Hussman

[bmichaud]

http://www.hussman.net/wmc/wmc130122.htm

 

I'm starting to feel bad for the guy - he has taken a brutal beating over the past three years. Deep down inside though, I don't want to bet against him long term. Perhaps the time is near for him to finally be right....four years into a cyclical bull within a secular bear, Schiller PE over 20, VIX at extreme lows, margin debt high, hedge funds at four year high net long positions and overall investor sentiment starting to climb into very extreme territory.

 

 

[Kraven]

http://www.hussman.net/wmc/wmc130122.htm

 

I'm starting to feel bad for the guy - he has taken a brutal beating over the past three years. Deep down inside though, I don't want to bet against him long term. Perhaps the time is near for him to finally be right....four years into a cyclical bull within a secular bear, Schiller PE over 20, VIX at extreme lows, margin debt high, hedge funds at four year high net long positions and overall investor sentiment starting to climb into very extreme territory.

 

I think a lot of it depends on what it means to forecast correctly.  Broken clocks and all that.  It's pretty easy to forecast certain things if you aren't held to a time frame.  I mean I can tell you with certainty there will be a recession, but when is it?  If I just say its coming, well, is that a month from now, a year from now, 3 years from now, or when?  That's not to say Hussman will or won't be right, but a lot of these guys have been fighting the last war (the financial crisis) since late 2009.  Perhaps they will be right someday, but I don't necessarily give them credit for predicting it.

[bmichaud]

http://www.hussman.net/wmc/wmc130122.htm

 

I'm starting to feel bad for the guy - he has taken a brutal beating over the past three years. Deep down inside though, I don't want to bet against him long term. Perhaps the time is near for him to finally be right....four years into a cyclical bull within a secular bear, Schiller PE over 20, VIX at extreme lows, margin debt high, hedge funds at four year high net long positions and overall investor sentiment starting to climb into very extreme territory.

 

I think a lot of it depends on what it means to forecast correctly.  Broken clocks and all that.  It's pretty easy to forecast certain things if you aren't held to a time frame.  I mean I can tell you with certainty there will be a recession, but when is it?  If I just say its coming, well, is that a month from now, a year from now, 3 years from now, or when?  That's not to say Hussman will or won't be right, but a lot of these guys have been fighting the last war (the financial crisis) since late 2009.  Perhaps they will be right someday, but I don't necessarily give them credit for predicting it.

 

I almost put in parentheses whatever "right" means. He can't claim he was ultimately right if the market doesn't fall well below 1,100, as he was fully hedged coming out of the 2011 bottom. I think if the secular bear finally ends somewhere in the vicinity of 10x Schiller EPS, or 900 or lower in a few years, he can claim he was right. That's the fascinating aspect of investing though - those with different time horizons can all end up being right....think Berkowitz with BAC and JOE, or somebody owning Apple stock through the doldrums.

[giofranchi]

http://www.hussman.net/wmc/wmc130122.htm

 

I'm starting to feel bad for the guy - he has taken a brutal beating over the past three years. Deep down inside though, I don't want to bet against him long term. Perhaps the time is near for him to finally be right....four years into a cyclical bull within a secular bear, Schiller PE over 20, VIX at extreme lows, margin debt high, hedge funds at four year high net long positions and overall investor sentiment starting to climb into very extreme territory.

 

I think a lot of it depends on what it means to forecast correctly.  Broken clocks and all that.  It's pretty easy to forecast certain things if you aren't held to a time frame.  I mean I can tell you with certainty there will be a recession, but when is it?  If I just say its coming, well, is that a month from now, a year from now, 3 years from now, or when?  That's not to say Hussman will or won't be right, but a lot of these guys have been fighting the last war (the financial crisis) since late 2009.  Perhaps they will be right someday, but I don't necessarily give them credit for predicting it.

 

I almost put in parentheses whatever "right" means. He can't claim he was ultimately right if the market doesn't fall well below 1,100, as he was fully hedged coming out of the 2011 bottom. I think if the secular bear finally ends somewhere in the vicinity of 10x Schiller EPS, or 900 or lower in a few years, he can claim he was right. That's the fascinating aspect of investing though - those with different time horizons can all end up being right....think Berkowitz with BAC and JOE, or somebody owning Apple stock through the doldrums.

