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**zoog** · January 12, 2008, 02:11 PM

Re: re-assessing hussman

A thoughtful and thorough analysis as usual, jk.

Not sure I have anything enlightening to add, but, I recently went through a similar process with the very few options available in my 401k, trying to figure out which funds would get battered the least.

I was surprised how many funds had significant exposure to financials and/or technology (especially tech hardware). I agree with you that tech is not the place to be in a recession. You mentioned shorting RIMM in particular... how many people really need a crackberry? When times are tough, whatever can be done without will be.

The only way I can see gains in holding tech hardware is, as a side-effect of alternative energy boom, "clean tech" sales accelerating. But what are the chances that Hussman's tech hardware holdings are companies poised to do well in clean tech?

jk · January 12, 2008, 02:56 PM

Re: re-assessing hussman

Originally posted by zoog

But what are the chances that Hussman's tech hardware holdings are companies poised to do well in clean tech?

unfortunately to the contrary, rimm, csco and nvda look like the usual suspects.

**Jim Nickerson** · January 12, 2008, 03:28 PM

Re: re-assessing hussman

Nice work, jk. In what seemed to be a bit of absence here on your part, I thought you might be off playing somewhere.

One possibility in trying to figure out why HSGFX has been hit recently, which could make your assessment off, is the holdings from 9/30/07 may not be the same now. Who knows except somebody in the Hussman office?

You should send your assessment to Hussman and see if you get a reply. Of course, so as not to seem semi-literate you should put caps at the beginning of sentences and elsewhere as necessary. smiles turned off in edit more or I'd put one here.

Originally posted by jk View Post

however, i was shocked when i saw that the hussman fund lost 1.4% on friday, and was further shocked when i saw that it had lost about 2.5% this past week, in spite of being fully hedged! [some charts of the hussman fund, and the s&p, are appended here, and show what's happened.] he is now down 2.57% ytd. the s&p, for comparison, is up 1.95%

My numbers show the SPX is off 4.59%

	SPX	DJI	NASDAQ	NDX	RUT
YTD GAIN 2008	-67.34	-658.52	-212.34	-172.12	-61.38
YTD GAIN 2008	-4.59%	-4.96%	-8.01%	-8.26%	-8.01%

I hope those are correct. And I conjecture that financials did well on Friday or otherwise the SPX would be off even more, surely the SKF position I hold took a wallop Friday. I think any apparent wellness on the part of financials makes the SPX behavior spurious.

jk · January 12, 2008, 04:15 PM

Re: re-assessing hussman

Originally posted by Jim Nickerson View Post

Nice work, jk. In what seemed to be a bit of absence here on your part, I thought you might be off playing somewhere.

One possibility in trying to figure out why HSGFX has been hit recently, which could make your assessment off, is the holdings from 9/30/07 may not be the same now. Who knows except somebody in the Hussman office?

You should send your assessment to Hussman and see if you get a reply. Of course, so as not to seem semi-literate you should put caps at the beginning of sentences and elsewhere as necessary. smiles turned off in edit more or I'd put one here.

My numbers show the SPX is off 4.59%

	SPX	DJI	NASDAQ	NDX	RUT
YTD GAIN 2008	-67.34	-658.52	-212.34	-172.12	-61.38
YTD GAIN 2008	-4.59%	-4.96%	-8.01%	-8.26%	-8.01%

I hope those are correct. And I conjecture that financials did well on Friday or otherwise the SPX would be off even more, surely the SKF position I hold took a wallop Friday. I think any apparent wellness on the part of financials makes the SPX behavior spurious.

my error re spx ytd. but hussman, with his staggered strike put protection, should be making money in a down market. and i think he would, too, if he weren't so heavily in tech.

this forces me to reassess my assumption that hussman will do well in a down market. what i really want is hussman's timing coupled to an itulip long portfolio. where do i sign up for that?

**Jim Nickerson** · January 12, 2008, 04:34 PM

Re: re-assessing hussman

Originally posted by jk View Post

my error re spx ytd. but hussman, with his staggered strike put protection, should be making money in a down market. and i think he would, too, if he weren't so heavily in tech.

this forces me to reassess my assumption that hussman will do well in a down market. what i really want is hussman's timing coupled to an itulip long portfolio. where do i sign up for that?

edit. look at his HSTRX, it is up almost hyperbolically.

I am sure you read the same stuff I do on Hussman's site and no doubt understand it better than I , but I think he has just recently explained what it is about his strategy that will result in net gains.

