Hussman: I Was Wrong, And Didn’t Realize How Stupid Investors Were
by ilene - December 1st, 2009 1:00 pm
Hussman: I Was Wrong, And Didn’t Realize How Stupid Investors Were
Courtesy of Joe Weisenthal at Clusterstock
In his latest essay, John Hussman offers a kind of mea culpa, in explaining why he hasn’t been more on-board the rally this year.
His rationale: he didn’t realize how little investors had learned from the bust, and how much Wall Street would overreact to a "lull" in mortgage resets.
In other words: he’s been wrong because Wall Street is dumb.
I was wrong.
Not about the implosion of the credit markets, which I urgently warned about in 2007 and early 2008. Not about the recession, which we shifted to anticipating in November 2007. Not about the plunge in the stock market, which erased the entire 2002-2007 market gain, which was no surprise. Not about the “ebb and flow” of short-term data, which I frequently noted could produce a powerful (though perhaps abruptly terminated) market advance even in the face of dangerous longer-term cross-currents. I expect not even about the “surprising” second wave of credit distress that we can expect as we move into 2010.
From a long-term perspective, my record is very comfortable. But clearly, I was wrong about the extent to which Wall Street would respond to the ebb-and-flow in the economic data – particularly the obvious and temporary lull in the mortgage reset schedule between March and November 2009 – and drive stocks to the point where they are not only overvalued again, but strikingly dependent on a sustained economic recovery and the achievement and maintenance of record profit margins in the years ahead.
I should have assumed that Wall Street’s tendency toward reckless myopia – ingrained over the past decade – would return at the first sign of even temporary stability. The eagerness of investors to chase prevailing trends, and their unwillingness to concern themselves with predictable longer-term risks, drove a successive series of speculative advances and crashes during the past decade – the dot-com bubble, the tech bubble, the mortgage bubble, the private-equity bubble, and the commodities bubble. And here we are again.
See Also: Hussman: Beware The Oncoming Tanks
The Second Wave Of Mortgage Resets Begins
Hussman: The Market Is More Overbought Than Any Time In History
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Strenuously Overbought But …?
by ilene - September 21st, 2009 3:05 pm
Mish discusses his thoughts on the market, drawing a few Elliott Wave patterns towards the end. – Ilene
Strenuously Overbought But …?
Courtesy of Mish
Inquiring minds are once again reading excellent commentary by John Hussman. Please consider Strenuously Overbought.
Last week, we closed out our modest "anti-hedge" in index call options, which we have carried in the Strategic Growth Fund during recent months, and we moved back to a fully hedged investment stance. I should note that we are not “calling” or “predicting” a market decline in this particular instance. Rather, we are tightening of our defenses because the overall conformation of evidence we observe here has generally not been followed by an acceptable return/risk profile, on average.
My discomfort about strenuously overbought and moderately overvalued conditions overlaps with skepticism about the U.S. economic “recovery,” which appears to be nothing but an artifact of government spending, while intrinsic economic activity remains weak. Stimulus induced “strength” is unlikely to propagate because, as I’ve noted before, economic recoveries are invariably led by expansion in debt-financed forms of spending such as gross domestic investment and durable goods. These classes of spending tend to lead other forms of economic activity by nearly a year, and it is difficult to expect this in an environment of heavy continued deleveraging pressure. Rather than abating, foreclosures and mortgage delinquencies are setting further records (pressured even more by continued net job losses), and we have now hit the point where Alt-A and Option-ARM resets are beginning (after a lull in the reset schedule since March). We know that post-crash markets feature partial recoveries followed by a very extended period of sideways movement. To expect an entirely different result in this instance – to assume that this is a typical post-war recovery and that everything is back to normal – seems hopeful to say the least.
The percentage of bullish investment advisors now rivals that seen at the 2007 peak. Stocks are strenuously overbought. The S&P 500 is overvalued to the extent that we now expect just a 6.6% annual total return over the coming decade (a level that except for the period since the mid-1990′s has corresponded more to bull market peaks than bases for sustained advances). Historically, such combinations of overbought, overvalued, overbullish evidence have generally been unrewarding, so we don’t even need to consider special cases.
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THE STOCK MARKET HASN’T BEEN THIS OVERBOUGHT SINCE 1983
by ilene - September 17th, 2009 1:55 pm
THE STOCK MARKET HASN’T BEEN THIS OVERBOUGHT SINCE 1983
Courtesy of The Pragmatic Capitalist
Excellent data here from Bespoke. The market hasn’t been this overbought in over 25 years:
This additional chart from Quantifiable Edge shows the extreme level of stocks above their 200 day moving average. The stock market hasn’t been this oversold ever in terms of this indicator:
Source: Bespoke Invest, QE
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STRATEGY UPDATE – HEDGE, HEDGE & HEDGE
by ilene - July 21st, 2009 11:06 am
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STRATEGY UPDATE – HEDGE, HEDGE & HEDGE
Courtesy of The Pragmatic Capitalist
The market has made an enormous move in a very short period of time. The 8% move over the past 6 trading sessions is beyond normal. Unlike the March bottom where we were coming off of extremely oversold levels, the current rally is coming off of only slightly oversold levels. Unlike the March bottom where we said the initial 10% was likely to lead to more follow-through, I am not as optimistic here. The recent move has sent the market into an overbought scenario in a very short period of time. It’s likely that the smart money will begin waiting for a better opportunity to get in. That means we could see the buying begin to taper off in the coming days. I still believe there is no real catalyst to send the market substantially lower, however, so don’t expect the market to fall off a cliff here.
Quick moves like we’ve seen in the last few days never make me feel comfortable. The “better than expected” earnings trade has gotten extremely crowded. As regular readers know, when one side of the boat starts to get too crowded I always like to jump off or move to the other side. At this time, I think it’s prudent to move to a more mildly bullish position, but I certainly don’t feel comfortable getting short at these levels. The risk of near-term downside is very high, however, I would expect any downside to be short-lived and relatively minor. I would expect buyers to come in 3-5% lower from here.
With that said, it’s prudent to throw on some hedges here if you haven’t already. The current JP Morgan strategy outlook provides a relatively good framework:
One of the best ways to hedge potential downside is to write calls on the positions you might own, however, since we’re not all options traders I’ll detail a few other potential ideas. If you’re a small investor without an options account you might consider a fund like PBP which is an option writing S&P 500 fund.
Although JP Morgan likes shorting oil here I have to disagree. I prefer to hedge with non-correlated assets and oil’s correlation to
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site