re-assessing hussman

[cobben]

Re: re-assessing hussman

what i really want is hussman's timing coupled to an itulip long portfolio. where do i sign up for that?

Exactly, you just have to do it yourself.

I've followed Hussman for many years, he has some great general advice, and I especially like his timing system for gold.

But he has missed entirely protecting himself from the $US devaluation @ c.a. 10%/year, even though he writes a lot about it, which is a very big no-no from my European perspective. Go figure . . . so I never did se any reason to invest in his funds.

If you really want to be in equities via mutual funds (I don't currently), you could look at TIGAX, a good international growth fund.

[raja]

Re: re-assessing hussman

. . . . 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.

I didn't say or suggest 100% allocation in US Treasuries.

jk was asking for opinions on the aspect of his portfolio allocated to "stabilization", and he wondered about Treasuries for that part.

All the same, thank you for your well-intentioned advice.
Actually, I'm in a combo of Treasuries, PM, currency options, currency ETFs, and some other things.

I agree that Treasury bills are losing money now -- but they are also very low risk for catastrophic loss of principal. How long it remains a losing strategy depends entirely on how long interest rates remain low. Do you have a prediction on that?

I'm guessing Fed rates are going to drop fast during the reflation, but will soon reach a point where the Fed will be forced to raise interest rates on T-bills in order to get investors to invest, and get $ to cover the current account deficit. How long that will take, I don't know. I'd be very interested in other's opinions . . . .

[jk]

Re: re-assessing hussman

re currencies and faber- at the moment faber says DON'T short the dollar. he sees an intermediate term dollar rally as a likely accompaniment to an equity market downturn.

[jk]

Re: re-assessing hussman

some of hussman's comments this weekend

…..presently, technology and consumer discretionary (e.g. retail) stocks reflect among the best valuations in the market.

[snip]

The returns of the S&P 500 in recent years have been disproportionately attributable to energy, basic materials, capital goods, and other companies with poor stability in earnings and balance sheets. We've held some of these (particularly oil companies), but due to the unpredictability of their long-term cash flows, their valuations have a large speculative and commodity-driven component. Despite the excitement about growth from China and other “BRIC” countries, I've been averse to placing a large portion of shareholder assets at risk in companies that strike me as cyclical and commodity plays. I don't understand, for example, how investors believe that fertilizer stocks are worth 50-60 times their already elevated earnings. But that also means that I've missed the boat on these and similar stocks.

[snip]


Meanwhile, since I am not willing to invest a major portion of shareholder assets in materials, industrial cyclicals and commodity plays, true believers in these sectors will be best served making those investments elsewhere. With a few exceptions (which we are willing to hold), many of the stocks in these sectors that can be valued on the basis of probable future cash flows appear significantly overvalued because of an optimistic view that the world economy is somehow “decoupled” from the United States. Others are simply impossible to value without forming pointed expectations about the future long-term path of oil, nickel, potash and other commodity prices. We have had good success trading precious metals shares over the years, but because large share transactions can have a significant price impact, these are largely confined to the Strategic Total Return Fund.

I suppose that we could start a “Bandwagon Fund” to invest in the industrial cyclicals and overvalued momentum stocks that we stubbornly refuse to buy for shareholders who value financial stability, but it's evident that such a fund would be competing in a crowded field, and it's doubtful that the long-term returns would be acceptable.

To some extent, the exuberance about basic materials, fertilizer and the like is reminiscent of the dot-com boom. At that time, it was very clear that the internet itself would grow very rapidly. The problem was that investors equated growth in that industry with expected growth of profits for every company participating in it. But unless there is something particularly special and defensible about a company's products, growth in an industry generally also implies the emergence of competitors and the flattening of profit margins. The same, I think, is likely to be true for companies now embraced by investors because of recent demand from industrializing BRIC countries. Moreover, a century of economic experience suggests that major countries intertwined by trade do not “decouple.” My impression is that in the coming quarters, the word “decoupling” will be increasingly replaced by the phrase “synchronous global recession.”

[snip]

I also recognize that my refusal to invest in stocks having poor stability in earnings and balance sheets has left shareholders starved for returns in recent years.

i don't like tech and retail/consumer discretionary. this emphasis seems to contradict his own prediction of a recession.

i also am bothered by his wariness re commodity plays. i do think it's too late now, but i'm looking forward to buying those after a sell-off, whereas it sounds like he doesn't want them under any circumstances.

i'm reducing my position, although that means going from a huge position [26%] to a large one [15%] for now.

[raja]

Re: re-assessing hussman

i also am bothered by his wariness re commodity plays. i do think it's too late now, but i'm looking forward to buying those after a sell-off, whereas it sounds like he doesn't want them under any circumstances.