Originally posted by Hussman from last Monday

There are bear funds available for investors interested in carrying a negative beta. The Strategic Growth Fund is not intended to do this. To the extent that the Fund has achieved gains during periods of market weakness, those gains have been attributable to the slow and often imperceptible accrual of alpha. For us, our alpha has generally been the result of holding favorably valued stocks with good sponsorship, that tend, on average, to very slightly outperform the market on a day-to-day basis. It's sometimes possible to observe the accrual of alpha over the course of a few months. It is nearly impossible to distinguish it from random noise on a day-to-day basis.

If I am wrong here, I guess I can tolerate your publicly correcting me.

I'm not cheerful about how HSGFX has performed recently, but I, in my miniscule wisdom, do not know of a better place to be with regard to gaining some exposure to equities.

jk · January 12, 2008, 05:08 PM

Re: re-assessing hussman

Originally posted by Jim Nickerson View Post

edit. look at his HSTRX, it is up almost hyperbolically.

I am sure you read the same stuff I do on Hussman's site and no doubt understand it better than I , but I think he has just recently explained what it is about his strategy that will result in net gains.

If I am wrong here, I guess I can tolerate your publicly correcting me.

I'm not cheerful about how HSGFX has performed recently, but I, in my miniscule wisdom, do not know of a better place to be with regard to gaining some exposure to equities.

hstrx was, as of last weekend, up to 23% precious metals stocks. this is the source of its recent performance.

in general he makes money with alpha. but his staggered strikes should have given him a small but real benefit on a down market. what this means is that ytd his alpha was very negative, indeed! again, this is because of his tech exposure in my opinion.

quoting a friend of mine who is not on itulip:

"macro view: from 2004 to now, SPY's up about 27%, HSGFX about 20%, virtually all dividends, so he's behind SPY about 1.65-1-7% per year, BUT from 2001-2003 he's running ahead 12.5% ahead of SPY per annum; total from 2001, HSGFX up just under 50% total, SPY about 10% -
He speaks of beating SPY over a market cycle, which may now be 2000-2008 - if so, he's done that in spades - problem may be that you and I and others have done better and his current stance doesn't make sense in terms of our own views...."

unless there is something to change my thinking in hussman's weekend post, i plan to cut my exposure from about 26% down to about 15%. i'll either just stay away from equities that much more, or i'll buy a portfolio that makes more sense to me and hedge it with puts.

**quigleydoor** · January 12, 2008, 09:39 PM

Re: re-assessing hussman

Originally posted by jk View Post

my guess is that hussman's losses are strongly concentrated in his tech investments.

The Morningstar holdings report shows this clearly. The top 25 holdings (as of 9/30/07) are listed along with YTD 2008 returns for each holding.

Based on the numbers shown, the 22 biggest positions in the long portfolio are 41% of the portfolio, and together have dropped -8.95% YTD. Since the fund as a whole is down only -2.57% YTD, clearly the hedges are working.

Originally posted by jk View Post

although i think his overall strategy of variably hedging his portfolio is terrific, i now question the construction of his long portfolio. yes, i agree he should be out of financials. i agree with a substantial energy holding, but i wish he were long materials, heavy industrials and construction, and agriculture and out of tech, which i think is a disaster waiting to happen.

My eyes bugged out when I first saw HSGFX was 2.71% RIMM, at a P/E of 103. But then I took a quick look at RIMM's revenue model (I took the opportunity to try out Wikinvest), and liked what I saw: diversified revenue among devices, wireless infrastructure, services, and software licensing; reliable recurring revenue from corporate customers; and good growth in emerging markets. This looks like a good long-term stock. Probably the other concentrated tech positions have a similar story.

John Hussman has been a great stock picker. The performance of the long-only portfolio of HSGFX has performed almost as well as the hedged total portfolio (see his own performance chart). So I don't begrudge him for this blip.

Originally posted by jk View Post

so i am very much looking forward to his weekly post on sunday or monday, to see what he says, but i think i will be reducing my rather huge position in his fund- currently over 26%.

I think you are right to reduce your position. 26% is too much to allocate to a single active manager. As for myself, I have 4% in HSGFX and 1% in HSTRX. Outside of HSGFX, I only have 21% in U.S. equities, mostly through passive index-tracking vehicles.

Originally posted by jk View Post

as in the 90's, i think he's really smart, but i think he's missing something important, and has latched on to the wrong investment themes.

