought Hussman had been warning non-stop for the last 12 months - throughout the market recovery rally.

Audrey
Perhaps not:

"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."
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Old 06-28-2010, 11:36 AM   #7
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Had me really worried for a moment.

Husman's is a very popular local brand.

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Old 06-28-2010, 11:41 AM   #8
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Originally Posted by ziggy29 View Post
To the extent Keynesians like Krugman are advocating massive deficit spending as a stimulus, that can only work if we build massive surpluses to pay down the deficits in an economic boom -- something that almost never happens. You can't overspend at times if you aren't underspending at other times (or at least not increasing the debt faster than GDP per capita).
Where have all the flowers gone? Oh, when will they ever learn.

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Old 06-28-2010, 12:07 PM   #9
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Originally Posted by braumeister View Post

Husman's is a very popular local brand.

Is the double dip coming?

....sorry I couldn't resist...
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Old 06-28-2010, 12:37 PM   #10
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Quote:
Originally Posted by HFWR View Post
John Hussman: Recession Warning -- Seeking Alpha





A voice of reason, or more Hussman bearishness? I think things look moderately hopeful, but Hussman's model suggests another downturn...

I'm gonna need some more meds...
You took the words right out of my mouth.

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Old 06-28-2010, 03:44 PM   #11
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A voice of reason, or more Hussman bearishness?
The only time I'd pay attention to boy who cries wolf Hussman would be when he turns bullish.

Wouldn't it be interesting to have Hussman in the same CNBC interview with Grantham & Roubini? Maybe Taleb, too? I'd think the interviewer and the entire production crew would be hurling themselves out of the windows before their subjects finished talking...
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Old 06-28-2010, 04:04 PM   #12
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I'd think the interviewer and the entire production crew would be hurling themselves out of the windows before their subjects finished talking...
You say that like it's a bad thing.

I see plenty of structural problems, worldwide, but I can't tell if we'll pull it out by the skin of our teeth, or fall into the pit of fire...
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Old 06-28-2010, 04:59 PM   #13
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Jeremy Grantham, 05/09 newsletter, describing his advice to prepare an investing plan and then stick to it.

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But for those formerly in rigor mortis who were left behind and are now praying for a pull-back, this steady investing process is critical. You have missed some great investment opportunities, and now you have a psychological commitment to another major fall to add to any intellectual reasons you may have had. The market may well oblige by coming down sharply again in the near future, and I for one continue to believe there is still about a 1 in 3 chance it will do so. There is also perhaps a 1 in 5 chance that the market will come down much further in the future to a new low, but if it does not and it continues to rise, extended praying may not make you as much money as you would like.


This describes John Hussman. He is obsessed intellectually and psychologically committed to lower housing prices leading to falling value in MBS leading to weakened bank balance sheets leading to a debt default. He feels the US should not backstop bonds and bond holders should take their (severe) losses. (I fear this would benefit his funds more than it would benefit the US economy.)

This outcome is possible, as housing prices began falling again earlier this year. MBS prices are stable, however, and the Fed is committed to supporting MBS prices. Apparently, so is China. I'm not betting against the Fed.

If housing prices do not level again, and soon, and private sector employment does not keep up with population growth, things may get worse for the economy and the financial markets. Right now, though, it’s too early to run for the hills. Payroll withholding and corporate taxes are increasing vs this time last year. Mixed data and uncertainty are spooky but no reason to hide. Yet.
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Old 06-28-2010, 05:17 PM   #14
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Originally Posted by MichaelB View Post
Jeremy Grantham, 05/09 newsletter, describing his advice to prepare an investing plan and then stick to it.
This seems odd coming from Grantham, since he is one who depending on his forecasts makes large shifts in desired asset allocation, including shifts heavily toward cash. THe advice you cite could be a bit of help for people who were on hte verge of panic. I believe that currently, complacency is much more in evidence than panic.


(Sorry, I don't know how to turn off the big font) I really cannot tell about Hussman's possible obsessions, but I believe that with respect to the stock market, his main point is that its valuation levels reflect better than median forecasts, and there does not seem to be much evidence to suggest that this is likely.

I am sure that he is suffereing some defections from his funds, and managers are usually tempted under those circumstances to get with the program. He isn't doing that, at least not yet and I see that as a recommendation for him.

