John Hussman

John Hussman

Last Update: 02-01-2016

Number of Stocks: 203
Number of New Stocks: 52

Total Value: $704 Mil
Q/Q Turnover: 38%

Countries: USA
Details: Top Buys | Top Sales | Top Holdings  Embed:

John Hussman Watch

  • When Stocks Crash And Easy Money Doesn't Help

    Despite short-term interest rates being only a whisper above zero, we increasingly hear assertions that “financial conditions have tightened.”


    Now, understand that the reason they’ve “tightened” is that low-grade borrowers were able to issue a mountain of sketchy debt to yield-seeking speculators in recent years, encouraged by the Federal Reserve’s deranged program of quantitative easing, and that debt is beginning to be recognized as such. As default risk emerges and investors become more risk-averse, low-grade credit has weakened markedly. The correct conclusion to draw is that the consequences of misguided policies are predictably coming home to roost. But in the labyrinth of theoretically appealing but factually baseless notions that fill the minds of contemporary central bankers, the immediate temptation is to consider a return to the same misguided policies that got us here in the first place, just more aggressively.

      


  • John Hussman Buys 350,000 Shares in GE

    Guru John Hussman (Trades, Portfolio) received a Ph.D. in economics from Stanford University in 1992, a master's degree in education and social policy in 1985, as well as bachelor’s degree in economics from Northwestern university. Hussman has a simple checklist of mental models that he uses when making investment decisions. 


    In the summer of 2000, Hussman launched Hussman Strategic Advisors Inc. He then began the Strategic Growth Fund, which began on July 24, 2000. Since then the firm has expanded and they currently own 203 stocks with a total value of $704 million.

      


  • Hussman Makes More New Buys Than in Any Quarter Since 2011

    John Hussman (Trades, Portfolio), president and principal shareholder of Hussman Strategic Advisors, acquired 52 new stakes in the fourth quarter. That was the greatest number of new buys for Hussman in a single quarter since the third quarter of 2011.


    Hussman’s most significant new buy in the fourth quarter was a 350,000-share stake in General Electric Co. (NYSE:GE), a Fairfield, Connecticut-based conglomerate, for an average price of $29.73 per share. The deal had a 1.55% impact on Hussman’s portfolio.

      


  • The Gas Pedal Is Useless When the Spark Plugs Are Gone

    Among the central lessons that investors should understand, before the completion of the current market cycle teaches it again, is this: the interpretation of nearly every piece of information – valuations, economic data, central bank action – is conditional on the status of market internals. While long-term investment returns are tightly correlated with good measures of valuation (e.g., MarketCap/GVA), investment returns over shorter portions of the market cycle are primarily driven by the willingness or aversion of investors to accept risk. Historically, the most reliable measure of investor risk-preferences is the behavior of market internals across a broad range of individual stocks, industries, sectors and security types, including debt securities of varying creditworthiness.


    When market internals are broadly favorable, market overvaluation tends to be ignored over the short run and is typically followed by either flat returns or even more extreme levels of overvaluation. However, once internals deteriorate, signaling increasing risk-aversion among investors, the same market overvaluation is often associated with stock prices that drop like a rock (see The Hinge).

      


  • Wicked Skew: When Extreme Losses Are Standard Outcomes

    Following the market decline of recent weeks, historically reliable valuation measures remain roughly 80% to 90% above the norms that have been reached or breached by the completion of every market cycle in history, including recent cycles as well as market cycles prior to the 1960s, when bond yields were similarly low. Treasury yields were below 3% for about 30% of the past century, but the most historically reliable equity valuation measures have been higher than present levels in only about 2% of history, primarily around the 2000 market peak.


    I emphasize the importance of using historically reliable valuation measures because there are certainly many popular valuation measures that appear less extreme, but that also have only moderate or weak correlations with actual subsequent market returns. The chart below presents the ratio of nonfinancial market capitalization to corporate gross value added (MarketCap/GVA) which has the strongest correlation with 10- to 12-year Standard & Poor's 500 total returns among any valuation measure we’ve studied.

      


  • An Imminent Likelihood of Recession

    Since October, the economic evidence has shifted from supporting a growing risk of recession, to a guarded expectation of recession, to the present conclusion that a U.S. recession is not only a risk but an imminent likelihood, awaiting confirmation that typically only emerges after a recession is actually in progress.


    The reason the consensus of economists has never anticipated a recession is that so few distinguish between leading and lagging data so they incorrectly interpret the information available at the start of a recession as “mixed” when, placed in proper sequence, the evidence forms a single, coherent freight train.

      


  • Complex Systems, Feedback Loops and the Bubble-Crash Cycle

    Our expectations for a global economic downturn, including a U.S. recession, have hardened considerably in the past few weeks, with a continued expectation of a retreat in equity prices on the order of 40% to 55% over the completion of the current cycle as a base case.


