John Hussman

John Hussman

Last Update: 07-15-2016

Number of Stocks: 187
Number of New Stocks: 44

Total Value: $755 Mil
Q/Q Turnover: 41%

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

John Hussman Watch

  • Speculative Extremes and Historically Informed Optimism- John Hussman

    There’s a field in one of our data sets that rarely sees much play, being driven primarily by only the most extreme combination of overvaluation, overbullish sentiment, and overbought conditions we’ve identified across history. It’s one of a variety of such syndromes we track, and I’ve simply labeled it “Bubble,” because with a single exception, this extreme variant has only emerged just before the worst market collapses in the past century. Prior to the advance of recent years, the list of these instances was: August 1929, the week of the market peak; August 1972, after which the S&P 500 would advance about 7% by year-end, and then drop by half; August 1987, the week of the market peak; March 2000, the week of the market peak; and July 2007, within a few points of the final peak in the S&P 500, with a secondary signal in October 2007, the week of that final market peak.


    The advancing segment of the current market cycle was different in its response to historic speculative extremes. Air-pockets, panics and crashes had regularly followed these and lesser “overvalued, overbought, overbullish” extremes in every previous market cycle, and our reliance on that fact became our Achilles Heel during the advancing half of this one. In an experiment that will ultimately have disastrous consequences, the Federal Reserve’s policy of quantitative easing intentionally encouraged yield-seeking speculation in this cycle far beyond the point where these warning signals emerged.

      


  • Scrounging Through The Dumpster - John Hussman

    From a long-term and full-cycle perspective, the most reliable valuation measures we follow - those with the strongest correlation with actual subsequent stock market returns across history - are consistent with roughly zero S&P 500 nominal total returns on a 10-12 year horizon, and the likelihood of an interim market loss of about 40-55% over the completion of the current cycle. As I noted last week, however, our near-term outlook is rather neutral, largely because enough trend-following components have improved (though our broadest measures of market internals have not) to keep us from pounding tables about immediate losses. Even as we allow for further near-term speculation, I remain convinced that the S&P 500 is likely to be lower a decade from now than it is today.


    The only wrinkle in an otherwise spectacularly hostile investment environment is that speculators appear to be so possessed by collapsing global interest rates that the immediacy of a market loss may be deferred until this fresh round of yield-seeking exhausts itself. As one observer told Bloomberg last week, “they’re out there scrounging through the dumpster looking for yield.”

      


  • John Hussman: Race to the Bottom

    On the basis of leading economic data we find most strongly correlated with actual subsequent economic performance, the underlying strength of the U.S. economy remains tepid at best.


    Looking beyond the U.S., China’s trade minister over the weekend described the global economic situation, correctly, I think, as “complicated and grim.” The chart below presents our leading economic composite (measured in standard deviations from the mean) along with actual growth in U.S. nonfarm payrolls over the subsequent three-month period. Despite Friday’s strong payroll showing, the three-month rate of payroll growth in the U.S. remains on a slowing trajectory.

      


  • John Hussman's Top-Performing Stocks

    John Hussman (Trades, Portfolio) is the president and principal shareholder of Hussman Strategic Advisors, the investment advisory firm that manages the Hussman Funds. During the first quarter 2016, the guru increased several stakes, and the following are the ones with the highest performance since that buy.


    Universal Forest Products Inc. (UFPI)

      


  • John Hussman: Head of the Snake

    “Understand that securities are not net economic wealth. They are a claim of one party in the economy - by virtue of past saving - on the future output produced by others. Fundamentally, it's the act of value-added production that ‘injects’ purchasing power into the economy (as well as the objects available to be purchased), because by that action the economy has goods and services that did not exist previously with the same value. True wealth is embodied in the capacity to produce (productive capital, stored resources, infrastructure, knowledge), and net income is created when that capacity is expressed in productive activity that adds value that didn't exist before.


    “New securities are created in the economy each time some amount of purchasing power is transferred to others, rather than consuming it. Once issued, all of these pieces of paper can vary in price later, so the saving that someone did in a prior period, embodied in the form of some paper security, may be worth more or less consumption in the current period than it was initially. That’s really the main effect QE has - to encourage yield-seeking speculation that drives up the prices of risky securities, but without having any material effect on the real economy or the underlying cash flows that those securities will deliver over time.

      


  • John Hussman Acquires Stake in Nike

    John Hussman (Trades, Portfolio) purchased a 100,000-share stake in Nike Inc. (NYSE:NKE) during the first quarter.


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  • John Hussman: Brexit and the Bubble in Search of a Pin

    First things first. While the full attention of financial market participants is focused on “Brexit” – last week’s British referendum to exit the European Union – the singular factor to recognize here is that the vulnerability of the financial markets to steep losses has very little to do with Brexit per se. Rather, years of yield-seeking speculation, encouraged by central banks, had already brought the financial markets to a precipice prior to last week’s vote.