Ha
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Old 06-28-2010, 06:17 PM   #15
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Quote:
Originally Posted by HFWR View Post
John Hussman: Recession Warning -- Seeking Alpha

A voice of reason, or more Hussman bearishness? I think things look moderately hopeful, but Hussman's model suggests another downturn...

I'm gonna need some more meds...

Right now I could care less about the stock market. Its the job market I'm worried about. The last employment data report was very disappointing. If we get another bad report I'll have to start adding more money into my emergency fund again.
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Old 06-28-2010, 06:28 PM   #16
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Originally Posted by audreyh1 View Post
I thought Hussman had been warning non-stop for the last 12 months - throughout the market recovery rally.

Audrey
It seems to me that he's been warning for as long as I can remember (more than 12 months ). I wonder whether the paradigm has simply shifted slightly outside of his model. It worked fine out of the dot com bubble, but it did not seem to work as well for the credit crisis. Of course that crisis is not over yet, so who can tell.
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Old 06-28-2010, 07:02 PM   #17
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This seems odd coming from Grantham, since he is one who depending on his forecasts makes large shifts in desired asset allocation, including shifts heavily toward cash. The advice you cite could be a bit of help for people who were on the verge of panic. I believe that currently, complacency is much more in evidence than panic.
I was citing a point of difference between GMO and Hussman which I suspect still exists, but to a lesser degree. J Grantham still suggests investing in “US quality” and EM, while Hussman seems to suggest no equities.


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I really cannot tell about Hussman's possible obsessions, but I believe that with respect to the stock market, his main point is that its valuation levels reflect better than median forecasts, and there does not seem to be much evidence to suggest that this is likely.
His S&P valuation seems to be similar to GMO’s. Almost half of his weekly columns are about or mention debt levels and he continually repeats his view that bonds are artificially overvalued and that losses should be recorded now.

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I am sure that he is suffereing some defections from his funds, and managers are usually tempted under those circumstances to get with the program. He isn't doing that, at least not yet and I see that as a recommendation for him.
How can we distinguish the positive trait from the obstinate? His point on debt is well taken, but the Fed is (apparently) intent on avoiding a housing - MBS deflationary spiral and will continue to print money and buy bonds. The question is should we take Hussman's latest newsletter as a continued warning or a call to action?

I do agree with your view on complacency.

Regarding fonts I compose in word then cut and paste - resolves font and language difficulties.
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Old 06-28-2010, 07:32 PM   #18
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How can we distinguish the positive trait from the obstinate? His point on debt is well taken, but the Fed is (apparently) intent on avoiding a housing - MBS deflationary spiral and will continue to print money and buy bonds. The question is should we take Hussman's latest newsletter as a continued warning or a call to action?
This kind of question can rarely be answered until it is too late. It usually boils down to "pay your money and take your chance". I now carry a little over 50% in risk assets. If I felt valuations were significantly better than I think that they are at present, I would own more stock. I would also own less were it not that the bulk of my investments are in taxable accounts and I don't want the CGs. Also, I have maybe 20% of assets in MLPs. These are a real pain in which to make partial sales, so I just tend to buy carefully, and hold on. This may not be smart.

Ha
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Old 06-29-2010, 08:49 AM   #19
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Case-Shiller data released this morning show housing prices stable month to month. The data has been ambiguous this year, showing long term improvement and short term deterioration.

This morning there also was an extended interview on Bloomberg radio with Lakshman Achuthan (ECRI) (they often post these on their website later). His views have mostly been covered elsewhere (no double dip, the recovery has been actually stronger than previous recent recessions, ½ of our unemployed will not find work for a longer time). He also mentioned a few things I had not heard from him before.
- Long leading indicators show slowing growth, not contraction
- Housing prices have stabilized
- He does not agree with the PIMCO New Normal. We will not see continued slow growth, instead we will see shorter cycles of boom and bust.
- Low inflation for the foreseeable future, suggesting continued low policy interest rates.
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Old 06-29-2010, 09:22 AM   #20
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Here is a chart of the Case Shiller data. Note: seasonally adjusted.
from Calculated Risk: Case-Shiller: House Prices increased in April due to tax credit
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