Definitely a better idea to research individual shares instead of the ETF. I expect to be an owner of Metka (Metal Constructions of Greece) before long. Rock-solid balance sheet. Trades at 3.5X earnings. Earns almost all of its income overseas - if the drachma returns, it will continue to earn money in euros, but can pay its employees in drachmas. This is a good thing. You're welcome.
It's just ZH spouting a bunch of bollox again... Directly comparing Sov CDS and JGB yields is beyond silly for all the obvious reasons. It doesn't reflect anything, let along some sort of "hyperinflation" malarkey. Moreover, their points on the trade balance are a bit misguided, given the reasons for the recent prints. And I say all this as someone who is short JPY.
I agree that if earnings fall off a cliff, PEs and consensus forecasts are worthless. But earnings fall off a cliff when there is a large credit bubble, which is not the case in 2012 or anytime since the 2008 crash. Earnings do not fall off a cliff because there are various risks out there - every single year, there are ALWAYS various risks out there, and almost none of them ever cause anything resembling a recession. As for Europe, aside from the fact that it is by now old news and almost totally priced in, US GDP is 90% domestic, it simply is not that big a factor on earnings (this is why ECRI and Hussman blew it with their recession call). Asia in 1997-98 showed how the economic decline of a large part of the world does not have a lasting impact on the US, and Europe is more resilient economically than Asia was back then. So, even if China totally collapses, it will not cause a US recession, and quite likely not even a slowdown of any significance. Just to re-iterate - the existence of *potential* macro risks is rarely if ever a bear point (otherwise every year the market would decline). To be a bearish influence requires clear evidence that those macro risks are actually occurring in reality (not just as potential), and that they are starting to impact market prices. Very long-term forecasts are almost pure guesswork - events can change so much in 3-5 years, let alone longer, that it is almost totally pointless to look at the very long-term except to consider various contingencies and be ready in case evidence comes along that various scenarios are starting to play out. What you don't do is just guess that scenario X is going to happen rather than scenario Y or Z, then bet the ranch on it. As a trader, if the timing is wrong then the trade is wrong - end of story. For example, if the S&P goes to 2000 in the next 4 years, then margin contraction starts at the beginning of the next recession, then Hussman is totally wrong with his market call. Regarding central bank policy, I agree that a tightening phase after easy credit is not as bullish as the very dovish phase, but this happens in every growth cycle and it does not stop stocks going up in every post-recession cycle. The Fed was tightening from 2004 onwards and the market went up 3 more years. It tightened from 1994 and the market went up 4 more years before the first 20% decline. Central banks generally start tightening first when the economy goes into growth mode - and that is a bull point, not a bear point. Rate hikes are a bear point when they come late in a cycle after several years of growth, once credit becomes lax and inflation threatens to run out of control. That is the traditional rate hike sell signal, not the mere whisperings of future hikes. Remember, rates could go up to 2% in the USA and still be lower than the dividend yield on stocks. Yes, I am aware that stocks can fall or rise despite valuation. That is why I mentioned the price action, and why market action is always a critical component (basically, THE most important component) of any trading analysis. And if we take a look at what the market action is - it's bullish. Higher highs and higher lows. A clear breakout beyond the prior trading range from the autumn jitters. Small short-lived pullbacks that are quickly recovered from. That is how price acts in bull markets. It is a bear case when stocks are cheap but trade like crap - it is not a bear case when stocks are cheap and trade like a bull market! The only real potential bear point is that we are near the 2011 highs (1370) after a large run, and have not yet broken through decisively. For that reason it's probably not a good idea to be maximum long right here, and some hedging with index futures or puts would be sensible until a clear breakout occurs. If the market momentum peters out, and/or breaks down significantly from current prices, then the technical picture would weaken. If a meaningful pullback is going to happen anytime soon, then here is pretty much the level it is likely to occur from - something like a move from 1375 back to the breakout level of 1290-1300, a 5-6% pullback, would be typical (and it would be a great buying opportunity at those prices). But IMO the risk isn't much more than that, at the moment there are no signs in the market action of any further problems other than a somewhat overbought condition.
Nice hedge on the currency with the exporters, and I agree about going for solid balance sheet stocks. I also like things that have strategic assets e.g. ports, airports. And any businesses with entrenched market positions or customers that aren't going away. For example, in the Asia crisis in 1998, things like beer and tobacco companies and so on - people aren't going to stop smoking or drinking in a recession. Personally I don't think a Euro exit is likely, and if it's going to happen, probably we will see some tip-off first.
I don't understand what motivates ZRH. They don't even believe it's possible to make money in markets - note regular Durden comments about how 99% of all hedge fund performance is "luck." Also short JPY, from early Feb....
But he is not a 100% long stock fund, nor is he a large cap manager, so comparing to the S&P (especially when the S&P had a decade long bear market) is not valid. His performance should be compared to a typical rebalancing diversified stock/bond fund (e.g. 60/40), with the stocks mixed between large cap and small cap, growth and value - and there he doesn't outperform. He has made less than 7% a year - that's worse than US Treasuries made over the same period. Secondly, how can we attribute any of this performance to his ability to call recessions? So far he got 2000 right, 2007 right, 2010 wrong, and looks like he is getting 2011 wrong too - a 50% hit rate. Finally, he has made no money for over 5 years! Almost all the outperformance over the S&P came from avoiding tech/big cap during the 2000-2003 bear market. Since then he has shown no alpha at all, under performing even the lame S&P results from 2004 on. Hussman's performance shows he is clearly a perma-bear with no superior fund management ability. Turning 19k into 20k from 2004 to 2012 is appalling performance!
The motivation of the site (like most financial sites) is to draw eyeballs and ad clicks, not to make its readers money. ZH is great for the entertainment and the research reports and investor letters it gets its hands on that are unavailable anywhere else on the Web. Its twitter feed is the best in the business for breaking news and such, the next best thing to a Bloomberg terminal.
This doesn't seem fair, given Hussman's unique emphasis on risk control (unique in the world of mutual funds at least). A "typical rebalancing diversified stock/bond fund," for example, is in danger of being absolutely crushed in the event of a rising inflation, rising interest rate, falling profit margin environment -- a combination we could easily see at some point -- whereas Hussman's whole ethos is built around avoiding the kinds of severe declines that such "typical" funds can't. Also, re, performance over 5 years: In comparing to other funds one has to take 2008 into account -- as again, one of Hussman's prime features is risk control. I mean who cares how, say, Bill Miller did post 2008, given what he did to clients in that period? I'm not carrying any torch for Hussman, but your characterizations seem straw man. His products have a risk mitigation profile, valuable to some and certainly bearing less downside risk than the average fund, that line up with his macro view (which you obviously disagree with). As a final note, one could also chastise many of the global macro greats (Jones, Kovner, Bacon etc) for turning in single digit performances these past few years. It's no small point that risk has been elevated by unprecedented intervention measures.
Yes, I get that part... I just don't understand where the passion comes from. I mean, why care about the game if you don't think anyone can win. If one truly embraces the ZRH ethos -- everything is rigged, everyone is screwed, etc -- global finance should hold about as much interest as pro wrestling.