    It’s not entirely clear whether Brexit is a sufficient catalyst to burst the bubble, as we recall that the failure of Bear Stearns in early 2008 was followed by a period of calm before the crisis, and numerous dot-com stocks had already been obliterated by September 2000 when the tech bubble began its collapse in earnest. We’ll take the evidence as it comes, but we’re certainly defensive at present for reasons that have little to do with Brexit at all.

      


  • John Hussman: Imagine

    Imagine the collapse of an extended speculative tech bubble, resulting in a broad economic recession. Imagine if the Federal Reserve had persistently slashed short-term interest rates during the downturn, to no avail, leaving rates at just 1% by the time the Standard & Poor's 500 had lost half of its value and the Nasdaq 100 collapsed by 83%. Imagine that the Fed kept rates suppressed, in the initially well-meaning hope of encouraging lending, growth and employment. Imagine that the depressed level of interest rates made investors feel starved for yield and drove them to look for safe alternatives to Treasury bills.


    Imagine that investors found the higher yields they sought in mortgage securities, which had historically always been safe, and that Fed policy inadvertently created voracious demand for more of that debt. Imagine Wall Street had weak enough requirements on capital and underwriting standards that financial institutions had an incentive to create more “product” by lending to borrowers with lower and lower creditworthiness. Imagine that by the magic of “financial engineering” and lax oversight of credit ratings, Wall Street could pass these mortgages off to investors either directly by bundling, slicing and dicing them into mortgage-backed securities or by piggy-backing on the good faith and credit of the government by transferring them to Fannie Mae (FNMA) and Freddie Mac (FMCC) in return for funds obtained from investors in these “agency” securities.

      


  • Like Water Out of a Sponge - John Hussman

    Last week, the 10-year Treasury yield dropped to just 1.6%. Technician Walter Murphy noted that his index of global 10-year yields also plunged to an all-time low. The overall structure of global bond yields is undoubtedly the outcome of years of aggressive monetary easing, though the break to fresh lows among European bank stocks may convey some additional information content. Of course, the compression of prospective investment returns isn’t limited to bonds. On the basis of the valuation measures best correlated withactual subsequent S&P 500 total returns across history, prospective 10-12 year S&P 500 nominal total returns have declined to just 0-2% by our estimates, with negative real expected returns on both horizons.


    The compression of long-term expected returns on stocks and bonds is as much a statement about future returns as it is about past ones. What follows is a discussion of valuation measures, profit measures, and the prospects for investment returns from current extremes. Some of this is a refinement of recent comments, but the risk of repetition is far outweighed by the urgency of this discussion. Investors should not get this moment wrong.

      


  • John Hussman: Overadaptation and Market Drawdowns

    The speculative premise here, as well as I can discern, seems to be that low short-term interest rates are “good” for the financial markets and that, in the absence of a material increase in interest rates by the Federal Reserve, speculative assets such as stocks, corporate credit and even junk debt will be naturally driven higher because they represent a desirable alternative to low-yielding, default-free liquidity.


    According to this premise, the fact alone that the Standard & Poor's 500 dividend yield of 2.17% is higher than the 10-year Treasury yield of 1.71% should make it clear to anyone that stocks are still a competitive investment. The expectation of future dividend growth only makes a compelling case more so.

      


  • John Hussman: Choose Your Weapon

    Prevailing market conditions continue to hold the expected stock market return/risk profile in the most negative classification we identify.


    That profile reflects not only extreme valuations on the most reliable measures we’ve tested across history, but market internals and other features of market action that remain unfavorable. A sufficient improvement in market internals here would shift the expected market return/risk profile to a more neutral classification. That, coupled with a broader improvement in economic factors, mirroring conditions that prevailed during much of this half-cycle prior to mid-2014, could support an outlook – even at presently obscene valuations – that we might characterize as “constructive with a safety net.” So while our immediate outlook is quite negative, we’ll take new evidence as it comes.

      


  • The Coming Fed-Induced Pension Bust – John Hussman

    Last week, I observed that, based on the most reliable measures we identify (those having the strongest correlation with actual subsequent 10- to 12-year investment returns across history as well as in recent cycles), “the expected return on a traditional portfolio mix is actually lower at present than at any point in history except the 1929 and 1937 market peaks. QE has effectively front loaded realized past returns while destroying the future return prospects of conventional portfolios, at least as measured from current valuations. As a result, the coming years are likely to see a major pension crisis across both corporations and municipalities because the illusory front loading of returns has encouraged profound underfunding.”


    On Thursday, Chicago’s Municipal Employees Annuity and Benefit Fund reported that its net pension liability soared to $18.6 billion, from $7.1 billion a year earlier, as a result of new accounting rules that prevent governments from using aggressive investment return assumptions (thanks to my friend Mike Shedlock for his post on this news). But here’s the kicker – the rules only apply after pension funds go broke. In Chicago’s case, pension return assumptions had been optimistically set at 7.5%, and the city had vastly underfunded its obligations.

