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Don't Mess With Aunt Minnie
by John P. Hussman of Hussman Funds, 5/24/10
In medicine, an Aunt Minnie is a particular set of symptoms that is distinctly characteristic of a specific disease, even if each of the individual symptoms might be fairly common. Last week, we observed an Aunt Minnie featuring a collapse in market internals that has historically been associated with sharply negative market implications. Historically, we can identify 19 instances in the past 50 years where the weekly data featured broadly negative internals, coupled with at least 3-to-1 negative breadth, and a leadership reversal.

Two Choices: Restructure Debts or Debase Currencies
by John P. Hussman of Hussman Funds, 5/17/10
Without a central taxing authority, the common European currency can only survive if participating countries strictly control their deficits. It should not be difficult to recognize that confidence in any currency is tied to confidence in the assets which stand behind it, and associated confidence in the restraint of fiscal and monetary authorities. The bureaucrats in both the U.S. and European central banks have chosen to betray that trust.

Greek Debt and Backward Induction
by John P. Hussman of Hussman Funds, 5/10/10
Despite the potential for a short burst of relief, the broader concern about deficits in the euro area make it unlikely that global investors will be appeased by a large bailout of Greece, or will go forward on the assumption that all is back to normal once that happens. Looking at the current state of the world economy, the underlying reality remains little changed: There is more debt outstanding than is capable of being properly serviced. Hussman also comments on overbought equity markets, and the current market climate.

Violating the No-Ponzi Condition
by John P. Hussman of Hussman Funds, 5/3/10
Greece has insufficient economic growth, enormous deficits (nearly 14 percent of GDP), a heavy existing debt burden as a proportion of GDP (over 120 percent), accruing at high interest rates (about 8 percent), payable in a currency that it is unable to devalue. This creates a violation of what economists call the 'transversality' or 'no-Ponzi' condition. Unless Greece implements enormous fiscal austerity, its debt will grow faster than the rate that investors use to discount it back to present value.

Looking Back, Looking Forward
by John P. Hussman of Hussman Funds, 4/26/10
The market is strenuously overvalued, faces a syndrome of overextended conditions that has historically proved hostile, and relies to an incredible extent on the absence of further credit strains. Accepting a greater level of market exposure will require, at minimum, that we clear the present syndrome of overvalued, overbought, overbullish, rising-yield conditions. The quickest way to a more constructive investment stance would be a meaningful improvement in valuations (which would most likely be associated initially with a deterioration in market action), and no further credit strains.

Earning More by Setting Aside Less
by John P. Hussman of Hussman Funds, 4/19/10
Overall, the current data presents at best a mixed picture of credit conditions. Investors should not be surprised by a significant second wave of credit strains. It seems unwise for investors to celebrate variations of a few basis points in delinquency rates, however. It seems equally unwise to celebrate 'favorable' bank earnings reports that are exclusively driven by reduced loan loss provisions, particularly when the volume of impaired loans has not declined proportionately.

Extend and Pretend
by John P. Hussman of Hussman Funds, 4/12/10
A year ago, the Financial Accounting Standards Board suspended rule 157, which had previously required banks to mark their assets to market value when preparing balance sheet reports. The basic argument was that fair values were not appropriate because there was 'no market' for troubled assets, which was false even at the time. This 'extend and pretend' policy has created a gap between the reported value of assets and the value they would have on the basis of reasonable cash flows over the course of their maturity.

Unpleasant Skew
by John P. Hussman of Hussman Funds, 4/5/10
Stock markets are overbought and overvalued, sentiment is too bullish, and yield trends are hostile. These high risk conditions tend to lead markets to successive but slight and marginal new highs. They also tend to invite nearly vertical drops of more than 10 percent over a period of weeks. The present conditions therefore recommend a defensive investment stance. The implied total return for the S&P 500 over the coming decade is just 5.7 percent annually, the lowest level observed in any period prior to the late 1990's met bubble.

Possible Outcomes: A Typical Post-War Recovery, or a Perfect Storm
by John P. Hussman of Hussman Funds, 3/29/10
Credit data suggests two distinct possibilities for the future direction of the economy. The most likely outcome is that we will see serious credit strains in the months ahead, adding to overextended market conditions, and creating a 'perfect storm' with a great deal of potential risk. Alternatively, if we do not encounter fresh credit strains in the coming months, a typical 'post-war' recovery may be on the horizon. Regardless of what lies ahead, current conditions recommend a defensive stance.

