Morningstar’s Ryan Leggio interviewed John Hussman of Hussman Funds lately, and they touched basis on a number of issues.
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Part 1. Indicators Are Signaling That a New Economic Downturn
“in terms of recession risk, the syndrome of indications that we're seeing right now are indications that we've only seen during recessions or immediately prior to new downturns in the economy. This is the same set of indicators that we used in November 2007 when we got that recession warning and reported that, and I did a CNBC interview, which is rare for me, when we did that, because I thought it was an important thing to underscore for investors. And we saw the same set of signals in October of 2000 prior to that breakdown in the economy and the stock market.”
Part 2. Expect 7% Annual Total Returns in Stocks
“Normalized earnings historically have grown about the same rate as nominal GDP, if you look peak-to-peak across economic cycles. It's a little over 6% annually for the S&P 500 and you can take that back to the 50s or 40s or even 30s.
So using that basic approach, we are looking at a long-term 10-year return for the S&P 500 and total return including dividends approaching 7% right now.”
Part 3. We Haven't Fixed the Mortgage Problem
“Although they've been obscured by bailout money, banks still have plenty of bad loans on their balance sheets.”
Part 4. Risk/Reward Trade-Off for 30-Year Treasuries
“You would tend to want to move to shorter maturities even though those maturities invariably will be providing you next to no yield, because it's just safer and it's better to have your money in something safe that doesn't have a lot of capital loss than to have something in something risky where you could actually lose a lot if interest rates turn.”