Down goes the Dow

John Hussman, July 6, 2015:

Among the frequent remarks on financial television that make us wince here is the idea that because rich market valuations, heavy issuance of speculative IPOs, Greek debt concerns, private-equity divestitures and other factors have been openly discussed, these risks must also be fully discounted in the market. The theory seems to be that once a risk is widely known, it is no longer a risk. Even the most cursory review of the last two bubbles should disabuse investors of that idea. One might, for example, refer to the February 11, 2008 issue of Business Week, well before the market collapsed in earnest, which showed a bright red graphic of a melting house, with the headline “Meltdown – For housing, the worst is yet to come.” That cover appeared a few weeks after Newsweek ran a cover titled “Road to recession.” Both concerns would be realized over the following year as the worst economic collapse since the Great Depression.

Now, we’ll be the first to agree that when such covers emerge on popular magazines after historically reliable valuation measures have moved well beyond historical norms, they can be a useful confirmation of overdone sentiment. But extreme valuation measures are what tell you that the risks have been discounted, or that optimism has been fully embedded in prices. The magazine covers and other sentiment measures are simply confirmation of the risk-seeking or risk-averse attitudes that have produced those extremes. The idea that risks vanish as soon as they are broadly discussed is merely wishful thinking.

So what have the covers of Business Week and Newsweek been telling us lately?

anyone know any tricks to read Financial Times articles? The paywall is very strong in this one.

John Hussman is the Poster Child for the fact that being extremely intelligent is not a prerequisite to making money and more often than not is actually detrimental to success in investing.

®ion=usa&culture=en_US Here is what he had to say about GOOGL back in 2004 and 2005

;

Here's GOOGL since then

Ouch!

Jeff Miller from March 2012

Analyzing John Hussman

CXO does not have a grade for John Hussman because the story is too complicated. Hussman has had reasonable returns -- not as good as the best of us, but with lower volatility. The key thing to understand is that he provides no edge in market timing, and that is where he gets his major publicity.

Most recently he writes that this is one of the worst times to invest, and he is featured in Barron's and widely cited. Here is Josh Brown's summary. Regular readers know that I do not accept his methodology or his conclusion, because he creates after-the-fact models and excessively tweaks the various parameters. He then adds a layer of dense prose that prevents anyone from explaining what he has done. None of it is peer-reviewed. It is simple data mining, creating a "syndrome" from known results - impossible to disprove.

But put aside my conclusion, and turn to an independent review. Hussman is easy for CXO to analyze since he has a fund with a public track record in addition to his statements. CXO does a careful analysis. Here is the conclusion:

In summary, while hedging has generally been advantageous for equity investing over the past 11 years, evidence from simple tests provides little support for a belief that John Hussman successfully times the stock market via hedging adjustments based on his assessments of market valuation and market action.

Note that this review was done before the recent market rally, where Hussman again has been wrong. The review explains that whatever risk-adjusted advantage Hussman gains comes from stock-picking, not market timing. For consumers of his regular market commentaries, this is bad news.

Ghost of Igloi wrote:

Here is a piece that summarizes both sides of the controversy.

It is pretty clear that central bank policy stabilized the financial crisis, but set the stage for years of sub-par growth. It appears the central thesis of Rogoff and Reinhardt is alive and well today.

The controversy was which way causation ran . Did a large jump in Government Debt/GDP ( over 90% ) cause growth to drop or was it a drop in growth that caused the Debt/GDP ratio to rise.

Remember " Correlation is not Causation", or my favorite example, lite beer must make you fat because I always see fat people drinking it .

I suppose you also agree with their proposal for: " debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression."

agip wrote:

anyone know any tricks to read Financial Times articles? The paywall is very strong in this one.

agip, there's a free registration which allows you to access FT Alphaville and other blogs plus 10 FT articles a month.

agip wrote:

anyone know any tricks to read Financial Times articles? The paywall is very strong in this one.

Dude, you are a professional financial adviser and you can't afford to subscribe to Financial Times?

WTF?

Askerer wrote:

agip wrote:

anyone know any tricks to read Financial Times articles? The paywall is very strong in this one.

Dude, you are a professional financial adviser and you can't afford to subscribe to Financial Times?

WTF?

heh

subscriptions add up - $360 for the WSj, $200 for the economist, add it barons and some newsletters and you're talking a chunk of change.

I *could* afford the FT but I read the WSJ instead...

thanks for the subscr. tip, gente

Wow. My investments got raped last night.

jamin wrote:

Wow. My investments got raped last night.

Quaaludes?

DOW down 55 early Tuesday morning to 17,628

Are people sure this isn't a buy? Flagpole?

Mentee wrote:

DOW down 55 early Tuesday morning to 17,628

Are people sure this isn't a buy? Flagpole?

If you are already buying then by all means keep on buying.

But to think that this is some great buying opportunity after a drop of 4% suggests a lack of perspective.

Is it a buying opportunity yet?

Ghost of Igloi wrote:

Is it a buying opportunity yet?

Hey POTO. How goes?

Well, now down over 110 to 17,572 and falling like a brick.

IDK, 5% down is 5%. That's not insignificant if you plan to hold onto them for a long time.

Flagpole?

Ghost of Igloi wrote:

http://www.news.com.au/finance/economy/chinese-chaos-worse-than-greece/story-fnu2pycd-1227430761673

It is a buying opportunity.

Last week was a selling opportunity.

Mentee wrote:

Well, now down over 110 to 17,572 and falling like a brick.

IDK, 5% down is 5%. That's not insignificant if you plan to hold onto them for a long time.

Flagpole?

I see. So you are only trolling - trying to get FP to say something for you to dispute. Got it.

Next time try to make sense in your posts. It really does help.

Mentee wrote:

Well, now down over 110 to 17,572 and falling like a brick.

IDK, 5% down is 5%. That's not insignificant if you plan to hold onto them for a long time.

Flagpole?

the US is down just 3.8% from its all time highs.

given what is going on in china, europe and Puerto Rico and that earnings season is starting, 3.8% down is pretty good.