Martha said:
I don't understand what the strategy would be if you agree with Hussman's position. Hold cash and wait? Then inflation eats the cash away.
Martha, IMO the easiest strategy would be to invest in one or both of his funds. His strategic growth has a 1% annual fee. Turnover is considerable though, so to get an idea of the overall tax on you from owning it might take some work. In this fund, he buys as many as 100 issues long, then when he feels risks are high, he hedges this by buying puts and selling calls to offset the premium costs. The fund has an excellent record. He has almost all his money in it.
I recommended that my wife buy some of this. She hates losses or drawdowns, and I am getting wary of managing her money.
Another approach would be to use his ideas about market risk to make your own strategy. You could hedge equity exposure on which you would have to pay CG tax if you sold; sell equities in tax deferred accounts; and refrain from making new equity commitments until you (or Hussman) see a better risk/return picture.
Personally I don't feel that inflation is that much of a problem in this context, because this is a strategic, not permanent allocation. And in any case, if you are going back and forth between (cash or near cash) and equities, the price movements you are most concerned with are the relative movements of cash and stocks.
If you accept Hussman's data and logic, you also will strongly believe that the 5% or so available in cash could well be a greater return than that given by stocks over some fairly long time period. And it will surely be a less risky return.
Remember, cash has a zero duration while stocks at current yields have a very long duration. The only thing you are giving up with a large reserve is some possible speculative gain. One can't be prudent and also milk every last ounce of lunacy from a position.
Another thing, look at a chart of the last two years. Up and down, up and down, but not going anywhere much. (Speaking here of Dow or S&P)
haha