Last week saw a continuation of the impenetrably misguided policy response to this financial crisis, which seeks to address the downturn by encouraging more of what got us into this mess in the first place. The U.S. Treasury's toxic assets plan, for instance, looks to "leverage" public funds (with the FDIC providing the “6-to-1 leverage”) in order to defend the bondholders of mismanaged financials who took excessive leverage. At the same time, the Treasury plans to limit the “competitive bidding” to a few hand-picked “managers” who will be encouraged to overpay thanks to put options granted at public expense. This is a recipe for the insolvency of the FDIC and an attempt to bail out bank bondholders using funds that have not even been allocated by Congress. The whole plan is a bureaucratic abuse of the FDIC's balance sheet, which exists to protect ordinary depositors, not bank bondholders.
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As of last week, the Market Climate for stocks was characterized by fair valuations (modestly but not significantly undervalued on measures based on prior earnings, still overvalued on measures that do not rely on a reversion to above-average profit margins in the future). Market action is demonstrating some favorable signs, particularly evident in breadth-based measures such as advancing versus declining issues, and we are willing to carry some call option exposure on that basis, but the overall price-volume behavior still appears more consistent with a standard bear market rally punctuated by periodic short-squeezes. Suffice it to say that we've got some amount of exposure to further market strength, but that we are skeptical that the recent advance has important information content about a pending economic recovery. So far, it looks very much like the interim advances often observed during periods of ongoing market weakness.
In bonds, the Market Climate last week was characterized by moderately unfavorable yield levels and relatively neutral yield pressures. The Strategic Total Return Fund continues to have the majority of its assets in medium term Treasury Inflation Protected Securities, with about 25% of assets allocated across precious metals shares, foreign currencies, and utility shares. I continue to believe that it is too early to purchase distressed corporate debt – the view that this sector is a bargain is predicated on the belief that the economy has worked its way through this deleveraging cycle and is ready to rebound in the months ahead.
Click here to read the complete John Hussman Weekly Market Commentary.Also check out:
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As of last week, the Market Climate for stocks was characterized by fair valuations (modestly but not significantly undervalued on measures based on prior earnings, still overvalued on measures that do not rely on a reversion to above-average profit margins in the future). Market action is demonstrating some favorable signs, particularly evident in breadth-based measures such as advancing versus declining issues, and we are willing to carry some call option exposure on that basis, but the overall price-volume behavior still appears more consistent with a standard bear market rally punctuated by periodic short-squeezes. Suffice it to say that we've got some amount of exposure to further market strength, but that we are skeptical that the recent advance has important information content about a pending economic recovery. So far, it looks very much like the interim advances often observed during periods of ongoing market weakness.
In bonds, the Market Climate last week was characterized by moderately unfavorable yield levels and relatively neutral yield pressures. The Strategic Total Return Fund continues to have the majority of its assets in medium term Treasury Inflation Protected Securities, with about 25% of assets allocated across precious metals shares, foreign currencies, and utility shares. I continue to believe that it is too early to purchase distressed corporate debt – the view that this sector is a bargain is predicated on the belief that the economy has worked its way through this deleveraging cycle and is ready to rebound in the months ahead.
Click here to read the complete John Hussman Weekly Market Commentary.Also check out:
