John Hussman Recession Call

[charliebrown]

Re: John Hussman Recession Call

can savers and debtors be separated? If you own a money market fund, guess what it is stuffed with?
IOUs from debtors. Their debt is your money. Crash the bond market, and your money market fund,
bond fund, pension fund goes kablooey too.

[jpetr48]

Re: John Hussman Recession Call

can savers and debtors be separated? Crash the bond market, and your money market fund,
bond fund, pension fund goes kablooey too.

What is the probability the bond market will crash and take money market funds with them? IMO- >60%
One of my friends advised going from money market fund into Well Fargo Private Bank- you need a minimum value cash. I told him putting anything into a bank even if they were to rename Private Bank to Private Fort is high risk.

Question is if money markets are not viable for cash, will short term treasuries hold up? If not what are other options outside of PMs for cash holding?

[Slimprofits]

Re: John Hussman Recession Call

http://www.hussmanfunds.com/wmc/wmc111031.htm

...since 1963, when the ECRI Weekly Leading Index growth rate has been below -5 and the ISM Purchasing Managers Index has been below 54, the economy has already been in recession 81% of the time, and the probability of recession within the next 13 weeks was 86%.

If in addition, the S&P 500 was below its level of 6 months earlier, the economy was already in recession 87% of the time, and the probability of recession within the next 13 weeks climbed to 93% (and then to 96% within 26 weeks). Under these conditions, once the PMI fell below 52, the probability of recession within 13 weeks climbed to 97%.

That simple set of conditions (WLI < -5, PMI < 52, SPX < 6 months earlier) has been seen in every postwar recession for which the data is available. Though we've seen recessions without a drop in the WLI much below -5, when a WLI below -7 has been coupled with a PMI below 52 and an S&P 500 below its level of 6 months earlier, the economy has been in recession within 13 weeks, 100% of the time. This is the combination, incidentally, that we observe today.

We certainly don't base our economic expectations solely on these data points, as a broad ensemble of other data continues to present high risk of an oncoming recession. Still, we view the virtual abandonment of recession concerns to be remarkably naive, and lacking of any real basis in historical evidence. Wall Street eagerly points to 2010, when the ECRI's WLI dropped below -10 without a subsequent recession, largely thanks to the brief can-kick produced by QE2. But even in that instance, a smaller set of negatives was in place (the ECRI itself did not observe enough deterioration in its indicators to project a recession). In the present instance, a much broader range of evidence has turned down, both in the U.S. and internationally.

Given that nothing in economics is entirely certain, it's possible that this time will be different. But that possibility is not one that has support in the data. To avoid a recession, we have to hope for an outcome other than the one that has historically occurred 100% of the time that similar data has been in hand.

[LorenS]

Re: John Hussman Recession Call

can savers and debtors be separated? If you own a money market fund, guess what it is stuffed with?
IOUs from debtors. Their debt is your money. Crash the bond market, and your money market fund,
bond fund, pension fund goes kablooey too.

You're buying the line of the financial folks. There are loads of ways to save that don't involve lending money to others. Pay off your mortgage, buy a car, buy farmland, put cash in the mattress, insulate your house, buy solar hot water panels, buy PV panels.....

[charliebrown]

Re: John Hussman Recession Call

I don't buy anything from the financial folks. It is true, someone's debt is your money. So if you are using money to store wealth, debt default destorys your money. Since my future obligations such as taxes, general living expenses, and college are denominated in dollars, investing in things that are not dollars means you risk that your investment will not decline more than dollars. e.g. stocks, PMs, land, rental property etc.

Also a lot of "money" is collectively owned, so even if you are thrifty and smart, your still going to take it in the chin,
When the local and state pension fund blow up they're going to tax you. When your neighbor's savings dissappear they
are going to stop spending and their goes your job.

You do bring up some good suggestions in using the money for things that bring positive returns. But I have paid off my house, and my two old junky cars, and have no debt. I have insulated my house. At 42 degrees north under cloudy skies solar is not a good investment. Wind is good, but I don't think I can erect a turbine in my suburban back yard, that will
make a real difference in my electricity bill.

Farmland requires BIG capital. Farmland near my house is 10K an acre. From first hand knowledge if everything goes OK, you can get $300 a year an acre for farm land in DeKalb county. And that is if everything is OK. Usually instead of a fixed rate, you get a percentage of the yield. We are looking at a 3% return, if land prices remain constant. Some of the 3% will go to income tax, and property tax. Since farming is a capital intensive business, if actual farmers can't get loans, property values will not hold up. And managing a small amount of land might be hard, unless it abuts to a larger parcel.
I might actually do this, but I have to find out if I can get 10 acres and reliably lease such a small parcel, and what the
headaches of managing the contracts and paying the taxes are.

What if I need to save 100K for my kids to go to college in 10 years.? 100K into gold?? Actually at this juncture this
seems to be the best alternative. So yes spending an extra 1000 for a high efficiency furnance that will save me $100 a year might be a good payback but it's not going to save me enough for those kids. Everytime an appliance busts around here, I try to replace it with a more efficient equivalent, but these are nickel and dime savings.