    The immediacy of both concerns would be significantly reduced if we were to observe a shift to uniformly favorable market internals. Last week, market conditions moved further away from that supportive possibility. As I’ve regularly emphasized since mid-2014, market internals are the hinge between an overvalued market that tends to continue higher from an overvalued market that collapses; the hinge between Fed easing that supports the market and Fed easing that does nothing to stem a market plunge; and the hinge between weak leading economic data that subsequently recovers and weak leading economic data that devolves into a recession.

      


  • Will the U.S. Remain Supreme Against Emerging Markets?

    With global markets being dragged down by a slowing China, many are worried about the spillover effect into other developing economies. Unfortunately for emerging market investors, the negative effects wouldn’t be the start of underperformance. For a decade, emerging market equities have lagged those of developing markets.


      


  • Will Stocks Have Negative Returns for 7 Years?

    While stocks have gyrated in recent months, U.S. equities have performed incredibly well since the 2008 to 2009 financial crisis. Since those lows, the S&P 500 has gone on a tear, exploding over 200% in just seven years.


    But is this all a mirage?

      


  • The Stock Market Will Return Nothing According to Buffett Indicator: Market Valuations and Expected Returns Jan. 2016

    The stock market indices didn’t do much themselves in 2015. Among S&P 500 companies, slightly more companies were down than up. Energy companies, miners were the worst performers in 2015. The best performers were the high fliers such as Netflix (NASDAQ:NFLX), which was up more than 134%, and Amazon (NASDAQ:AMZN), up 117%.


    Market Valuations as Measured by the Buffett Indicator

      


  • The Next Big Short: The Third Crest of a Rolling Tsunami - John Hussman

    Along with every extreme episode of financial market speculation is a “story,” whether it’s one of technological change, financial innovation, demographic shift, or central bank support. Each story serves the same purpose, which is to encourage and even promise investors that risk is not really risk. As a result, typical levels of cyclical overvaluation aren’t enough to deter further speculation. At the peak of every speculative bubble, there are always those who have persistently embraced the story that gave the bubble its impetus in the first place. As a result, the recent past always belongs to them, if only temporarily. Still, the future inevitably belongs to somebody else. By the completion of the market cycle, no less than half (and often all) of the preceding speculative advance is typically wiped out.


    In 2009, during the depths of the last crisis that followed such speculation, economists Carmen Reinhart and Kenneth Rogoff detailed the perennial claim that feeds these episodes in their book, This Time is Different:

      


  • On the Completion of the Current Market Cycle and Beyond - John Hussman

    As we look forward to 2016, to following through on our investment discipline over the completion of the current market cycle and beyond, a few recent market comments will serve as a detailed review of our present market and economic outlook:


    The summary of this outlook is straightforward. I view the equity market as being in the late-stage top formation of the third financial bubble in 15 years. Based on a century of evidence relating the most historically reliable valuation measures to actual subsequent market returns, neither a market plunge of 40-55% over the completion of the current cycle, nor the expectation of zero 10-12 year S&P 500 nominal total returns, nor the likelihood of substantially negative 10-12 year real returns should be viewed as worst-case scenarios - they are all actually run-of-the-mill expectations from current extremes. Based on the joint behavior of the most reliable leading economic measures (particularly new orders plus order backlogs, minus inventories), widening credit spreads, and clearly deteriorating market internals, our economic outlook has also moved to a guarded expectation of a U.S. recession.

      


  • Reversing the Speculative Effect of QE Overnight

    In recent quarters, I’ve been adamant that the immediate first step of the Federal Reserve in normalizing monetary policy should have been to reduce the size of its balance sheet. The Fed’s failure to prioritize that first step, in the apparent desire to maintain an aggrandized role in the U.S. financial markets, has significantly increased the risk of a collapse from the speculative extremes the Fed has created in recent years. Given the increasing risk aversion evident in market internals, we doubt that even a reversal of last week’s rate hike would materially reduce that prospect.


    To see why, it’s important to understand how the Federal Reserve’s tools – open market purchases, interest on reserves and reverse repurchases  actually work in affecting the economy and the behavior of speculative investors.

      


  • Deja Vu: The Fed's Real 'Policy Error' Was to Encourage Years of Speculation

    Over the past several years, yield-seeking investors, starved for any “pickup” in yield over Treasury securities, have piled into the junk debt and leveraged loan markets. Just as equity valuations have been driven to the second most extreme point in history (and the single most extreme point in history for the median stock, where valuations are well-beyond 2000 levels), risk premiums on speculative debt were compressed to razor-thin levels. By 2014, the spread between junk bond yields and Treasury yields had fallen to less than 2.4%. Since then, years of expected “risk premiums” have been erased by capital losses, and defaults haven’t even spiked yet (they do so with a lag).


