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John Hussman Annual Report

September 03, 2012
GuruFocus

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In recent months, our measures of leading economic pressures have indicated the likelihood of an oncoming U.S. recession. Our view is based on the analysis of leading/coincident/lagging indicators, as well as more statistical methods that extract "unobserved components" from a broad range of economic indicators. The weakness developing in the most leading components of U.S. data closely reflects accelerating weakness in European data. European output continues in its steepest contraction since 2009.

In my view, the repeated monetary interventions of recent years have been an attempt to contain the unfinished effect of the 2008-2009 economic downturn. I believe that the global economy is moving into another recession because policymakers have not effectively addressed the debt problems that produced the first one, leaving the economy unusually vulnerable to aftershocks.

To understand where we are, it is helpful to understand how we got here. In the U.S., lawmakers repealed the Glass-Steagall Act in 1999, removing the firewall between traditional banking and more speculative activities, and allowing those activities to have the effective protection of the U.S. government. This combination, in my view, helped to encourage speculation that resulted in a U.S. housing bubble and subsequent mortgage crisis. In Europe, a currency union was created without adequate control on the government deficits of individual countries, allowing peripheral European countries to run large budget deficits and finance them at the same interest rates as their stronger neighbors. The global recession and collapse of employment in 2008-2009 increased the strains on government revenues, while governments attempted to avoid the restructuring of bad debt by rescuing private lenders at public expense. As a result, government debt has increased dramatically both in the U.S. and in Europe.

With regard to stock market valuations, we presently estimate that the S&P 500 is likely to achieve a total return (nominal) of only 4.5% annually during the coming ten years. While prospective returns have been lower at certain points in the past 15 years, these low prospective returns were invariably followed by steep market declines that ultimately provided better opportunities to accept market risk in the pursuit of longterm returns. Valuations appear less elevated on measures that emphasize near-term earnings estimates, but these estimates reflect corporate profit margins that are nearly 70% above their long-term norm (a fact that appears closely related to depressed savings rates and unsustainably large government budget deficits).

Read the complete shareholder letter


Rating: 2.4/5 (15 votes)

Comments

Downwardog
Downwardog - 1 year ago


Yikes, Hussman has been a total disaster. He should be flipping burgers.
Cornelius Chan
Cornelius Chan - 1 year ago
In the list of guru performance, the top five gurus for 5-year performance are:

(Warren Buffet is #6)

The top five gurus for 10-year performance are:

(Warren Buffet is #11)

Out of 100-plus gurus in the list, Hussman comes up in the mid-40's for 10-year yearly %.

It would be an interesting exercise to comb through the portfolios of all the gurus and count how many hold shares of Berkshire Hathaway. LOL!!

traderatwork
Traderatwork - 1 year ago
Downwardog: Totally Agree.
traderatwork
Traderatwork - 1 year ago
Can anybody tell me how can a person lost so much of their client's money still be in business for so long with all these b s? And his firm managing billions of dollars. W T H ?

Ranni
Ranni - 1 year ago
I gave two years ago prediction, that if Hussman keep fighting against FED, he have to shut down these funds also, like he did late 90's, after shorting tech-bubble few years too early.

And when you look, this is exactly what he keep doing, he already started new funds: _Hussman Strategic Dividend Value Fund - HSDVX _Hussman Strategic International Fund - HSIEX and probably quite near to shut down his two older ones, to hide again one of the worst track records in this business.

Like Barry Ritholtz said:

“Market Pros simply cannot afford to sit out a major rally; If they miss that sort of move should reconsider what their investment strategies are. If your approach has you long during selloffs and in cash during rallies, something is wrong.”

His clients must value his fancy investment letters more than creating some money internally, via investing. I feel sorry of those poor clients, whose money this former economist keeps burning, by ill-practiced hedging strategy. Maybe “market timing” or “speculating” could be better way to describe, that kind of activity, than investing?
sapporosteve
Sapporosteve premium member - 1 year ago
I borrowed this from another site, Just have a look at his prediction record. After reading below I think flipping burgers might be a challenge......

Now Everyone Thinks The Market’s Going To Crash

Henry Blodget | May 30, 2010, 10:23 AM | 14,368 | 38

Seth Klarman at Baupost Group is worried. John Hussman of the Hussman Funds says all sorts of warning lights have lit up across his screen. …

80% Chance Of A Market Crash In The Next Year

John P. Hussman, PhD | Dec. 7, 2009, 6:12 AM | 2,932 | 9

Email. Zip. 80% Chance Of A Market Crash In The Next Year. John P. Hussman, PhD | Dec. … The following is an excerpt from fund manager John Hussman’s weekly letter …

Hussman: The Market Is More Overbought Than Any Time In History

Henry Blodget | Oct. 20, 2009, 6:49 AM | 3,720 | 19

… Hussman: The Market Is More Overbought Than Any Time In History. Henry Blodget | Oct. … You have successfully emailed the post. John Hussman rains on the parade: …

Hussman On Stocks: “Abrupt Downside Risk”

Henry Blodget | May 28, 2009, 7:05 AM | 4,788 | 10

Enter you email address and zip code to set up customized email alerts. Email. Zip. Hussman On Stocks: “Abrupt Downside Risk”. Henry …

John Hussman: Volume Warns Of A Sharp Pullback

Vincent Fernando | Oct. 12, 2009, 4:23 PM | 1,889 | 9

Enter you email address and zip code to set up customized email alerts. Email. Zip. John Hussman: Volume Warns Of A Sharp Pullback. Vincent Fernando | Oct. …

A Great New Bull Market? Why?