Have you thought about where to reallocate the funds to? On "Consuelo Mack Wealthtrack" last Sunday, James Grant recommended the Wintergreen Fund (WGRNX) run by David Winters, who was sitting right next to him. Grant's endorsement is enough for me to take a closer look. (However, it is down -3.02% YTD so HSGFX is faring better already. But I should stop looking at these short-term NAV twitches. :-))

jk · January 12, 2008, 10:28 PM

Re: re-assessing hussman

Originally posted by quigleydoor View Post

I think you are right to reduce your position. 26% is too much to allocate to a single active manager. As for myself, I have 4% in HSGFX and 1% in HSTRX. Outside of HSGFX, I only have 21% in U.S. equities, mostly through passive index-tracking vehicles.

Have you thought about where to reallocate the funds to? On "Consuelo Mack Wealthtrack" last Sunday, James Grant recommended the Wintergreen Fund (WGRNX) run by David Winters, who was sitting right next to him. Grant's endorsement is enough for me to take a closer look. (However, it is down -3.02% YTD so HSGFX is faring better already. But I should stop looking at these short-term NAV twitches. :-))

my huge allocation to hussman was testament to my respect for his intellect and judgement. i think he's drunk a bit of the kool-aid, however. btw, i'm short rimm because i think that they've stuffed the channel and have a lot of competition from cell phone manufacturers coming on line, plus their main users have been in the financial industry.

re: wgrnx- i bought some shortly after it came out, then sold most when i decided that equity in general was high risk. i plan to go back in when i think it's safe.

jk · January 13, 2008, 09:14 AM

Re: re-assessing hussman

i have always considered hussman's fund as my bogey for relative performance. that is, some funds ask to be compared to the s&p, others to the msci global index, and so on. in my mind, i was always comparing myself to hussman, whose stated goal is outperforming the s&p over full market cycles while significantly reducing risk.

here are the returns- 1st column is my overall return for the year, 2nd is hussman's return,. but of course my overall return included the return from the 30% of my portfolio invested in hsgfx, so the 3rd column is my return on my non-hussman holdings. the 4th column is my performance minus hussman's.

i've lagged him by an average of about 1.67% in 3 years, and i've lead him by an average of 10.67% in the other 3 years under study.

it is worth noting, however, that his returns are more consistant than mine, so it is possible that he is doing better than me on a risk adjusted basis. if that might be the case, my thought was to look at the returns on a leveraged-up holding of hussman. there's no efficient way i can think of to leverage his returns, though, because in 4 of the 6 years his return was less than the cost of a margin loan.

the other caveat is that we're dealing with a sample size of just 6, so the whole damn thing could be random.

year............my return..........hussman's.........without huss.........outperformance

2002...........13.93................14.02......... .......13.89....................-0.13
2003...........28.43................21.08......... .......31.58....................10.50
2004............2.81..................5.16........ .........1.80.....................-3.36
2005...........11.36.................5.71......... ........13.78.....................8.07
2006............2.47..................3.51........ ..........2.02.....................-1.49
2007...........13.59.................4.16......... ........17.63....................13.47

the question for me is whether to abandon my hussman holding, entirely. it has performed a stabilizing function in the portfolio, but perhaps this is more efficiently accomplished by an allocation to tbills. i also go back to the fact that this is just a 6 point sample. he gives me some diversification in that his approach is really different than the approach i've taken in the rest of my portfolio. comments?

**raja** · January 13, 2008, 10:28 AM

Re: re-assessing hussman

Hussman's average for 6 years was 8.94% per year.
Short-term T-Bills averaged about 2.5% per year during that time.

Another consideration is tax. You might be paying 15% with the funds, and ordinary income tax with the T-Bills (??%).

However, if you believe that we've got 10% or higher inflation in our future, why not put your money in short-term T-Bills now, and when the interest rates are high, lock in at 10% or higher for 10 or 30 years as a "stabilizing function" for your portfolio.

**Guest** · January 13, 2008, 12:40 PM

Re: re-assessing hussman

Raja -

What are these T-Bills paying right now? I'm betting you have a negative yield on them right this minute - according to John Williams at Shadowstats (and Bart right here at iTulip maybe will corroborate where the moving average has been trending the past six months). If real inflation is trending at 6%-8% and the money supply is growing at 13%-15%, how can tying your money up in 5% yields be termed protection? At a cursory glance you are, in year one of this plan, very possibly losing 3% a year? Look at the dollar's decline against a basket of other currencies - what is it, maybe 40% in five years?

By the time you arrive at those 13% yields on long term bonds your original capital will have been decimated. You'd then need to spend the next ten years availing yourself of those high yields just to build that capital back up again to it's original inflation adjusted value.

