No he didn't. He did not support his case with evidence e.g. declining earnings (sign of margin contraction), declining US GDP (evidence that Europe was going to cause a US/global recession). He simply speculated that it would happen. Well, now the data is rejecting his view - so his case is a bust, unless he is going to totally ignore it. The bear case in June 2011 is quite different to the bear case today, because we have 3 quarters of new economic and earnings releases to update the picture. So, what's the bear case circa March 2012, and where are the facts to support it?
His economic model indicates recession, he already explained his model in detail. His stock model that triggered signals before major declines in stock prices has also signaled that the current price action is similar to the ones that happened before major declines(overvalued, overbought, overbullish). I don't remember his stock model in detail but I'm quite sure he explained it in the past. I do know it uses Shiller PEs
All the models are worthless when Bernanke is determined to make the dollar worthless. Look at the best performing stock markets of the last 30 years in Zimbabwe and Israel.
Yeah I am also thinking about this one. A few points: 1. A position size of 1%, or 3%, makes no sense whatsoever. If the trade is not good enough to put at least 10-20% of capital into, then it is not worth doing at all. We are not talking some insanely risky micro cap here, we are talking about an entire country's stock market. 2. Stock pick - why invest in the banks, when you can buy businesses with asset backing that have almost 0% chance of going broke? They are cheap too. The returns will be higher in riskier stuff, but once you adjust for risk, I think solid blue chips make more sense. 3. EU law prohibits the political risks you mentioned. Besides, it is very rare even in socialist emerging markets to try to punish foreign capital - in a crisis, foreign capital is desperately wanted not shunned. Even capital controls (v unlikely) are not a big deal because you want to hold for 3+ years anyway until normality returns, at which point controls will be lifted. 4. Timescale - talking of 20 years is too long a time horizon. If it rebounds, you are talking about 3-4 fold return in 3-5 years maybe. Maybe 10 bagger in 8-10 years. But, the juiciest returns will come in the first 3-5 years (with a lot in the first 18 months from the bottom). See 1932-37, Asia and Russia 1998+, Brazil & Argentina 2002/03-2007 etc. After that, you are likely to just earn normal market returns, or maybe a bit higher. 5. Need to analyse the worst-case long-term downside. That would be something like Greece exiting the Euro and the new currency collapsing. However, if this happens then there will be bargains of a lifetime. So, if you invest say 10-20% now, your worst case is to take a 7.5-15% loss temporarily, then be able to buy things for 10 cents on the dollar, double or triple up, and make 10-15 times your initial investment. When the worst case is to make the killing of a lifetime after a circa 10% drawdown, it's a pretty good punt. If no devaluation occurs, then it's probably at least a double from present prices, maybe a 3 or 4-bagger.
But so what? His economic model is not reality, it is a data-mined artificial theoretical construct relying on a small sample size. His model was wrong plenty of times in the past, hence his mediocre fund performance. "Hussman's model says so" is not a rigorous argument.