Henry Blodget | May 14, 2009, 11:53 AM | 4,554 | 19

… In the meantime, here’s fund manager John Hussman, who comes to the same conclusion that we have: … Read John Hussman’s whole column here >. …

Enjoying The Suckers’ Rally?

Henry Blodget | Apr. 15, 2009, 1:41 PM | 13,297 | 44

… Fund manager John Hussman lays out a persuasive bear case in this week’s letter. Here’s an excerpt: … Read John Hussman’s full note here >. …

Deseret News, The (Salt Lake City, UT) – June 12, 1994

NEWSLETTER SAYS STOCKS ARE A BEAR

Hussman Econometrics (34119 W. Twelve Mile Road, Farmington Hills, Mich. 48331), which The Hulbert Financial Digest has called “the most promising newcomer among investment newsletters” after its first three-year performance doubled the market’s return, has turned bearish on stocks. “The market is beginning to display the classic traits generally associated with bull-market tops. The time to buy stocks is in the middle of a recession, not when an expansion…

———

A Coupla Bears Tell Why They’re Still Growling

Pay-Per-View – Los Angeles Times – ProQuest Archiver – Mar 3, 1995

It’s not the end of civilization, Hussman says: “Stocks are just due for a natural, normal, run-of-the-mill bear market.” …

——–

Analyst unimpressed by Pyxis rival

Pay-Per-View – San Diego Union – Tribune – ProQuest Archiver – Jul 30, 1995

John P. Hussman of the Michigan-based newsletter Hussman Econometrics is not bullish on the stock market now,

———

BusinessWeek: May 15, 1995

Adds John P. Hussman, a money manager and investment newsletter writer based in Farmington Hills, Mich.: “There’s a likelihood of slipping into a bear market at any time.”

——-

S&P’S 500 DIVIDEND YIELD IS 2.66%, LOWEST OF CENTURY

$2.95 – Deseret News – NewsBank – Jun 18, 1995

“The stock market has left itself no room for error,” observes Hussman Econometrics (34119 W. Twelve Mile Road, Farmington Hills, MI 48331). …

———–

May 5, 1996

STOCKS OFFER LOW-RISK PREMIUM, PAPER SAYS

The latest argument for higher stock prices is that Baby Boomers are saving more and investing it in stocks, notes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, Mich. 48334). “In fact, there’s been no evidence of any significant increase in the U.S. savings rate. The money-flow argument ignores the fact that every buyer’s dollar that enters the market leaves it moments later with a seller. Stocks currently offer the lowest risk-premium in…

——–

Published on March 26, 1996, The Washington Times{PUBLICATION2}

Market’s total value points to bad times

There have been five times this century when the size of the stock market (total capitalization) relative to the size of the economy (nominal gross domestic product) exceeded 75 percent, as it does today, observes Hussman Econometrics (34119 W. Twelve Mile Road, Farmington Hills, Mich. 48331)

“Each instance coincided with a Standard & Poor’s 500 dividend yield of only 3 percent or less, as is also the case now. Each marked the peak of a major bull market

————

Mr. Bear and Mr. Bull

By Mark Hulbert, 02.10.97

Forbes

The bear is John Hussman, editor of Hussman Econometrics, and adjunct professor of economics at the University of Michigan. What sets Hussman apart from the other bears isn’t his focus on the market’s fundamental extreme overvaluation. That’s something he shares with virtually every other bear. What makes Hussman’s bearishness noteworthy is his compelling explanation of the mistakes he made several years ago when he and the others turned prematurely bearish. ;

———-

Published on July 1, 1997, The Washington Times{PUBLICATION2}

Sky-high prices may warn of stocks’ fall

Historically, when the price-earnings ratio on the Standard & Poor’s 500 has been above 20-to-1, as it has been recently, it has always been because earnings are depressed, observes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, Mich. 48334).

“This is the first time in history that we’ve seen a P/E over 20-to-1 on record earnings. The only two times the P/E exceeded even 19-to-1 on record earnings was in 1964 and 1972. In

——–

Published on June 3, 1997, The Washington Times{PUBLICATION2}

As dividend yields sink, how far can stocks rise?

“The extremely high returns on stocks over the past 14 years have been the result of a decline from the highest dividend yield in two generations, 6.7 percent in August 1982, to the lowest dividend yield in history, now well below 2 percent,” notes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, Mich. 48334).

“It seems unlikely that the dividend yield can fall much from current levels. So it seems equally unlikely that stocks can rise

————

Nov 7, 1997

Stocks have never been this highly valued when earnings were at record levels, notes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, …

———-

Economist: U.S. might already be in recession

The San Diego Union – Tribune – San Diego, Calif.

Author: DON BAUDER

Date: Oct 30, 1998

He’s John P. Hussman of Sunrise, Fla.-based Hussman Econometric Advisors, and he says the markets are already giving off clear recessionary signals: The interest rate spread between corporate debt and Treasury debt has widened, indicating growing fear of credit risk, while the spread between long- and short-term Treasury instrument interest rates has narrowed considerably, suggesting the market expects a very sharp growth slowdown.

Combine these so-called “forward-looking” indicators with other similar ones, such as the stock market decline, the drop in consumer confidence and the National Association of Purchasing Managers Index suggesting that manufacturing is contracting, and “the signal says, `Hey, we’re expecting very slow growth, probably recession,’” Hussman says

.

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