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

[haha]

Hussman Funds - Weekly Market Comment: Scarcity, Usefulness and Getting an Edge - May 23, 2011

I know that market predictions are looked at negatively here, but Hussman refers to probabilities, not certainties, and has a lot of data.

Ha

 

[Animorph]

Looks like they may be on sale later this year if today is any indication.

 

[ziggy29]

Looks like they may be on sale later this year if today is any indication.

If I were a market timer, "sell in May and go away" is starting to look pretty good based on more and more economic indicators and Q1 earnings suggesting possible entry into double-dipsville. Which was not that hard to envision with $100 oil and $4 gas.

 

[IBWino]

Unfortunately, cash and/or bonds also currently offer below historical average returns. I think I'll just stay diversified and maintain my present course.

 

[harley]

I really hate it when brilliant financial experts like Hussman don't clarify their comments by stating whether they are talking about real (after inflation) returns or not.

That said, I agree with him about the medium term market outlook. But as IBWino says, what else is there? At least the equity market has dividends to smooth out the ride. I'm certainly not going to short the market, especially after being seriously wrong about the effects of Fed intervention for the past two years. All you can do is keep your powder dry, your assets allocated, and your TV off.

 

[nun]

Hussman Funds - Weekly Market Comment: Scarcity, Usefulness and Getting an Edge - May 23, 2011

I know that market predictions are looked at negatively here, but Hussman refers to probabilities, not certainties, and has a lot of data.

Ha

what does the magic 8 ball say, buy or sell? This sort of stuff is less than worthless.

I'm still $ cost averaging with a 50/50 AA, rebalancing, and paying down mortgage debt. The boringly rewarding life of a passive investor.

 

[DblDoc]

...and counterpoint: Are Stocks Overvalued? - CBS MoneyWatch.com

Who to believe?

Like nun I"m passive. Not going to try and "guess" when to get out and then back in, and then back out again and then back in . Happy to get whatever the market will give minus low costs.

DD

 

[plex]

Last time I remember $4+ gas, it was 2005-2007, those were pretty good years. After that though, well, we know what happened. I don't think gas prices are an indication of anything other than a temporary rise in costs, and possibly inflation. If you want a good bear market indicator, watch for unemployment numbers to start ramping upwards for multiple months, that is a strong sign. There are of course many one-month spikes, but it is very rare for multiple months spikes to be anything other than a recession (we are currently in a heavy downward spiral for unemployment).

 

[Gone4Good]

I really hate it when brilliant financial experts like Hussman don't clarify their comments by stating whether they are talking about real (after inflation) returns or not.

He may not say explicitly, but he is almost certainly talking about nominal returns.

 

[ziggy29]

Last time I remember $4+ gas, it was 2005-2007, those were pretty good years.

Huh? Gas only hit $4 in the summer of 2008 and then plummeted with the economic near-collapse. It had barely even hit $3 by 2007.

 

[haha]

Huh? Gas only hit $4 in the summer of 2008 and then plummeted with the economic near-collapse. It had barely even hit $3 by 2007.

He forgot that he was in England then.

Ha

 

[clifp]

Thanks for posting this. The yellow caution light is blinking faster IMO. If there was any other asset class that offered the prospect of even halfway decent returns, I'd sell 20-30% of my stock portfolio.

So right now my choices are limited. I do nothing and face the prospective of say 30-40% decline in a bear market, and the upside of relatively modest gains. I think Hussman's 3.6% upside is too pessimistic but anything over 6-7% in the next 10 years is probably too optimistic. Or I can sell fork over 15% to Uncle Sam (100% probability) in capital gains. The after tax money is then invested in a bond fund like Total Bond Market with a 3.4% yield. Over the next five year I think there is a 10% probability that returns will be over 5% a 50% they will be in the 3-4% range a 30% they will be in the 0-3% range and 10% chance that interest rate will increase enough that total returns will be in the -10%+ range. Alternative I can stick the money in a 5 year CD with a guaranteed 2.5% rate unfortunately after paying capital gains taxes and taxes on the interest income I'm also guaranteed to have 5% less money at the end of 5 years

 

[haha]

Thanks for posting this. The yellow caution light is blinking faster IMO. If there was any other asset class that offered the prospect of even halfway decent returns, I'd sell 20-30% of my stock portfolio.

So right now my choices are limited. I do nothing and face the prospective of say 30-40% decline in a bear market, and the upside of relatively modest gains. I think Hussman's 3.6% upside is too pessimistic but anything over 6-7% in the next 10 years is probably too optimistic. Or I can sell fork over 15% to Uncle Sam (100% probability) in capital gains. The after tax money is then invested in a bond fund like Total Bond Market with a 3.4% yield. Over the next five year I think there is a 10% probability that returns will be over 5% a 50% they will be in the 3-4% range a 30% they will be in the 0-3% range and 10% chance that interest rate will increase enough that total returns will be in the -10%+ range. Alternative I can stick the money in a 5 year CD with a guaranteed 2.5% rate unfortunately after paying capital gains taxes and taxes on the interest income I'm also guaranteed to have 5% less money at the end of 5 years

I agree. My solution has been to sell up in tax deferred accounts, but since I have no losing or small gain positions in taxable accounts, I decided to just let them ride. With luck, I will have avoided unnecessary tax and not suffer much in the way of declines.

Ha

 

[nun]

Thanks for posting this. The yellow caution light is blinking faster IMO. If there was any other asset class that offered the prospect of even halfway decent returns, I'd sell 20-30% of my stock portfolio.

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.

 

[traineeinvestor]

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.

We're going with a similar strategy and expect to get about half our retirement income from rent on our properties. There's something reassuring about the prospect of getting some money in every month (with provision for some vacancies) regardless of which way the markets are moving.

 

[arebelspy]

We're going with a similar strategy and expect to get about half our retirement income from rent on our properties. There's something reassuring about the prospect of getting some money in every month (with provision for some vacancies) regardless of which way the markets are moving.

Others here are a bit negative on real estate (understandable, given the last 4 years and potential next 4), but as long as you're buying something that cash flows (not merely hoping for appreciation), and have taken maintenance/repairs, vacancy, management, etc etc into consideration (not to mention the potential land lording hazards), RE can be a great way to RE.

(Where RE = real estate and retire early, respectively.)

I'm pessimistic on anything cash-flow negative, and any property you're hoping will go up in value to sell, but buy and hold with tenants can be a great supplemental retirement income, IMO.

 

[nun]

Others here are a bit negative on real estate (understandable, given the last 4 years and potential next 4), but as long as you're buying something that cash flows (not merely hoping for appreciation), and have taken maintenance/repairs, vacancy, management, etc etc into consideration (not to mention the potential land lording hazards), RE can be a great way to RE.

I bought a 2 family in a college town. I live upstairs and rent the first floor apartment out. It's been continually rented since 1997. I have appreciation even through the down turn and positive cash flow, rent is $1200 a month. When my current tenants leave I will invest $40k to rehab the bathroom and kitchen and make it into a two bedroom flat and increase the rent to $1800 a month which will be an 18% annual return on that $40k.

 

[brewer12345]

Ah, Hussman. The guy is smart, but he seems to have turned into a permabear. I have a hard time giving him much credence.

 

[haha]

Ah, Hussman. The guy is smart, but he seems to have turned into a permabear. I have a hard time giving him much credence.

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

 

[samclem]

Or,

. . .buy and hold with tenants can be a great supplemental retirement[-] income[/-] job.

 

[brewer12345]

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]

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]

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]

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]

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. ..