John Hussman Recession Call

[gvanc]

http://www.hussmanfunds.com/wmc/wmc110808.htm

"I began drafting this update in a fairly measured way, but on further reflection, I think it is time to be blunt. The economic evidence now suggests that the U.S. and the global economy are again entering recession."


"Last week, I reviewed the rapidly deteriorating condition of our Recession Warning Composite . While year-over-year GDP growth has dropped to just 1.6% - a rate that has been followed by a new recession in 10 of the 12 times it has occurred since 1950 - I preferred evidence from a wider set of market and economic measures. I noted "we would require only modest deterioration in stock prices and the ISM index to produce serious recession concerns." With the pixels barely dry on that weekly comment, the ISM reported Monday that its Purchasing Managers Index dropped unexpectedly to 50.9, the slowest pace in two years. That report, coupled with an early slide in the S&P 500, completed the remaining holdouts (conditions 2 and 3) of the Composite. Coupled with the slowdown in year-over-year GDP growth, the composite of economic and financial evidence we presently observe has always and only been associated with ongoing or immediately impending recessions. This is not an opinion or a viewpoint, but a fact of the data. "Always and only" is the Bayesian equivalent of "certainty" (a Bayesian is someone who, vaguely expecting a horse, and glimpsing the tail of a donkey, concludes he has probably seen a mule)."

[doom&gloom]

Re: John Hussman Recession Call

ja.

[lektrode]

Re: John Hussman Recession Call

gee, took him this long to get 'blunt' about it ?
i was quite convinced (due to what i'm seeing in my biz) that the double dip began sometime in february...
and the 1st leg down began the 3rd week of oct2007, unquestionably, even back then.

nice to see even smart guys like mr H are now seeing what eye have been....

http://www.hussmanfunds.com/wmc/wmc110808.htm

"I began drafting this update in a fairly measured way, but on further reflection, I think it is time to be blunt. The economic evidence now suggests that the U.S. and the global economy are again entering recession."


"Last week, I reviewed the rapidly deteriorating condition of our Recession Warning Composite . While year-over-year GDP growth has dropped to just 1.6% - a rate that has been followed by a new recession in 10 of the 12 times it has occurred since 1950 - I preferred evidence from a wider set of market and economic measures. I noted "we would require only modest deterioration in stock prices and the ISM index to produce serious recession concerns." With the pixels barely dry on that weekly comment, the ISM reported Monday that its Purchasing Managers Index dropped unexpectedly to 50.9, the slowest pace in two years. That report, coupled with an early slide in the S&P 500, completed the remaining holdouts (conditions 2 and 3) of the Composite. Coupled with the slowdown in year-over-year GDP growth, the composite of economic and financial evidence we presently observe has always and only been associated with ongoing or immediately impending recessions. This is not an opinion or a viewpoint, but a fact of the data. "Always and only" is the Bayesian equivalent of "certainty" (a Bayesian is someone who, vaguely expecting a horse, and glimpsing the tail of a donkey, concludes he has probably seen a mule)."

[Slimprofits]

Re: John Hussman Recession Call

http://www.hussmanfunds.com/wmc/wmc110829.htm

It is now urgent for investors to recognize that the set of economic evidence we observe reflects a unique signature of recessions comprising deterioration in financial and economic measures that is always and only observed during or immediately prior to U.S. recessions. These include a widening of credit spreads on corporate debt versus 6 months prior, the S&P 500 below its level of 6 months prior, the Treasury yield curve flatter than 2.5% (10-year minus 3-month), year-over-year GDP growth below 2%, ISM Purchasing Managers Index below 54, year-over-year growth in total nonfarm payrolls below 1%, as well as important corroborating indicators such as plunging consumer confidence. There are certainly a great number of opinions about the prospect of recession, but the evidence we observe at present has 100% sensitivity (these conditions have always been observed during or just prior to each U.S. recession) and 100% specificity (the only time we observe the full set of these conditions is during or just prior to U.S. recessions). This doesn't mean that the U.S. economy cannot possibly avoid a recession, but to expect that outcome relies on the hope that "this time is different."

[Master Shake]

Re: John Hussman Recession Call

Start the helicopter engines! QE3, baby!

[charliebrown]

Re: John Hussman Recession Call

gee, if you're the canary in the coal mind, I wouldn't mind a cheep if you see a down turn.

Thanks.
CB

[aaron]

Re: John Hussman Recession Call

Perhaps this time IS different. I do not see why we ever have to print a negative nominal GDP ever again. They are just made up numbers, manipulated by Ben Bernanke, signifying nothing.

[unlucky]

Re: John Hussman Recession Call

gee, if your the canary in the coal mind, I wouldn't mind a cheap if you see a down turn.

Thanks.
CB

Actually the warning comes when the canary stops cheeping, and dies. Keep on posting lektrode!

[Slimprofits]

Re: John Hussman Recession Call

did anyone read hussman's mortgage restructuring proposal?

http://www.hussmanfunds.com/wmc/wmc110606.htm

On the mechanics of Property Appreciation Rights (PARs)

this is getting into an area that's above my head

[swgprop]

Re: John Hussman Recession Call

did anyone read hussman's mortgage restructuring proposal?

On the mechanics of Property Appreciation Rights (PARs)

From Hussman's site:

One possible mortgage restructuring might be to cut the principal of the mortgage to $200,000, and to create a $100,000 PAR. The homeowner would agree to pay off the PAR to the Treasury (and administered through the IRS) out of future price appreciation on the existing home or subsequent property.

If the homeowner was to eventually sell the home and not purchase another, the obligation would become a low-interest loan obligation (possibly even one that decays over time) and would eventually be a claim on the estate of the homeowner, possibly with an initial exclusion at low income and a progressive recovery rate based on the size of the estate.