    From an economic standpoint, the unfortunate fact is that the proceeds from aggressive issuance of junk debt and leveraged loans in the past few years were channeled into speculation. Excess capacity in energy production was expanded at the cyclical peak in oil prices, and heavy stock buybacks were executed at obscene equity valuations. The end result will be unintended wealth transfers and deadweight losses for the economy. Since the late 1990s, the Federal Reserve has actively encouraged the channeling of trillions of dollars of savings into speculation. Recurring cycles of malinvestment and crisis have progressively weakened the resilience and long-term growth prospects of the U.S. economy.

      


  • From Risk to Guarded Expectation of Recession

    On the basis of valuation measures most closely correlated with actual subsequent 10- to 12-year Standard & Poor's 500 total returns in market cycles over more than a century, a ranking of the most overvalued extremes in U.S. history, in order of severity, includes: 2000, 2015, 1929, 2007, 1937, 1907, 1968, and 1972.


    While the 1969-70 retreat took the S&P 500 down by only one-third of its value, each of the other instances was followed by market losses of 50% or more over the completion of their respective market cycles. Given that 2015 is the second-highest valuation extreme on record, such an outcome is not some worst-case scenario but is instead a rather run-of-the-mill expectation.

      


  • Rarefied Air: Valuations and Subsequent Market Returns

    The atmosphere is getting thin up here, and every ounce counts triple when you're climbing in rarefied air. While near-term market dynamics are more likely to be affected by Friday’s employment report than any other factor, our broad view remains that stocks are in the late-stage top formation of the second-most extreme episode of equity market overvaluation in U.S. history, second only to the 2000 peak and already beyond the 1929, 1937, 1972 and 2007 episodes, not to mention lesser extremes across history.


    On the economic front, much of the uncertainty about the current state of the economy can be resolved by distinguishing between leading indicators (such as new orders and order backlogs) and lagging indicators (such as employment). It’s not clear whether the weakness we’ve observed for some time in leading indicators will make its way to the employment figures in time to derail a Fed rate hike in December, but as we’ve demonstrated before, the market response to both overvaluation and Fed actions is highly dependent on the state of market internals at the time. Presently, we observe significant divergence and internal deterioration on that front. If we were to observe a shift back to uniformly favorable internals and narrowing credit spreads, our immediate concerns would ease significantly, even if longer-term risks remained.

      


  • Dispersion Dynamics - John Hussman

    Two types of dispersion are increasingly apparent in market dynamics here. The first type of dispersion is between leading measures of economic activity and lagging ones. The second is dispersion in market internals, particularly observable in a continued narrowing of leadership to a handful of “winner-take-all” stocks, while broader measures of market action across individual stocks, industries, sectors, and credit spreads show persistent divergence that suggests increasing risk-aversion among investors.


    As I’ve frequently noted, if one examines the correlation profiles of various economic indicators with subsequent economic activity, there is a clear sequence. The earliest indications of an oncoming economic shift are observable in the financial markets, particularly in changes in the uniformity or divergence of broad market internals, and widening or narrowing of credit spreads between debt securities of varying creditworthiness. The next indication comes from measures of what I’ve called “order surplus”: new orders, plus backlogs, minus inventories. When orders and backlogs are falling while inventories are rising, a slowdown in production typically follows. If an economic downturn is broad, “coincident” measures of supply and demand, such as industrial production and real retail sales, then slow at about the same time. Real income slows shortly thereafter. The last to move are employment indicators — starting with initial claims for unemployment, next payroll job growth, and finally, the duration of unemployment.

      


  • The Bubble Is Right in Front of Our Faces – John Hussman

    Cutting immediately to the chase, the U.S. equity market is in a late-stage top formation of the third speculative bubble in 15 years. On the basis of measures best correlated with actual subsequent Standard & Poor's 500 total returns across history, equity valuations remain obscene. A loss in the S&P 500 in the range of 40% to 55% over the completion of this cycle seems likely – an outcome that would be wholly run of the mill, given present market conditions, and would not even bring reliable measures of valuation materially below their longer-term historical norms.


    Following the steep but relatively contained market plunge in August, the major indices rebounded toward their May highs, but neither the broad market nor high-yield credit participated meaningfully. Only 34% of individual stocks remain above their respective 200-day averages, widening credit spreads suggest growing concerns about low-quality debt defaults, and sectoral divergences (e.g. relative weakness in shipping vs. production) confirm what we observe in leading economic data — a buildup of inventories and a shortfall in new orders and order backlogs. Employment figures lag the economy more than any other series.

