John Hussman

John Hussman

Last Update: 11-02-2015

Number of Stocks: 215
Number of New Stocks: 45

Total Value: $790 Mil
Q/Q Turnover: 30%

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

John Hussman Watch

  • 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.



  • "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.


  • When an Easy Fed Doesn't Help Stocks - John Hussman

    Last week, the Federal Reserve chose to do nothing to move short-term interest rates away from zero after nearly 6 years of extraordinary policy distortion. As detailed below, the inaction of the Fed, and the failure of the stock market to advance in response, follows the script that I detailed in February. Policy makers at the Fed actually appear to believe – contrary to historical evidence and contrary even to the recent experience of numerous countries around the world – that activist monetary policy has meaningful and reliable effects on subsequent economic activity. It’s lamentable that otherwise thoughtful policy makers, much less journalists who cover these actions, show no interest in how weak these correlations are in actual data, and seem incapable of operating even the most basic scatterplot. Despite the spew of projectile money creation around the world, the global economy is again deteriorating. The main defense of the Fed’s inaction seems to be that years of zero interest rate policy have been hopelessly ineffective, so continued zero interest rate policy is necessary.

    As we’ve demonstrated previously, there’s no statistical evidence in the historical record to suggest that activist monetary policy has any relationship to actual subsequent economic activity (see The Beauty of Truth and the Beast of Dogma). Historically, monetary policy variables themselves can be largely predicted by previous changes in output, employment and inflation. That “systematic” component of monetary policy does have a weak correlation with subsequent economic changes. It’s unclear whether that’s purely incidental, or whether those systematic changes in monetary variables (such as short-term interest rates) are actually necessary for the weak effects that follow. I should be careful to note that monetary policy also seems to weakly influence confidence expressed in certain survey-based questionnaires. But that correlation emphatically does not translate into changes in actual output, income, or employment. Put simply, massive activist deviations from systematic monetary policy rules provide no observable economic benefit, but instead create fertile ground for speculative bubbles and crashes.


  • The Kind of Companies I'm Comfortable Owning

    A relatively calm year took a turn in the past month, with the S&P 500 falling nearly 7% over that period; as a result, the S&P 500 is down about 5% for 2015. As an investor, I feel these periods are a great opportunity to stress test your portfolio – to see if you’re ready for more downside if it lies ahead. John Hussman (Trades, Portfolio) wrote an article a few weeks back titled “If You Need to Reduce Risk, Do It Now.” I agree: if volatility made you question your portfolio, now is the time to take a hard look at whether changes should be made.

    I say that as if the timing has meaning, but this is really a general statement that applies in all periods: if you aren’t willing – or happy – to see a reduction in the value Mr. Market places on your current holdings, I’d argue that you need to make changes. Personally, I think this is an indication that (a) the security is expensive or (b) you don’t really understand what you’re investing in and will be shaken out by lower prices on their own; either way, it’s time for change.


  • The Beauty of Truth and the Beast of Dogma – John Hussman

    Psychologist Daniel Kahneman won the Nobel Prize in economics in 2002 for his work on decision making. While I've discussed some of this work previously, Kahneman's insights seem particularly useful in thinking about the economy and financial markets here. The key issue is how investors, central bankers, journalists and policy makers should go about evaluating "evidence" in making judgments.

    In his book, "Thinking, Fast and Slow," Kahneman suggested that people normally form judgments by defaulting to a rapid, associative sort of intuitive thinking that immediately gets to work with whatever information it is given. Only when that "System 1" runs into trouble do we call on the slower, effortful System 2 to gather evidence and go through orderly, detailed processing and analysis.


  • That Was Not a Crash - John Hussman

    Following the market decline of recent weeks, the most reliable valuation measures we identify now project average annual nominal returns for the S&P 500 of about 0.5% in the next 10 years. On a broad range of historically reliable valuation measures (see Ockham’s Razor and the Market Cycle) the May peak in the S&P 500 reached valuations averaging about 114% above run-of-the-mill historical norms – more than double the valuation levels that have historically been associated with the 10% average expected market returns that investors have enjoyed over the long-term. At present, those measures have retreated to about 92% above historical norms.

    Keep in mind that low interest rates don’t raise the estimated 10-year expected return on stocks from the current 0.5% level. Low interest rates only make the low expected return on stocks somewhat more “acceptable” because the alternatives are similarly dismal. The Federal Reserve’s policies of zero interest rates and quantitative easing have done nothing but to encourage yield-seeking speculation, bringing valuations to extreme levels, and leaving prospective future investment returns equally depressed.


