Gyroscopic Investing

I know that he has missed out on the majority of the stock market gains over the past 4 years, but some of his arguments and especially his charts are quite compelling.

This from his latest weekly market comment:

"As of last week, market conditions remained characterized by the most hostile syndromes of overvalued, overbought, overbullish conditions that we identify. While similar conditions have emerged in about 5% of historical data, including the market peaks of 1929, 1972, 1987, 2000 and 2007, the periodic emergence of these conditions since late-2011 has resulted in no material correction or negative follow-through for the market. The two available conclusions, in my view, are either that these conditions are no longer relevant despite their consistently hostile outcomes in prior market cycles throughout history, or that the present advance represents a still-uncorrected extreme from which awful returns are likely to follow over the completion of the present market cycle. It seems needless to say that the second interpretation is most consistent with the long-term historical record. It is also the one that I expect will prove to be true."

http://www.hussmanfunds.com/wmc/wmc130722.htm

Somehow, the market doesn't feel that way to me, at least not yet, but I imagine if you continue to be a bear eventually you'll be right.

While reading this I realized that whoever said there are only two things certain in life, "death and taxes" was wrong. There are at least three. Add to the list "there's trouble ahead in the stock market".

John is a very smart individual, no question about it.  That said, he's been wrong for so long now, that his only recourse is to continue making the same prediction until it actually turns out to be right.

A broken watch is right twice a day.

Unless it's a digital watch, in which case it's never right.

So is he an analog or a digital watch?

I have had very little success following these sorts of market timing predictions, but with that said, here are a couple of my favorite guys:

Charles Nenner:  This guy's works with 'cycles' is predicting DOW 5000, he's long-term bearish on bonds, bullish on gold.

John Thomas (Mad Hedge Fund Trader) : This guy writes a daily diary of his thoughts on the market.  I find them to be very insightful, but I haven't subscribed to his specific trade recommendations; I just follow him for his overall perspectives on the markets.

Peak2Trough wrote: John is a very smart individual, no question about it.  That said, he's been wrong for so long now, that his only recourse is to continue making the same prediction until it actually turns out to be right.

I like Hussman, but you are correct. With the exception of Peter Schiff I can't think of anyone who has been more consistently wrong for the last five years on the stock market.

I think that it's safe to say that at current levels there is probably a greater risk of the stock market declining from current levels than continuing to move ahead.  That obviously JMHO, of course.

Remember that from a big picture perspective we are still in a secular bear market for stocks that started in 2000.  Has that secular bear market ended and are we now seeing the early stages of a new secular bull market?  I would like to see another 30-40% increase from current stock market levels before I start believing something like that.

The NASDAQ is still 30% off of its all time highs.  Maybe if the NASDAQ got past the levels it first reached 13 years ago I would view this overall market differently.

Ad Orientem wrote:

Peak2Trough wrote: John is a very smart individual, no question about it.  That said, he's been wrong for so long now, that his only recourse is to continue making the same prediction until it actually turns out to be right.

I like Hussman, but you are correct. With the exception of Peter Schiff I can't think of anyone who has been more consistently wrong for the last five years on the stock market.

I like Hussman too and usually read his weekly memo.  He was clearly wrong in 2009-2010, but he's acknowledged that miss week after week.  I think he's essentially asserted that since 2010-2011 Fed policy has produced asset price inflation instead of consumer price inflation, that the situation is very unstable and that he prefers to wait for some sense of normalcy to return to the markets before returning to a more fully invested posture.  I'd say he was wrong in 2009-2010, but he's essentially right now.

cnh wrote:

Ad Orientem wrote:

Peak2Trough wrote: John is a very smart individual, no question about it.  That said, he's been wrong for so long now, that his only recourse is to continue making the same prediction until it actually turns out to be right.

I like Hussman, but you are correct. With the exception of Peter Schiff I can't think of anyone who has been more consistently wrong for the last five years on the stock market.

