The present situation is clearly and profoundly different from any post-war period, and was already preceded by weak intrinsic demand. The Treasury has run a deficit in excess of 7% of GDP year-to-date to maintain a still-negative growth in overall GDP. The economic expansion we've enjoyed since 2002 has been peculiar in its dependence on debt finance. The same basic story holds if one includes mortgage equity withdrawals and other forms of debt expansion. This will not be an easy situation to solve with an increasing number of homes now “underwater” relative to their outstanding mortgages, and with job losses continuing (above expectations at 570,000 last week).
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As noted above, as of last week, the Market Climate in the stock market was characterized by moderately unfavorable valuations and mixed market action. On a very short-term basis, the market is strenuously overbought. We're seeing the market sell off for a few days at a time, followed by powerful advances that recover the losses in a single day or two – which is viewed as a sign of resilience, but should also, by now, be familiar to shareholders as one of the signs of an “exhaustion” rally, particularly when it occurs on dull volume.
The Strategic Growth Fund continues to hold index call options representing between 1-2% of Fund value (which is the amount that could be lost in the event of a substantial decline), but with a larger “notional” value, so we would expect to gradually participate in market advances to an increasing degree in the event the market advance continues higher. Because the market is strenuously overbought, I believe that there is significant risk of losing much of the value we hold in these options, but they are in place as an “anti-hedge,” and would “soften” the impact of our existing hedges in the event that the recent advance is sustained.
Click to read the complete Hussman Weekly Market Comment
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As noted above, as of last week, the Market Climate in the stock market was characterized by moderately unfavorable valuations and mixed market action. On a very short-term basis, the market is strenuously overbought. We're seeing the market sell off for a few days at a time, followed by powerful advances that recover the losses in a single day or two – which is viewed as a sign of resilience, but should also, by now, be familiar to shareholders as one of the signs of an “exhaustion” rally, particularly when it occurs on dull volume.
The Strategic Growth Fund continues to hold index call options representing between 1-2% of Fund value (which is the amount that could be lost in the event of a substantial decline), but with a larger “notional” value, so we would expect to gradually participate in market advances to an increasing degree in the event the market advance continues higher. Because the market is strenuously overbought, I believe that there is significant risk of losing much of the value we hold in these options, but they are in place as an “anti-hedge,” and would “soften” the impact of our existing hedges in the event that the recent advance is sustained.
Click to read the complete Hussman Weekly Market Comment