      


  • Blowing Bubbles: QE and the Iron Laws – John Hussman

    Look across the room you’re in, and imagine there’s a $100 bill taped in the far upper corner, where the walls and ceiling meet. Imagine you’re handing over some amount of money today in return for a claim on that $100 bill 12 years from now.


    Drop your hand toward to the floor. If you pay $13.70 today for that future $100 cash flow, you can expect an 18% annual return on your investment over the next 12 years.

      


  • John Hussman Sells Broadcom, Cognizant

    John Hussman is the president and principal shareholder of Hussman Strategic Advisors, the investment advisory firm that manages the Hussman Funds. He is also the president of the Hussman Investment Trust. Hussman manages Hussman Strategic Growth Fund, which invests primarily in U.S. stocks, and Hussman Strategic Total Return Fund, which invests primarily in U.S. Treasury and government agency securities. These were the most heavily weighted sales during the first quarter.


    The guru closed his stake in Broadcom Corp. (BRCM) with an impact of -2.05% on the portfolio.

      


  • Latent Risks and Critical Points – John Hussman

    The Standard & Poor's 500 Index remains just 3.5% below its May 2015 peak yet is also at the same level it set in November 2014, 18 months ago. I continue to view market action as tracing out the arc of a major top formation, completing the third speculative financial bubble in 16 years. Downside risk remains significant, and even our short-term view has shifted back from neutral to hard-negative. Given that the behavior of single indices can be “noisy,” the following chart shows the average behavior of major global equity indices, including the U.S., European, British, Hong Kong and Japanese stock markets. This may provide a broader view of equity market pressures here. The respective level of each index on Dec. 31, 2014 is scaled to 1.0.


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  • John Hussman: 'Justified Consequences'

    Market conditions continue to be characterized by the likelihood of extremely poor long-term and full-cycle outcomes, with expected 10- to 12-year estimated Standard & Poor's 500 nominal total returns in the 0% to 2% range, negative expected real returns on both horizons and the continued likelihood of a 40% to 55% interim market loss over the completion of the current cycle; a decline that would represent only a typical run-of-the-mill cycle completion, based on valuation measures most tightly related with actual subsequent market returns across history.


    The degree of second-guessing regarding historically reliable valuation measures is perplexing, given that there has been no deterioration whatsoever in the correlation between these measures and subsequent market returns on a 10- to 12-year horizon (see the recent comment, "Permanently High Plateaus Have Poor Precedents," and note that these measures have been just as reliable in recent cycles as they have been for the better part of a century).

      


  • John Hussman: Lessons From the Iron Law of Equilibrium

    Last week, the spread between bullish and bearish sentiment widened substantially, pushing market conditions to what I’ve often described as an “overvalued, overbought, overbullish” syndrome.


    While our general outlook has remained rather neutral in recent weeks, this shift pushes our immediate outlook back to hard-negative. However, I should emphasize that this outlook is not particularly robust at present. Indeed, we could soon find ourselves back to a neutral outlook in the event of a moderate further improvement in market internals. As I’ve emphasized regularly since mid-2014, when we adapted our methods to address the key challenges we encountered in the half-cycle since 2009 (see the Box in The Next Big Short for a detailed narrative), the advancing half-cycle since 2009 has been different from market cycles across history, in that aggressive central bank easing has persistently deferred the typical consequences of overvalued, overbought, overbullish conditions. In the face of QE, one had to wait until market internals deteriorated explicitly (indicating a shift toward risk-aversion among investors) before adopting a hard-negative outlook.

      


  • Murray Stahl Buys Exxon, Suncor in 1st Quarter

    Murray Stahl (Trades, Portfolio) is the chairman of Horizon Asset Management Inc. During the first quarter he bought shares in many stocks, and the following are his most heavily weighted trades:


    Stahl raised his stake in Silver Wheaton Corp. (SLW) by 35.19% with an impact of 0.58% on the portfolio.

      


  • John Hussman: Permanently High Plateaus Have Poor Precedents

    “Stock prices have reached what looks like a permanently high plateau.”


    Irving Fisher, October 21, 1929

      


  • John Hussman: Rounding the Bubble's Edge

    The single most important quality that investors can have, at present, is the ability to maintain an historically informed perspective amid countless voices chanting, “This time is different,” and arguing that long-term investment returns have no relationship to the price that one pays.


    From a long-term, historically informed investment perspective, the Standard & Poor's 500 remains obscenely overvalued on valuation measures most closely correlated with actual subsequent market returns (and that have remained tightly correlated with actual market returns even in recent cycles). We estimate that S&P 500 nominal annual total returns will average only about 0% to 2% on a 10- to 12-year horizon with negative expected real returns after inflation.

      


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