  • If You Need To Reduce Risk, Do It Now – John Hussman

    The single most important thing for investors to understand here is how current market conditions differ from those that existed through the majority of the market advance of recent years. The difference isn’t valuations. On measures that are best correlated with actual subsequent 10-year S&P 500 total returns, the market has advanced from strenuous, to extreme, to obscene overvaluation, largely without consequence.

    The difference is that investor risk-preferences have shifted from risk-seeking to risk-aversion. That may not be obvious, but in market cycles across history, the best measure of investor risk preferences is the behavior of market internals, as measured by the uniformity or divergence of market action across a wide range of individual stocks, industries, sectors, and security types, including debt securities of varying creditworthiness.


  • Strong Synergies Expected From Staples’ Acquisition of Office Depot

    Staples, Inc. (NASDAQ:SPLS) recently reported earnings results for the second quarter. Its earnings results revealed some weakness in global sales growth which is expected to be revived from its acquisition of Office Depot (NASDAQ:ODP). On Feb. 4 Staples reported it would be acquiring Office Depot for $6.3 billion. The deal is expected to close by the end of 2015. Upon completion of the acquisition and integration of the Office Depot business, Staples expects pro forma annual revenue for the company to be $39 billion.

    In Staples' Aug. 19 earnings release it reported second-quarter revenue of $4.94 billion, net earnings of $76 million and earnings per share of $0.12. The quarter’s earnings results were on point with analysts’ estimates; however, sales growth in the quarter was weak. Analysts had predicted revenue of $4.96 billion, and earnings per share were just in line with analysts’ average estimate of $0.12.


  • Risk Turns Risky: Unpleasant Skew, Scale Dilation, and Broken Lines – John Hussman

    Over the years, I’ve observed that overvalued, overbought, overbullish market conditions have historically been accompanied by what I call “unpleasant skew” – a succession of small but persistent marginal new highs, followed by a vertical collapse in which weeks or months of gains are wiped out in a handful of sessions. Provided that investors are in a risk-seeking mood (which we infer from the behavior of market internals), sufficiently aggressive monetary easing can delay this tendency, by starving investors of every source of safe return, and actively encouraging further yield-seeking speculation even when valuations are obscene. Once investors become risk averse, as deteriorating market internals have suggested in recent months, vertical declines much more extreme than last week's loss are quite ordinary.

    The way to understand the bubbles and collapses of the past 15 years, and those throughout history, is to learn the right lesson. That lesson is not that overvaluation can be ignored indefinitely – we know differently from the collapses that have regularly followed extreme valuations. The lesson is not that easy monetary policy reliably supports stock prices – persistent and aggressive easing did nothing to keep stocks from losing more than half their value in 2000-2002 and 2007-2009. Rather, the key lesson to draw from recent market cycles, and those across a century of history, is this:


  • Nordstrom Beats Wall Street and Rallies Due to an Updated Guidance

    In this article, let's take a look at Nordstrom Inc. (NYSE:JWN), a $15.54 billion market cap company, which is a specialty retailer of apparel and accessories, widely known for its emphasison service.

    Trading higher


  • Thin Slices From the Top of a Bubble – John Hussman

    “You need to know very little to find the underlying signature of a complex phenomenon…. This is the gift of training and expertise – the ability to extract an enormous amount of meaningful information from the very thinnest slice of experience.”

    Malcolm Gladwell, Blink


  • John Hussman Buys, Sells Most Valuable Stakes in Second Quarter

    John Hussman (Trades, Portfolio), president and principal shareholder of Hussman Strategic Advisors, devoted much of his attention in the second quarter to his existing stakes, buying or selling stock in seven of his 10 most valuable holdings.

    He sold more than one-quarter of his most-valuable stake, Newmont Mining Corp (NYSE:NEM), a Colorado-based gold producer. Hussman sold 300,000 shares for an average price of $25 per share. The deal had a -0.68% impact on his portfolio.


  • John Hussman Shakes Up Portfolio in Second Quarter

    Stock market analyst and mutual fund owner John Hussman (Trades, Portfolio) made his reputation by predicting the Great Recession of 2008-2009. In the second quarter of 2015, he shook up his Top 10 holdings by volume.

    Hussman reduced his stake in Barrick Gold Corp (NYSE:ABX) by one-third, but it remained the largest stake by volume in his portfolio. Hussman sold 750,000 shares of his 2,250,000-share stake in Toronto-based Barrick, the largest gold mining company in the world, for an average price of $12.19 per share. The sale had a -0.86% impact on his portfolio.


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