If we assume a 3% nominal annual appreciation rate it will take 14 years for the home to appreciate sufficiently to pay off the PAR. If the appreciation does not occur, or if the borrower loses the house or sells at a price insufficient to pay off the PAR the PAR obligation follows the borrower, not unlike student loan debt.

A borrower might be open to this arrangement if the mortgage is in a state that allows deficiency judgments. But if the borrower lives in a non-recourse state it would be foolish for him to commit to an arrangement like this. Not that some wouldn't agree to it to their own detriment.

The program would only be available for mortgages restructured to the point that they were no longer underwater. The lender would receive not a direct claim on that homeowner, but a participation in the Treasury's “PAR fund” which would pay out proportionately out of all PAR proceeds received by the Treasury by homeowners over time.

The lender will be swapping an effectively unsecured portion of the mortgage for an interest in a PAR tranche secured by 1. anticipated future RE appreciation and/or 2. ability of the Treasury Dept. to hound borrowers until death to be repaid.

This might appeal to lenders with portfolio mortgages. But how would it work with securitized mortgages where the lender (servicer) has no financial interest in the mortgage? That would entail getting buy-in from the Trust if the PSA didn't empower the servicer to make such arrangements. Clearly there is no incentive for a pure servicer to participate, other than fiduciary responsibility to the Trust/Investors. And you can guess how seriously JP Morgan Chase, BAC, et al take their fiduciary responsibilities.

I like and respect Hussman but I don't think this proposal is viable.

[jpetr48]

Re: John Hussman Recession Call

gee, took him this long to get 'blunt' about it ?


nice to see even smart guys like mr H are now seeing what eye have been....

With all due respect Hussman has been concerned about this economy since the breakout party in June of 2010. Go back to his weekly commentaries. You will note he advised investors to be prudent on future investments especially if they have significant expenses coming up like wedding, college etc. Because of his low exposure to equities he got slammed in the markets while the S&P roared forward. Since this call, he has been more conservative in yelling fire.

What he didnt expect was the Fed operating outside legal boundaries- Hussman even cited the broken regulation by Fed more than once.

[Slimprofits]

Re: John Hussman Recession Call

http://www.hussmanfunds.com/wmc/wmc110905.htm

These additional factors, now in place, include a major, abrupt plunge in consumer confidence, with an even sharper drop in the "future expectations" index, negative real interest rates, an ISM index below 54, a decline in aggregate weekly hours versus a quarter earlier, year-over-year growth in non-farm payrolls less than 1%, and six-month payroll growth less than 0.5%. Though there is some hope that the current downturn is no different than what we saw in 2010 (despite evidence otherwise), it's worth noting that the S&P 500 is below where it was when the Fed initiated QE2, and has made virtually no net progress since March 2010.

[..]

Still, while the evidence is challenging, we shouldn't entirely rule out the chance that we could avoid recession. It's just that the hope of a recovery rests on the belief that either a turnaround will happen spontaneously despite unusually strong constraints on the flexibility of fiscal policy, or that the Fed will provoke a recovery through additional policy even though none of what the Fed has proposed appears to have any transmission mechanism to the real economy.

[aaron]

Re: John Hussman Recession Call

The global economy is at a crossroad that demands a decision - whom will our leaders defend? One choice is to defend bondholders - existing owners of mismanaged banks, unserviceable peripheral European debt, and lenders who misallocated capital by reaching for yield and fees by making mortgage loans to anyone with a pulse. Defending bondholders will require forced austerity in government spending of already depressed economies, continued monetary distortions, and the use of public funds to recapitalize poor stewards of capital. It will do nothing for job creation, foreclosure reduction, or economic recovery

In a fun mood. Rewritten for clarity:

The U.S. economony is at a crossroad -> will we go down the socialist/communist path of Obamacare, or will we support the rights of individuals? Who will the leaders in Congress defend? One choice is to defend savers - the retirement funds that invested their money in long term bonds supporting the United States of America. The other choice we have is to support those who took out loans that they could not afford, consumed too much using credit, and made poor life choices. Defending savers will require the government cut back on wasteful programs, increase interest rates to encourage further long term savings and investment, and maintain order in the financial system. Nothing to date has been done for job creation, foreclosures, or economic recovery. It is time for real choices. Do we want a government that protect savers or debtors? Do we want a government that stands for working Americans and job-creators, or one that encourages the lazy to further increase their numbers?

[FRED]

Re: John Hussman Recession Call

In a fun mood. Rewritten for clarity:

The U.S. economony is at a crossroad -> will we go down the socialist/communist path of Obamacare, or will we support the rights of individuals? Who will the leaders in Congress defend? One choice is to defend savers - the retirement funds that invested their money in long term bonds supporting the United States of America. The other choice we have is to support those who took out loans that they could not afford, consumed too much using credit, and made poor life choices. Defending savers will require the government cut back on wasteful programs, increase interest rates to encourage further long term savings and investment, and maintain order in the financial system. Nothing to date has been done for job creation, foreclosures, or economic recovery. It is time for real choices. Do we want a government that protect savers or debtors? Do we want a government that stands for working Americans and job-creators, or one that encourages the lazy to further increase their numbers?

[Slimprofits]

Re: John Hussman Recession Call

The dwindling jobs growth situation - non farm payrolls

http://www.bls.gov/schedule/archives/empsit_nr.htm#2011

March 2011 revised to +194K
April 2011 revised to +217k
May 2011 revised to +53k
June 2011 revised to +20k
July 2011 revised to +85k
July to August change = 0