…For all I know, we could be removing a portion of our hedges a few weeks from now in response to lower prices. Or we could be taking a somewhat more constructive position in response to higher prices if we get a significant improvement in market internals. Maybe the market will rally and prompt us to raise our put option strikes to tighten our hedges. Maybe the market will crash. I don’t know. There isn’t a successful investor who does, because nobody achieves long-term success that way. Good investors may change their investment exposure substantially over the course of a market cycle, but they don’t imagine they can forecast short-term outcomes. Good investors put themselves in the position of being able to respond instead of being forced to react. We’ll take our evidence as it arrives. For now, we remain defensive. …
Archive for the ‘Commentary’ Category
Hussman: The Fed Can Provide Liquidity, But Not Solvency
Monday, March 17th, 2008Mauldin: Muddle Through and Your Long Term Returns
Saturday, March 15th, 2008…My position is that the recession will be rather long and relatively shallow, and the inevitable recovery will be longer and more drawn out than is typical, resulting in what I call The Muddle Through Economy for a period of several years. I define a Muddle Through Economy as one which grows below normal trend GDP growth of 3% for a period of time, typically in the 2% range… So, one of the key questions is: “When does the recovery start and how long will it take to get back to 3% GDP?” …
More at Thoughts from the Frontline
Hussman: Recession, Far More Foreclosures, and Eventually, Commodity Weakness
Thursday, March 13th, 2008“Stocks are not cheap,” Warren Buffett noted on Monday. … Those comments match my own sentiments on all fronts. On the basis of normalized earnings (as opposed to earnings that assume profit margins will remain forever elevated at 40-50% above their historical norms), the S&P 500 would probably be a good value anywhere below the 1000 level. I have no particular expectation that we’ll actually see that level in this cycle, but that level would require an only slightly above-average bear market loss from the highs (and certainly less than we observed in 2000-2002). …
Mauldin: What’s That Hissing Sound?
Sunday, March 9th, 2008…The official number for employment suggested a loss of 63,000 jobs. But could it have been more like 200,000? And I will make a case for 2,000,000 lost jobs last month. This week we will take a look at the confusing labor-market picture in the US. We will also look at the debate over the money supply. Is the Fed increasing the money supply at a reckless rate, fueling inflation fears down the road?…
More at Thoughts from the Frontline
Hussman: Secular Bears
Wednesday, March 5th, 2008The total return of the S&P 500 is now a few weeks shy of having lagged riskless Treasury bills for a decade. Against this backdrop, … a secular bear is self-evident. It’s difficult to imagine how the market could be characterized any other way when, despite recent bull market highs, the S&P 500 has lagged Treasury bills for a decade.
Thinking about it more carefully, my impression is that investors are averse to the idea of a “secular bear market” because it implies something about the future. For stocks to be priced to deliver disappointing future returns, after already suffering a decade of disappointing returns, seems too extraordinary to consider.
But that’s exactly what we should expect. ….
More at Hussman Funds – Weekly Market Comment: Secular Bears – February 25, 2008
Buffett: Shareholder Letter 2007
Saturday, March 1st, 2008Warren Buffett’s annual shareholder letter
…I should mention that people who expect to earn 10% annually from equities during this century –
envisioning that 2% of that will come from dividends and 8% from price appreciation – are implicitly
forecasting a level of about 24,000,000 on the Dow by 2100. If your adviser talks to you about doubledigit
returns from equities, explain this math to him – not that it will faze him. Many helpers are apparently
direct descendants of the queen in Alice in Wonderland, who said: “Why, sometimes I’ve believed as many
as six impossible things before breakfast.” Beware the glib helper who fills your head with fantasies while
he fills his pockets with fees….
and other nuggets at Shareholder Letters see 2007
Mauldin: Stagflation and the Fed
Saturday, March 1st, 2008Stagflation and the Fed
Feburary 29, 2008
By John Mauldin
….There is considerable angst in the press about inflation and recession conspiring to bring us to a repeat of the 1970s woes of stagflation. And the economic data can certainly be interpreted as warranting such concern. This week we look at several different definitions of inflation. How can the Fed (in the form of both Fed chairman Bernanke and governor Kohn giving quite dovish presentations) dismiss inflation? Aren’t they supposed to make sure that prices are stable? Just look at their European counterparts who talk tough on inflation and then “walk their talk.” ….
More at Thoughts from the Frontline
PIMCO: "No Country for Old Maids"
Tuesday, February 26th, 2008Old Maid now has a second life mimicking our financial markets, and at PIMCO we’ve played it frequently in our Investment Committee over the past several months. “Who’s got the ‘Old Maid’?” we ask over and over again – not to make us feel good that we don’t – but to make sure we won’t draw it when its holder tries to pass it on. This shunned lady in asset form was originally identified as a subprime mortgage, aggregated into levered financial conduits which in turn were guaranteed to be AAA hotties either via their securitized structures or the solemn pledge of monoline insurance firms. No Old Maids in those hands, investors were assured; they were Babes with a stacked deck. Ah, but Father Time has a way of exposing plastic surgery and there have been implants aplenty in recent years. Most of the silicone to be sure involved mortgage-related assets – first the subprimes, then the Alt As, and now perhaps even levered primes. Yet those that claim that the Old Maid necessarily resides in a deck composed of mortgage loans are missing the larger point. This parlor game is best defined by leverage and not the assets that have been dealt out to more than willing players over the past decade. That subprimes have garnered the headlines is only because they were the asset class that failed first. Now as the U.S. economy slows to what Alan Greenspan labels “stall speed,” levered structures holding commercial loans, and auto and credit card receivables are the new Babes in waiting – waiting to be exposed for what some of them could be: Old Maids with collagen carelessly injected by Moody’s and S&P
PIMCO Bonds – Investment Outlook- March 2008 “No Country for Old Maids”
Hussman: How Canst Thou Know Thy Counterparty When Thou Knowest Not Thine Self?
Saturday, February 23rd, 2008As we enter 2008, the excessive creation of risky debt is beginning – and I should emphasize only beginning – to produce writedowns and losses. Though that “Freight Trains” piece has played out largely as expected, the situation has been complicated by a prolonged housing bubble that has only made the debt imbalances worse. Having observed the inflation pressures I had anticipated over the near term, we are now starting to observe the credit problems I had anticipated over the longer term. Probably the only “bright side” is that increasing credit difficulties can be expected to put downward pressure on inflation later this year. Periods of heightened credit concerns tend to increase the demand for government liabilities (e.g. currency and Treasury securities), which tends to lower monetary “velocity” enough to drive down the rate of inflation.
Hussman: Why is Bear Stearns Trading at $6 Instead of $2
Tuesday, March 25th, 2008More at Hussman Funds – Weekly Market Comment: Why is Bear Stearns Trading at $6 Instead of $2
Tags: Government, Hussman
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