Zombies and Rube Goldberg Machines
by John P. Hussman of Hussman Funds, 3/22/10
The U.S. financial system is one big Rube Goldberg machine that obligates the public to huge bailouts. Meanwhile, the Financial Accounting Standards Board continues to allow banks substantial direction in valuing their assets, which risks creating a zombie banking system by allowing a growing gap to emerge between stated asset values and the probable stream of cash flows from loans. The ability to obscure valuations appears to be a primary reason for the growing gap between delinquencies and foreclosures, as well as the reluctance of banks to modify mortgages.

An Update on Valuation and Forward Earnings Assumptions
by John P. Hussman of Hussman Funds, 3/22/10
The market's valuation looks overpriced based on widely tracked fundamentals. Price-to-normalized earnings, price-to-dividend multiples, price-to-book values and price-to-sales multiples all sit above long-term averages. Valuations based on forward operating earnings are also unfavorable. The long-term average P/E ratio based on forward operating earnings is about 12. The current multiple is 14.8, and this value assumes the continuation of near-record profit margins. Even a minor lowering of expected profits would cause the whole scale of the overvaluation to widen materially.

Ordinary Outcomes of Extraordinary Recklessness
by John P. Hussman of Hussman Funds, 3/15/10
The recent credit crisis did not emerge as a surprise, but was the ordinary outcome of extraordinary recklessness. Overvaluation and reckless lending do not always translate into near-term market weakness, but they invariably haunt investors in the form of poor long-term returns. Significant damage in the stock market often takes place during the "recognition phase" where the troubling reality departs from optimistic expectations. Fundamental measures suggest that markets are currently overvalued, and recommend a defensive position for assets.

The Rubber Hits the Road
by John P. Hussman of Hussman Funds, 3/8/10
If we are indeed at risk of a second wave of mortgage defaults and credit strains, it will first show up as a jump in 30-day mortgage delinquencies in data released over the next two to four months. A small initial round of resets, started in November 2009, is already in progress. A deleveraging cycle would likely establish a sequence of troughs, each at lower levels of valuation. It will still be possible, however, to trade within that range in proportion to expected stock returns. Fundamentals will take precedence over all other considerations.

Notes on a Difficult Employment Outlook
by John P. Hussman of Hussman Funds, 2/22/10
The 4-week moving average for unemployment claims stands at 468,500. This suggests monthly payroll job losses of about 80,000. Census hiring should make a positive impact on short-term job growth. Debt burdens could produce credit strains if weak employment conditions continue. Hussman also comments on the current market climate for stocks and bonds.

The Federal Reserve's Exit Strategy: Unlegislated Bailout of Fannie and Freddie
by John P. Hussman of Hussman Funds, 2/16/10
John Hussman of Hussman Funds says the U.S. Treasury and the Federal Reserve circumvented the need for Congressional approval and engineered a tacit government bailout of Fannie Mae and Freddie Mac. More than 60 percent of the U.S. foreclosure market falls under the umbrella of these two government-sponsored enterprises. He also examines other factors affecting the current market climate.

Cautiously Pessimistic
by John P. Hussman of Hussman Funds, 2/8/10
Hussman notes that he foresaw the market decline in his comments a few weeks ago, and that it would be a mistake to attribute that decline to a single piece of news. His most significant concern is a ?significant second wave of defaults,? and he says those concerns (other than issues pertaining to Greece) have not been the focus of analysts? attention. Hussman believes the decline in the unemployment rate to 9.7% is an ?anomaly,? and expects unemployment to rise to 11-12%.

Reported Earnings versus
by John P. Hussman of Hussman Funds, 2/1/10
Hussman discusses the distortions in reported corporate earnings, arguing that the true measure of value is that used by Berkshire Hathaway: the growth in book value plus dividends. He concludes that, ?As is true for a variety of similar measures of normalized value, the valuation levels we observe today are comparable with the highest levels achieved in history, except for the bubble period since the mid-1990's.? He also discusses an op-ed piece by Volcker in yesterday?s NYT.

A Blueprint for Financial Reform
by John P. Hussman of Hussman Funds, 1/25/10
Hussman?s commentary falls into four sections: (1) an 8-step ?blueprint? for financial reform, in response to Obama?s proposed bank regulations; (2) a tongue-in-cheek plan for how to spend $1.5 trilli

Inflation Myth and Reality
by John P. Hussman of Hussman Funds, 1/19/10
It is in this context that we should consider inflation risks over the coming decade. At present, inflation risks are hardly considered to be problematic by Wall Street. From the standpoint of the nex

Green Shoots, Weak Roots
by John P. Hussman of Hussman Funds, 1/11/10

Timothy Geithner Meets Vladimir Lenin
by John P. Hussman of Hussman Funds, 1/4/10

Brief Holiday Update
by John P. Hussman of Hussman Funds, 12/28/09
Results 501–522 of 522 found.