John Hussman

John Hussman

Last Update: 07-31-2015

Number of Stocks: 202
Number of New Stocks: 31

Total Value: $865 Mil
Q/Q Turnover: 18%

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

John Hussman Watch

  • 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.


  • Memorize This, Earn A Dollar – John Hussman

    As a kid growing up in the 1960s, I earned my allowance the usual way; cutting grass and raking leaves. When there was no grass to cut or other work to do, my parents – who deeply valued education – would give us things to commit to memory. I figure I squeezed more than 30 bucks out of memorizing the multiplication tables up to 12. My brothers were better at memorizing poetry, but I was pretty good at song lyrics, which put me in good position to learn the words to countless '70s songs (e.g. "This really blew my mind. The fact that me, an over-faired, long-haired, leaping gnome, should be the star of a Hollywood movie. But, there I was"). I was not paid for this.

    Still, I got three bucks for memorizing “If” by Rudyard Kipling. Along with “Desiderata” and Robert Frost’s “The Road Not Taken,” it’s served me well at various points in life.


  • John Hussman: Two Tiered Markets, Full Cycle Investing and The Benefits and Costs of Defense

    “The Nifty Fifty appeared to rise up from the ocean; it was as though all of the U.S. but Nebraska had sunk into the sea. The two-tier market really consisted of one tier and a lot of rubble down below. What held the Nifty Fifty up? The same thing that held up tulip-bulb prices long ago in Holland - popular delusions and the madness of crowds. The delusion was that these companies were so good that it didn't matter what you paid for them; their inexorable growth would bail you out.”

    Forbes Magazine during the 50% market collapse of 1973-74


  • John Hussman: The One Lesson To Learn Before A Market Crash

    Last week, the price of Greek government debt soared on hopes of an 11th hour stick-save bailout by the European Union. Unfortunately, that price jump still left Greek bonds priced to reflect a default probability of 100% at every maturity. The jump only reflected an increase in the amount that bondholders evidently expect to recover in default, raising the implied recovery rate from the recent low near 30% to something closer to 50%. Put another way, the bond market has fully priced in the likelihood of a default coupled with a major haircut on Greek debt. What prices may not reflect is that the style of the haircut Greece wants may be modeled after former finance minister Yanis Varoufakis.



  • Judging The Future At A Speculative Peak – John Hussman

    “I know of no way of judging the future but by the past.” – Patrick Henry

    With valuations still extreme and deterioration in market action continuing to indicate a shift toward risk-aversion among investors, we are less concerned about specific factors such as Greece than about much more general pressures that threaten to force an upward spike in compressed risk-premiums. We’ve often noted that a market collapse is nothing other than that phenomenon: razor-thin risk premiums that are then pressed abruptly to higher levels. Undoubtedly, any worsening of Greek credit strains could contribute to the timing of such a spike. But until we observe a firming of market internals coupled with a fresh narrowing of credit spreads, it’s important to recognize that downside risks are much more general, and are not confined to any particular news item.


  • Durable Returns, Transient Returns – John Hussman

    Over the course of three speculative bubbles in the past 15 years, I’ve often made the distinction between “durable” investment returns and transient ones. At any point in time, the cumulative long-term return of the stock market equals the gain that investors can reasonably assume will be durable (in that it is unlikely to be surrendered in the future), plus whatever market gain investors should assume will be entirely wiped out over the course of the present or future market cycles. As it turns out, those two components can be identified with surprising accuracy.

    We can understand the distinction between durable gains and transient gains by inspecting market history and asking this question: was the prevailing level of the stock market (or its cumulative total return) observed again at a later date? We define that level as “durable” only if it was not observed again in the future. By contrast, a market gain that is subsequently wiped out over the completion of the market cycle is clearly transient in hindsight.


  • All Their Eggs In Janet's Basket – John Hussman

    The financial markets are establishing an extreme that we expect investors will remember for the remainder of history, joining other memorable peers that include 1906, 1929, 1937, 1966, 1972, 2000 and 2007. The failure to recognize this moment as historic is largely because investors have been urged to believe things that aren’t true, have never been true and can be demonstrated to be untrue across a century of history. The broad market has been in an extended distribution process for nearly a year (during which the NYSE Composite has gone nowhere) yet every marginal high or brief market burst seems infinitely important from a short-sighted perspective. Like other major peaks throughout history, we expect that these minor details will be forgotten within the sheer scope of what follows. And like other historical extremes, the beliefs that enable them are widely embraced as common knowledge, though there is always, always, some wrinkle that makes “this time” seem different. That is why history only rhymes. But in its broad refrain, this time is not different.