      


  • Psychological Whiplash – John Hussman

    Investors have experienced a great deal of whiplash in recent months. After a rapid but relatively contained retreat in August and September, the stock market has rebounded to within 2% of its May record high. Only weeks ago, investors were concerned about economic deterioration. As of Friday, strength in nonfarm payrolls has suddenly convinced investors that a December rate hike by the Fed is all but certain.


    From an economic standpoint, this whiplash is largely psychological and has very little to do with any underlying change in economic fundamentals. Instead, it reflects a tendency to respond to all economic data as if it is coincidence (reflecting the current state of the economy) rather than carefully distinguishing leading data — primarily new orders and order backlogs, from coincident data — primarily income and production, from lagging data — employment figures, particularly payrolls and the unemployment rate, which are essentially the most lagging data series in economics.

      


  • John Hussman Invests in Dick's Sporting Goods

    John Hussman (Trades, Portfolio), president and principal shareholder of Hussman Strategic Advisors, has something of an advantage over most of his fellow gurus. A former professor of economics and international finance, his academic research centered on market efficiency and information economics, knowledge that is useful when making investment decisions.


    Whether that knowledge played a key role in Hussman’s third-quarter decisions is anyone’s guess. What is clear, though, is that his activity in the third quarter extended over several sectors.

      


  • The Last Gasp Saloon - John Hussman

    I’ve often emphasized that market peaks are not an event, but a process. One of the elements of that process, as I observed approaching the 2000 and 2007 peaks, and again during the extended range-bound period of recent quarters, is that deterioration in broad market internals — particularly following an extended period of overvalued, overbought, overbullish conditions — is a sign of increasing risk-aversion that typically precedes more extensive losses in the capitalization-weighted averages.


    Following an abrupt air pocket in the market during August, the capitalization-weighted indices enjoyed a strong rebound in October. Equal-weighted indices have strikingly lagged that rebound. Our own measures of market internals remain unfavorable, and trading volume has been persistently weak, suggesting that the rebound may be more reflective of short-covering than a resumption of the insistent yield-seeking speculation observed prior to mid-2014. Moreover, with the S&P 500 now within a couple of percent of its May record high, only 38% of individual stocks are above their own respective 200-day moving averages. Even among stocks that comprise the S&P 500 index itself, the majority remain below their own 200-day averages.

      


  • How Market Cycles Are Completed – John Hussman

    The market rebound of recent weeks has essentially been grounded in exuberance that the global economy is deteriorating so quickly that central banks will insist on accelerating their monetary interventions. While both corporate earnings and revenues are now in retreat, we also see enthusiasm about the remaining economic activity being captured by a handful of winner-take-all companies. Those two dynamics largely summarize the tone of the market here. The following chart updates our standard economic review of regional and national Fed and purchasing managers’ surveys. The October Philadelphia Fed report was particularly weak on the new orders front, which is complicated by the fact that it’s also one of the more reliable surveys as an indication of broad economic activity. The chart below reflects available data through Friday.


    wmc151026a.png

      


  • "The Hinge" – The Latest From John Hussman

    One of the central themes I’ve emphasized over the past year is the critical importance of using market internals as a gauge of investor risk seeking and risk aversion.


    Over the long term, investment returns are driven by valuations – particularly on a 10- to 12-year horizon. Over shorter horizons, and more limited portions of the market cycle, the primary driver of investment returns is the preference of investors to seek or avoid risk. Risk seeking and risk aversion, as evidenced by the uniformity of market internals across a broad range of individual stocks, industries, sectors and security types – including debt securities of varying creditworthiness – is the hinge that determines whether overvaluation is likely to be met with further market gains or with market collapse; whether an apparent uptrend in the major indices is likely to persist or unravel; and whether easing by the Federal Reserve is likely to support further speculation or simply accompany a plunging equity market.

      


  • Not the Time to Be Tolerant – John Hussman

    One of the important investment distinctions brought out by the speculative episode of recent years is the difference between the behavior of an overvalued market when investors are risk seeking and the behavior of an overvalued market when investors shift to risk aversion.


    The time to be tolerant of bubbles is when the uniformity of market internals provides clear evidence of risk seeking among investors. In that situation, even extreme overvaluation tends to lose its bite. On the other hand, once investors shift to risk aversion, as evidenced by breakdowns and divergences across a broad range of market internals, extreme overvaluation should be taken seriously.

      


  • How to Limit a Bear Market's Bite

    As the current bull market has continued, there has been no shortage of predictions of its eventual end. One of the latest predictions appeared in a recent MarketWatch article by Phillip van Dorn (“Get ready for a ‘destruction of wealth’ as stocks head toward a bear market”). In that article, van Dorn referred to an indicator called the Guardian Gauge:


    A new health indicator for the Standard & Poor's 500 Index of the largest U.S. stocks shows a rising likelihood of a broad, long-term decline.

      


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