I like Hussman too and usually read his weekly memo.  He was clearly wrong in 2009-2010, but he's acknowledged that miss week after week.  I think he's essentially asserted that since 2010-2011 Fed policy has produced asset price inflation instead of consumer price inflation, that the situation is very unstable and that he prefers to wait for some sense of normalcy to return to the markets before returning to a more fully invested posture.  I'd say he was wrong in 2009-2010, but he's essentially right now.

Do you believe that he is right now because his position is tightly reasoned and persuasive?

Wasn't his position equally tightly reasoned and persuasive back in 2009?

Is this another case of predicting 10 of the last 3 stock drops with perfect accuracy?

Remember when Benoit Mandelbrot, father of fractals and his protege, Taleb, were on television (in 2009 I think), saying that this was just the beginning of the stock drop? If I remember right, Mandelbrot said, "I hope I'm wrong but this {our financial situation} will be the greatest disaster since-"
Reporter: since World War II?
Mandelbrot: since the American Revolution.

Something like that. Even if stocks really do fall apart this year he was way off.

dualstow wrote: Is this another case of predicting 10 of the last 3 stock drops with perfect accuracy?

Remember when Benoit Mandelbrot, father of fractals and his protege, Taleb, were on television (in 2009 I think), saying that this was just the beginning of the stock drop? If I remember right, Mandelbrot said, "I hope I'm wrong but this {our financial situation} will be the greatest disaster since-"
Reporter: since World War II?
Mandelbrot: since the American Revolution.

Something like that. Even if stocks really do fall apart this year he was way off.

I was close. It was Taleb who said it. 1min20sec in: http://www.youtube.com/watch?v=B-nytakHAHw

Back when I was discovering the PP mentality myself before I knew what the HBPP was, I owned a bit of HSTRX for the treasuries and gold.  I always enjoyed Hussman's letters -- they're well written and informative.  But as smart as he is, nobody's perfect.  Indexing FTW.

Tyler wrote: Back when I was discovering the PP mentality myself before I knew what the HBPP was, I owned a bit of HSTRX for the treasuries and gold.  I always enjoyed Hussman's letters -- they're well written and informative.  But as smart as he is, nobody's perfect.  Indexing FTW.

It's a rare market commentator who doesn't have some core level of optimism or pessimism about an asset that really doesn't change that much over time.

That's one of the HUGE differences with the PP--at its core there really isn't any optimism or pessimism built into it with respect to any of its assets.  It just owns them all and takes what the market gives.

MediumTex wrote:

cnh wrote:

Ad Orientem wrote: I like Hussman, but you are correct. With the exception of Peter Schiff I can't think of anyone who has been more consistently wrong for the last five years on the stock market.

I like Hussman too and usually read his weekly memo.  He was clearly wrong in 2009-2010, but he's acknowledged that miss week after week.  I think he's essentially asserted that since 2010-2011 Fed policy has produced asset price inflation instead of consumer price inflation, that the situation is very unstable and that he prefers to wait for some sense of normalcy to return to the markets before returning to a more fully invested posture.  I'd say he was wrong in 2009-2010, but he's essentially right now.

Do you believe that he is right now because his position is tightly reasoned and persuasive?

Wasn't his position equally tightly reasoned and persuasive back in 2009?

I suppose I believe he's right now because he's persuasive, because the data is relatively convincing, because his position makes intuitive sense to me and because his current position is realistically nuanced.  He doesn't say that the stock market will crash tomorrow, next week or next month.  Simplistically, his position is that market is significantly overvalued, that corporate profits are unsustainably inflated, that key empirical data points have only been this extreme 4 or 5 times in history (or at least the history covered by reliable data), and that every one of these times didn't end well.  He adds that the market may continue to climb some, but when it turns the retail investor won't be able to beat the bum's rush to the door and, consequently, the risk-return profile is not inviting.  That said, I'm hewing to my investment discipline, not reacting to his memos.

