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

[samclem]

What is QE2?

"Quantitative Easing 2." The US Fed's second round of easy money. It's about to end and folks are a bit concerned about the impact on equities once the artificial boost stops. "Quantitave Easing" sounds much more measured and analytical than "Quick! Throw in gobs of money to keep things moving until the economy turns around! I'll not let the ship hit the rocks on my watch, the next guy can worry about the bill!"

 

[yakers]

"Quantitative Easing 2." "Quantitave Easing" sounds much more measured and analytical than "Quick! Throw in gobs of money to keep things moving until the economy turns around! I'll not let the ship hit the rocks on my watch, the next guy can worry about the bill!"

I think that is a reasonable description. It actually may make sense if one is truly headed towards the rocks. May or may not hit them later, but at least not hit them now for sure. I kind of hate all the Fed borrowing going on but as it is explained, it really may be necessary. Hard for me to follow all the arguments but at least its pitched as a way to avoid 'hitting the rocks'.

 

[jayc]

Talking heads, wall street fluff articles, and magic eightball carnival barkers have no direct impact on my financial plans, present, past, and/or future.

 

[MichaelB]

So are you saying that you have gone to 0% or near 0% equity? It is not really clear to me what you are saying, or what you are in fact doing.
I sometimes have a hard time understanding what people are saying about investing. On the one hand, there is a belief in efficient markets. A strong desire and more than a little success at paying very low tax rates. A belief that one cannot reliably pick one investment over another. I believe that you may have said in a post above that one must keep to his plan. This of course might mean anything from day trading to rebalancing into an invariant AA once per year.
How about some reciprocal sharing here? What are you doing, and how does this relate to your market view as advanced above?
Ha

Sorry Ha. I wasn’t trying to be obtuse, just general. Sometimes talking about specific and personal choices around here invites unwelcome and obnoxious comments. I’ll answer your questions more directly.

I think someone should change their portfolio allocations only if that is part of an investment plan and only if it is done in a proactive and disciplined way, not a reaction to news. In other words, sell now if that is part of a strategy developed in the past based on specific criteria which are now being met.

My equity allocation is currently at 30% (2/3 of that is in US blue chip equities). I have taken it down in steps over the past year. It will stay at that level unless 1) global growth regains a positive trend, or 2) equity prices reset to historical trend based on shiller PE10 type values. I would consider taking it down further only if I felt a recession was to occur and equity prices were at current high levels. Last year I used up the last of my ’08 losses, and this year I will pay taxes for the first time since ’07.

The reason for the 30% equities is because that is the level that allocation models such as firecalc show to be the minimum needed for long term portfolio survivability. My greatest risk now is global equity prices move substantially higher and stay there, and this would be a lost opportunity.

 

[Gone4Good]

Here Comes Another GDP Downgrade

Hitting a soft spot in the economy. We're going to have some headwinds going forward from the roll-off of fiscal and monetary stimulus. Hold on to your hats.

 

[REWahoo]

Hold on to your hats.

It's not my hat I'm worried about losing...

 

[Gone4Good]

Hard for me to follow all the arguments but at least its pitched as a way to avoid 'hitting the rocks'.

I like the alternative approach . . . "Quick, steer into the rocks!! We need to sink the ship fast so we can get busy building a new ship from the wreckage that floats back up to the surface."