You can adopt a variant of that strategy by placing all that money you'd planned to allocate to short term treasuries, into a basket of foriegn hard currencies instead, maybe with a slightly lower yield, but they are very likely to go up against the US dollar by a lot larger margin than the interest rate differential in the next five years. By allocating 1/4 of your portfolio to precious metals alongside that (or even 1/8th!) you can inoculate that currency portfolio to the devaluation of ALL currencies in the next ten years and this combination would be far and away more robust than the 100% US treasuries allocation.

Jack Crooks also has an excellent and very conservative timing service to move you around various currency ETF's, and you could remain entirely in currencies (not equities, bonds or anything other than currency) and yet get at very least 5% more annual net return by shifting among his recommended currency ETF's than by parking entirely in US bonds. US bonds strategy is to my view the very weakest of all of these options. Counter to what it appears to be (treasuries = ultrasafe) that US treasury only option is going to be a very, very risky play for your serious money. Real rates for treasuries are likely already negative as we speak.

I don't have a link to it, but there are a couple of excellent interviews with both Jim Rogers and Marc Faber, where they both say in effect - if you can only do one thing for the next five to ten years - get out of the dollar. To do this coherently, one cannot be trading in and out of the dollar at every turn. You have to adopt that thesis whole, and take a sensible (large) dollar hedge position outside of the dollar, and sit in it for the duration.

Some people may suggest that in a catastrophic deflation (don't hold your breath) the USD will once again be "king". Deflation, Staglation, Inflation, or any convoluted hybrid of the above may come - but I think there is not a snowball's chance in hell that the USD will embark upon an extended bull market lasting for years, and thus decimate such a dollar hedged position. Faber and Rogers are practically pounding the croquet pin into the ground with a mallet on this idea << get - out - of - the - dollar >>.

**Verrocchio** · January 13, 2008, 02:32 PM

Re: re-assessing hussman

Originally posted by Lukester View Post

Jack Crooks also has an excellent and very conservative timing service to move you around various currency ETF's, and you could remain entirely in currencies (not equities, bonds or anything other than currency) and yet get at very least 5% more annual net return by shifting among his recommended currency ETF's than by parking entirely in US bonds.

The availability of reasonably priced, sound advice is central to a discussion of investing in currencies. Advice from Crooks can be had via the Black Swan Currency Observer and the Black Swan Currency Options Strategist at $1897 and $1667 per annum, respectively. A free Daily Currency Market Commentary is also available. It's possible that the free commentary would be guidance enough for some of us, but the Observer and Strategist are too costly. What sources of reliable advice have iTulipers found?

**Guest** · January 13, 2008, 02:50 PM

Re: re-assessing hussman

Verrocchio -

I certainly was not suggesting Raja venture into currency options, as he discusses very conservative portfolio ideas. The service referred to is World Currency Alert. It's still available on a special offer for $495 for a two year subscription. It's play is zero leverage. Simply allocating funds to various currency ETF's - obtaining the yield on the currency, plus the currency swings, (which Crooks is very, very good at catching). Currency swing profits can in fact be quite large, and he's effectively providing "insurance" that you can move continually into the new rising currency with a high degree of probability using his timing.

If Crooks's timing of currency moves is good enough to be a net profit maker with options, it is about 500% better than adequate to make reliable calls in unleveraged currency ETF's that move in extremely sedate fashion compared to stocks. Thes ETF's of course function without using any leverage at all. If you add timing service keeping you permanently in the strongest currency, they are about as sedate as bonds, but with much less potential downside even than bonds.

This service, combining A) the totally unleveraged nature of currency investments, with B) their very slow rate of change on yields (i.e. the yield won't/ can't "fall out of bed" right after you park $50K into it), combined further with C) Crook's highly experienced over capability in timing non-leveraged currency moves, is all combined, a highly conservative strategy. Given the devaluation risk inherent in US dollar denominated bonds I believe this service is far and away more conservative than being parked in US short term treasuries.

One last note: In years when currency volatility is particularly high, I believe this very conservative service has the potential to literally deliver stock like returns - i.e. annual returns of even 20%. But the nature of the investment vehicle is far and away more conservative and low risk than any equity strategy, and a good deal more conservative than some nation's treasuries also, apparently! (US / UK treasuries in 2008-2009?? NOT!)

http://www.worldcurrencyalert.com/benefits/

**Verrocchio** · January 13, 2008, 03:16 PM

Re: re-assessing hussman

So, World Currency Alert, for $495 for two years?

I'll look into this; and, Raja, you may want to do the same.

Thanks, Lukester!
http://www.worldcurrencyalert.com/