I don't think it's fair to assert that his position in 2009 was equally tightly reasoned when he's repeatedly acknowledged that it wasn't.

Hussman, among many, is a classic example of why indexing is the way to go.  That said, assuming he's wrong now because he was wrong before has to be some kind of logical fallacy.

cnh wrote: That said, assuming he's wrong now because he was wrong before has to be some kind of logical fallacy.

I'm dwelling on the sentence above. It's interesting because it may be true (we have to look at his arguments and not only his record), but it may point at a different logical fallacy: concluding that that's what anyone's assuming because of what's been posted.

I think what's going on is taking into account that he's been wrong before, however persuasive. This is different than assuming that he's wrong because he has been wrong.

dualstow wrote:

cnh wrote: That said, assuming he's wrong now because he was wrong before has to be some kind of logical fallacy.

I think it is a mistake to believe that logic has anything to do with the gyrations of stock markets, gold markets, bond markets or any other kind of market, including the Dutch tulip market. As the old saying goes, the market can remain illogical a lot longer than we can remain solvent.

Just as an example, people have been saying for years now that bond prices are bound to tumble. Well, indeed they will, one of these days. But who knows when? And when it does happen,  how long will interest rates rise before they collapse again? The answer is: nobody knows. And this is why I moved most of my portfolio to the PP. 

@goodasgold above: hey, I didn't write that. 

I think Hussman needs to stop making market predictions..  his economic analysis is solid (backed with logic) whether or not I completely agree with him but he seems a bit out of tune with the markets.

dualstow wrote: @goodasgold above: hey, I didn't write that. 

Sorry. I did an "inside the ballpark" screen shot to reply to someone else's original comment.

dualstow wrote:

cnh wrote: That said, assuming he's wrong now because he was wrong before has to be some kind of logical fallacy.

I'm dwelling on the sentence above. It's interesting because it may be true (we have to look at his arguments and not only his record), but it may point at a different logical fallacy: concluding that that's what anyone's assuming because of what's been posted.

Very valid point.  I perhaps inferred too much from the commentary.  I'm not a huge Hussman defender, but I do find his weekly comments more fact-based and more honest than much of the financial commentary that's out there for consumption.

Stocks as a uniform blob look perhaps overvalued, but in fact only consumer staples and healthcare stocks are really expensive right now. Oil/energy, banks/insurances and technology stocks on the other side look cheap. Its possible that the market corrects that with sideway-action or even while going up. Nobody knows .
But when the USA gets 2-3% growth next year and the outlook stays positive where should the money go? There is plenty of money coming from the bond market that will find its way sooner or later into the stock market, driving up values.

S&P  passed 1700. Oh my.

dualstow wrote: S&P  passed 1700. Oh my.

My only question is are we reliving 1995 or 1929? It will be fun to watch and see.

Peak2Trough wrote: John is a very smart individual, no question about it.  That said, he's been wrong for so long now, that his only recourse is to continue making the same prediction until it actually turns out to be right.

“A great deal of intelligence can be invested in ignorance when the need for illusion is deep.”?
– Saul Bellow

Market predictions are a complete waste of time. There are just too many variables.
It amazes me that, after following the markets for 30 years and watching how, time and time again, the experts (and now all the internet jockeys), are almost always wrong, people continue to try to predict the future.

I guess it is that we humans have a strong psychological need to try to control the uncontrollable.

Tiburon wrote:

Peak2Trough wrote: John is a very smart individual, no question about it.  That said, he's been wrong for so long now, that his only recourse is to continue making the same prediction until it actually turns out to be right.

“A great deal of intelligence can be invested in ignorance when the need for illusion is deep.”?
– Saul Bellow

Market predictions are a complete waste of time. There are just too many variables.
It amazes me that, after following the markets for 30 years and watching how, time and time again, the experts (and now all the internet jockeys), are almost always wrong, people continue to try to predict the future.

I guess it is that we humans have a strong psychological need to try to control the uncontrollable.

+1
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