 

Maybe different time horizons can solve a lot of things… but, if you study history, if you study Mr. Rothschild, Mr. Gould, Mr. Sage, Mrs. Green, Mr. Baker, Mr. Mellon, Mr. Baruch, Mr. Templeton, and, yes!, Mr. Buffett too, they all have two things in common: 1) they all have been extremely successful investors, and 2) they all have had a lot cash available at the right moment, they all have had a lot of cash, when others were panicking. Also Mr. Buffett, who claims to be always fully invested, somehow had a ton of cash to put to work in late 2008, early 2009. Also Mr. Buffett, who claims to be always fully invested, somehow managed to shut down his partnership in the late ‘60s, right at the start of a secular bear market for stocks, and then was able to feel like “a sex-starved man in a harem” in 1974-1975. I think Mr. Watsa today is doing the same thing.

 

How to have a lot of cash, when others are panicking? Of course, I don’t have a formula… But every week I read Mr. Hussman’s commentary and I find it to be the most rigorous analysis of the stock market out there. If someone knows something better, please let me know. I cannot say if in the future Mr. Hussman will have a lot of cash to put to work, when others are scrambling for liquidity… but I would bet so!

 

giofranchi

[bmichaud]

If someone knows something better, please let me know.

 

Ned Davis Research. Zeal LLC.

 

It boggles the mind why Hussman doesn't employ an "ensemble" of market analyses - clearly his methods have failed during one of the greatest bull markets in market history....

[giofranchi]

If someone knows something better, please let me know.

 

Ned Davis Research. Zeal LLC.

 

It boggles the mind why Hussman doesn't employ an "ensemble" of market analyses - clearly his methods have failed during one of the greatest bull markets in market history....

 

Thank you bmichaud! One more question: is Ned Davis for free?!  ;D

What do you mean with “ensemble” market analysis? When Mr. Hussman says “overvalued, overbought, overbullish, rising-yields” syndrome, isn’t that an “ensemble” market analysis?!

 

giofranchi

[bmichaud]

NDR is not free  :(  Zeal is though  ;D

 

By ensemble market analyses I mean Hussman should employ other research outside of his own. With over $2B under management, he should easily be able to afford the $30K or so required for NDR. If not that, Zeal is free, Doug Kass's market thoughts are free, Cullen Roche over at pragcap used to provide relatively regular market risk/reward updates for free (now you can access his research for $500 a year through Orcam)....

[valueorama]

As I am not a seasoned investor, I want to know what is special about Ned Davis research. I get it through fidelity.

[JRH]

NDR is not free  :(  Zeal is though  ;D

 

By ensemble market analyses I mean Hussman should employ other research outside of his own. With over $2B under management, he should easily be able to afford the $30K or so required for NDR. If not that, Zeal is free, Doug Kass's market thoughts are free, Cullen Roche over at pragcap used to provide relatively regular market risk/reward updates for free (now you can access his research for $500 a year through Orcam)....

 

My thoughts on the subject as someone fallible but with some analytic background.

 

First, Hussman has mentioned that data is their largest expense after payroll.  Not the same thing to "buy research" and "buy data", I admit.

 

However, there is no reason to believe that a combination of analyses will produce a better analytic record than the one "best" analytic method.  Usually, it is just the opposite.  I think that is where people misunderstand Hussman's approach.  For instance, people criticize him for not using the "don't fight the fed" methodology (which has worked very well lately), but he has shown how it consistently backtested worse than the method they utilize.  On the other hand, in backtests, his trend-following technique captures the good (would have stayed invested late 90's) without the bad (would avoid big historical drawdowns).

 

Even if you employed an ensemble of recession indicators, how would you weight them?  Any time one or more predicted recession, you'd go defensive?  Only go defensive when they all predict recession?  What you are really doing is shifting around confidence intervals, not materially improving your protection against knowable risk.

 

New data always diverges from historical data to some degree.  That degree is the risk to any model, no matter how well built.  The idea you can anticipate the nature of that degree is suspect and would be hard in any one instance to disentangle from the domain of luck.

[bmichaud]

As I am not a seasoned investor, I want to know what is special about Ned Davis research. I get it through fidelity.

 

Great analysis by Tim Hayes and Ned Davis himself - but I find the most value in the plethora of charts available, mainly the sentiment charts.