I'm not throwing cold water on your ideas, and if you have more I am all ears. I am always looking to put my money to work.
Just beware that even if you're smart, there is going to be a lot pain to go around, no matter what station you are at.
Is there some other saving vehicle other than gold? I've thought about this for a long time common things like
liquor, batteries, electronics etc. Could I buy a bunch of it and it will hold its value over the long term. Nothing
I have thought of is non perishable, has a high monetary density, and is easily convertable into cash. For example
copper might hold its value and even increase, but 100K of copper is 25000 pounds. Who could I sell it too? where would I store it?
Or rechargable batteries run about $2.00 a piece that would require 50,000 batteries. What if someone comes up
with a better battery in 10 years, who could I sell 50,000 batteries to?
Guitars hold their value if you buy a nice all wood one. In fact with good care and light playing a guitar can increase in value.
But again, I need 200 guitars to store 100K. Where would I store them. How would I sell them when I need the money?

You get my drift. I'm looking for a wealth storage vehicle to compliment gold.
Nothing looks real attractive right now.

[c1ue]

Re: John Hussman Recession Call

I'm not throwing cold water on your ideas, and if you have more I am all ears. I am always looking to put my money to work.
Just beware that even if you're smart, there is going to be a lot pain to go around, no matter what station you are at.
Is there some other saving vehicle other than gold? I've thought about this for a long time common things like liquor, batteries, electronics etc. Could I buy a bunch of it and it will hold its value over the long term. Nothing I have thought of is non perishable, has a high monetary density, and is easily convertable into cash. For example copper might hold its value and even increase, but 100K of copper is 25000 pounds. Who could I sell it too? where would I store it?
Or rechargable batteries run about $2.00 a piece that would require 50,000 batteries. What if someone comes up with a better battery in 10 years, who could I sell 50,000 batteries to?
Guitars hold their value if you buy a nice all wood one. In fact with good care and light playing a guitar can increase in value.
But again, I need 200 guitars to store 100K. Where would I store them. How would I sell them when I need the money?

These are all thoughts I considered 5 years ago when I quit my dead-end job in the semiconductor industry to prepare for the gathering storm.

And my view now is that same as it was then: the only way to actually have a chance to prosper is to use this upheaval as an entry point into building a business with pricing power and/or scale.

The iTulip strategy has been excellent for preserving cash purchasing power - as has gold - but frankly the increases in college tuition are equally dramatic:

The Real Cost of Higher Education

"According to The College Board®, the average 2010-2011 tuition increase was 4.5 percent at private colleges, and 7.9 percent at public universities. The ten-year historical rate of increase is approximately 6 percent. These figures are substantially higher than the general inflation rate. They are also higher than the average increase in personal incomes."

What Recovery? Household Incomes Plummeted After 2009 | Employment | Career | Mainstreet

"In the two years after the recession officially ended in June 2009, the median household income continued to plummet, dropping by more than $3,500 to $49,909. That represents a decline of 6.7% in the first two years of the recovery, more than twice the rate of decline experienced during the recession."

The entrepreneurship path isn't for everyone though, I fully agree.

I just think that the era of successful passive investment is over, and the present era won't end for a half generation or more.

[Slimprofits]

Re: John Hussman Recession Call

http://www.hussmanfunds.com/wmc/wmc111219.htm

As economist John Williams observes, "starting in October, a divergence developed: Whereas year-to-year change in BLS estimated payroll earnings continued at a more-or-less constant, positive level, tax receipts fell quite markedly. Where the Treasury numbers reflect full reporting, the BLS data are sampled, heavily modeled and usually heavily revised. The implication is that the BLS has overstated average earnings and payrolls meaningfully in recent months."

The pattern in withholding tax deposits mirrors what we've seen in a whole ensemble of reliable leading economic measures we track - a sharp initial deterioration in early August, followed by a slight bounce into October, followed by resumed weakness that reinforces our concerns about the economy (see Have We Avoided A Recession? )

[..]

For our measures, the signals tend to lead the data by 13-16 weeks (3-4 months). It has been about 15 weeks since our main composites turned negative, so while every cycle is different, I suspect that we are on the cusp of observable economic deterioration.

[doom&gloom]

Re: John Hussman Recession Call

Heeyyyyy, I got an idea... Become a farmer!

[charliebrown]

Re: John Hussman Recession Call

I have thought more about your comment, (yes I am a slow thinker) and if a true deflation were to happen, some of my savings might evaporate, but hopefully they would fall in line with general prices. I'm willing to risk it. Pull the pin and see what happens.

I did write to my elected leaders in 2009, and told them to let it all implode and see where the chips land. They didn't have the courage or were in pocket of the bankers or both. Now we will be slowly squeezed for years. The innocent punished along with the guilty.

[Slimprofits]

Re: John Hussman Recession Call

A Critique of John Hussman’s Chart of Estimated Future Equity Returns