I believe his was model was wrong once(2010) and the only reason it was wrong was because he overrode the rules by using ECRI indexes instead of what he backtested. Plus at the end of the day we are all using "models", taking fundamental input and making a bet is also a model, its a set of criteria that is being used to predict just like a formal model that was backtested His fund is not mediocre at all. He is ahead of the S&P500 by a healthy amount(And the Russel too) http://www.hussman.net/pdf/sar1211.pdf And that after missing most the rise from the 2009 lows
The thing is that Hussman's timeframe is quite long - years to a decade, not weeks or a couple of months. For instance his recent bearish warning (based on valuations and price action) was something to the effect that current conditions have, on average, resulted in a 25% peak-to-trough market decline at some point over the 18 months following the signal. I suspect he regards a couple of months or quarters of 'positive surprises' as just noise, and while such a vague forecast has significant implications for buy-and-hold investors, it's almost meaningless for traders relying heavily on short-term momentum and technicals. Incidentally, S&P 500 earnings apparently fell in the fourth quarter. Under $24 a share operating earnings versus over $25 in the third. This is consistent with my impression that, except for a few high-flyers like AAPL, it's been a rather tepid earnings season. Note in this connection that rising earnings do not necessarily imply rising prices, see the 1973-74 bear market. Moreover, forward operating earnings estimates and forward PEs appear to be worthless as market-timing devices, or indeed for any purpose other than Wall Street marketing materials. Every single year, analysts play a game whereby they forecast strong earnings for the following year - lots of growth, and implying low forward PEs - only to steadily reduce the estimates as the year goes on. Estimated EPS for 1Q2012 fell from $26.50 last July to $23.86 currently. Going by operating earnings with no lookback or smoothing, the 2Q07 PE was only 15.5 - 4Q11 was 14.18. But stocks were the "cheapest they've been since 2000" right before a 50% market plunge. Operating earnings PE in the last half of 2002 (end of the first bear market) were between 18.5 and 19 - were stocks a poorer investment then than at present? OTOH Shiller PE shows that stocks have been badly overvalued ever since the late 90s but at least, by this measure, they're cheaper now than in 2007 and 2009 briefly approached fair value. Forecasts based on valuation do not in any event imply anything whatever about near-term market direction: e.g. low 10-year returns can occur if the market crashes immediately, or doubles in eight years then crashes in the last two, or merely goes sideways. The implication of high valuations is that better valuations will be available at some point in the future (they always have been), but nobody has any idea of the timing or whether those lower valuations will be achieved by price falling, earnings rising or some combination of these. Anyway, my take on all this is that there are a number of flashing red lights for the global economy (Chinese government lowering growth targets, recession in Europe, now we can add S&P earnings that are flat to falling). Price action is bullish but I do not trust it beyond the steepest uptrend line you can draw, we've in fact seen this movie twice in the last two years: a flood of monetary stimulus guns the market for a number of months, the rally terminates almost immediately once the stimulus program is completed, followed by the sudden emergence of some 'unexpected' new crisis prompting a repeat of the whole cycle. If anything seems to be different about this cycle it's rather that the capacity for government intervention at the margins is significantly more constricted than in the past. Deficits and debt are a problem everywhere. We have outright hawkish talk from the ECB and BuBa (or what passes for hawkish talk these days), the aforementioned lowering of the bar in China and a Fed which appears reluctant to engage in full-bore QE yet again.
All good points. In particular I suppose it does make considerably more sense to invest in the shares directly rather than through a vehicle, if it means avoiding the risk concentrated in the banks. Will have to keep watching this one and do some grunt work on researching the shares. Exchange-rate risk is also a problem if the Euro continues to weaken against the dollar. Over a timeframe of years this seems like a distinct possibility, as the USA continues to be an island of relative calm. Shorting Euro is a straightforward hedge, however the impact on EURUSD in the event countries start dropping is a bit obscure to me. On the one hand the Euro should strengthen as the currency's weak links are cut and uncertainty is resolved, on the other a panicked flight to safety would tend to boost USD.
Can someone explain to me what is ZH talking about here http://www.zerohedge.com/news/has-japan-run-out-cans-kick "And the absolute basis (purple line) between CDS and JGBs remains notably above any of its peers reflecting more of the possibility of a hyperinflationary or devaluation 'event' than Greece-like default given its currency-manufacturer status as opposed to its currency-user status (a la Greece)... The basis (5Y 83bps) above is all the more shocking (almost triple the bond yield) when considered in relative terms - i.e. compared as a ratio to the extreme low yields of JGBs (5Y 29bps!! and 10Y charted below)..." Wouldn't the opposite be occurring if the market were worried about hyperinflation or devaluation?I thought CDS was worth less for a country that can print the cash and the adjustment would happen in the bond prices
for starters the CDS usually covers debt issued by Japan in major currencies while the yield used in ZH article is just using JPY JGBs. If there is a default it is conceivable local ccy holder will be treated preferentially - therefore CDS on just JPY JGB debt would trade much lower...taking the purple line lower. also local debt is easier to inflate away without triggering a credit event. but in general this tells you how the markets are screwed now (by a government intervention) - all over the world.