    The central fallacy operating here is the notion that monetary easing provides a kind of mechanical and concrete support to the financial markets, when in fact the primary driver of financial markets in recent years has been pure speculative risk-seeking. While risk-seeking is encouraged by monetary easing, it is not a reliable outcome. Once speculative valuation extremes have been in place, persistent monetary easing has certainly not prevented severe market losses in prior cycles. Investor preferences toward risk distinguish the expanding phase of a bubble from its inevitable crash, and these are most directly measured through the behavior of market internals, not through the behavior of monetary authorities.


  • John Hussman: When You Look Back On This Moment In History

    There are moments in time when durable history is made; history that others observe much later, shaking their heads, at a loss to understand how the events that followed could not have been obvious at the time. When you look back on this moment in history, remember these things.

    When you look back on this moment in history, remember that spectacular extremes in reliable valuation measures already told you how the story would end. Among the measures best correlated with actual subsequent S&P 500 total returns, capitalization-weighted market indices such as the S&P 500 were more richly valued in only 54 weeks of history, 21 of which represented the final advance to the 2000 market peak, with the remaining 33 representing the retreat from that high to present valuation levels, on the way to a 50% loss in the S&P 500 Index and an 83% loss in the Nasdaq 100 Index. Presently, the market has already lost the momentum and favorable market internals that were evident during that final run, so we doubt that the 2000 extreme should be viewed as an objective.


  • John Hussman: Why Stocks Are Not Cheap Relative To Bonds

    One of the constant refrains we hear at present is that while stocks may be richly valued on an absolute basis, they are “cheap relative to bonds.” At least one professor recently told students that valuations are meaningless because the P/E on cash is 100. Technically, with T-bill yields at just 0.01%, the P/E on cash is more like 10,000, but let’s not quibble. Using simple P/E ratios or inverted interest rates as a standard of value only makes sense if you have no appreciation for how securities are valued. By this kind of standard, I would advise these students to propose that their professor give them each $100 in return for a promise of a single payment of $2 next year, on the argument that the P/E of 50 is a fraction of the "P/E on cash."

    I’ll repeat what I’ve called the Iron Law of Valuation: every security is a claim on a very long-term stream of future cash flows that will be delivered into the hands of investors over time. Given that expected stream of future cash flows, the current price of the security moves opposite to the expected future return on that security. The value of a share of stock is determined by far more than current earnings, and one's estimate of value will be ill-formed if current earnings aren't a sufficient statistic for the long-term earnings trajectory.


  • John Hussman: When Paper Wealth Vanishes

    Present market conditions join the second most extreme valuations in U.S. history (on measures most reliably correlated with actual subsequent 10-year S&P 500 total returns) with increasing divergences and dispersion in market internals. Despite current extremes, valuations say very little about near term market direction. Valuations are enormously informative about likely market returns over horizons of 7-15 years. In contrast, market internals convey a great deal of information about the prevailing risk preferences of investors, and that's what amplifies our concerns here. Uniformly favorable internals across a wide variety of sectors and security types typically convey a signal that investors have a robust willingness to seek and accept risk, and it’s that feature that can allow overvalued markets to become persistently more overvalued. But remove that feature, and overvalued markets have often become vulnerable to vertical air pockets, panics, and crashes.

    I’ll say this again – valuations alone are not the concern. It’s the additional feature of deteriorating market internals that introduces a critical element of risk here. That feature helped us to correctly warn of the 2000-2002 and 2007-2009 collapses, and shift to a constructive outlook in-between. The recent half-cycle since 2009 has been more challenging as the inadvertent result of my 2009 insistence on stress-testing our methods of classifying market return/risk profiles against Depression-era data. The resulting ensemble methods outperformed every approach we had ever tested against post-war data, Depression-era data, and holdout validation data, but they also encouraged an immediate defensive stance when overvalued, overbought, overbullish syndromes emerged. Throughout history, those syndromes had regularly been accompanied or closely followed by breakdowns in market internals. The one truly “different” aspect of the half-cycle since 2009 is that quantitative easing disrupted that regularity. Nearly a year ago, weimposed overlays on our methods that require hard-defensive investment stances to be accompanieddirectly by deterioration in market internals or other risk-sensitive measures (e.g. credit spreads).


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