IMHO, the pushes/pulls regards commodities are:

Price UP --
1) Fiat money becomes worth less, so people look to "tangibles" to invest in.
2) Long-term depletion vs. increased demand

Price DOWN --
1) A recession/depression creates demand destruction.
2) Overvaluation (according to Hussman)

My conclusion is that in the long-term commodities will go up, so I too am waiting for a substantial sell-off in the short-term in order to buy. Hopefully, there will be a lot of discussion here in the future as to when it's the right time to buy . . . . .

[Verrocchio]

Re: re-assessing hussman

I'm in a combo of Treasuries, PM, currency options, currency ETFs, and some other things.

Raja, your previous comments indicate that you're a sophisticated investor. If I would have reflected on that for an instant, I wouldn't have made the suggestion that I did. You seem to have the combo that I'm slowly (alas) building.

I'm guessing Fed rates are going to drop fast during the reflation, but will soon reach a point where the Fed will be forced to raise interest rates on T-bills in order to get investors to invest, and get $ to cover the current account deficit.

This is what must keep the Fedsters awake at night: How to avoid taking the interest rate so low that the big boys don't bother to show up at the auction but low enough to juice the economy again.

[raja]

Re: re-assessing hussman

Raja, your previous comments indicate that you're a sophisticated investor.

Neither sophisticated . . . nor experienced.

I was lucky enough to have stumbled upon the iTulip site a year ago and have been learning what to do from the more experienced members.

[quigleydoor]

Re: re-assessing hussman

i don't like tech and retail/consumer discretionary. this emphasis seems to contradict his own prediction of a recession.

i also am bothered by his wariness re commodity plays. i do think it's too late now, but i'm looking forward to buying those after a sell-off, whereas it sounds like he doesn't want them under any circumstances.

i'm reducing my position, although that means going from a huge position [26%] to a large one [15%] for now.

Sounds like a good move to me. I appreciate Hussman's steadfastness. He is definitely oriented toward his benchmark, and trusts his own method of milking alpha, having proven it to himself. Still, diversification is always better than faith. As Jim Grant recently said, do not confuse opinion with destiny.

As for how to evaluate and allocate HSGFX within a portfolio: I have always classified this fund as a member of the "high alpha, low beta" asset class, separate from all others. In other words, I don't see it as similar to other U.S. equity investments, because Hussman can adjust the beta at his discretion.

Until recently I've considered this to be the only worthwhile vehicle in the "high alpha, low beta" asset class. But yesterday I read about the Vanguard Market Neutral Fund (VMNFX). This seems to be the first reasonably priced competitor to HSGFX in the "low beta" arena. However the "high alpha" has yet to make itself apparent.

Regarding the use of T-bills or foreign currencies for diversification: I'm not familiar with Crooks' service, but am generally dubious of systems which require the customer to respond to signals from the analyst. Seems like you are exposed to all kinds of operational risks this way. Plus you have to do a lot of busywork. Furthermore there is opportunity for the analyst to time his own trades ahead of his customers, taking advantage of the market dynamics that his own signals will trigger (though this seems less significant in the huge volume of the currency markets).

What people seem to be looking for is currency exposure without the duration exposure of an international bond fund (i.e. believing global bond interest rates will rise, and bond values fall). One vehicle I have been eyeing is PowerShares DB G10 Currency Harvest Fund (DBV). It applies a very simple method of shorting the three major currencies with the lowest interest rates, and longing the three with the highest rates. (These are short-term interest rates, which do not have the duration risk associated with long-term bonds.) I have not bought this one myself, since I haven't been convinced that the long-term bond rates are going to rise. Instead I'm holding foreign sovereign bonds and emerging market bonds denominated in local currencies (both are privately managed vehicles).

[jk]

Re: re-assessing hussman

Sounds like a good move to me. I appreciate Hussman's steadfastness. He is definitely oriented toward his benchmark, and trusts his own method of milking alpha, having proven it to himself. Still, diversification is always better than faith. As Jim Grant recently said, do not confuse opinion with destiny.

As for how to evaluate and allocate HSGFX within a portfolio: I have always classified this fund as a member of the "high alpha, low beta" asset class, separate from all others. In other words, I don't see it as similar to other U.S. equity investments, because Hussman can adjust the beta at his discretion.

Until recently I've considered this to be the only worthwhile vehicle in the "high alpha, low beta" asset class. But yesterday I read about the Vanguard Market Neutral Fund (VMNFX). This seems to be the first reasonably priced competitor to HSGFX in the "low beta" arena. However the "high alpha" has yet to make itself apparent.

in a similar way, i classify hussman as a "strategic fund," not an equity fund per se. other strategic funds might include arbitrage oriented funds like the merger fund, as well as the market neutral funds. i've had positions in a couple of market neutral funds over the years, but have never been impressed. another fund i consider strategic is afbix- a fund which is short [via cds] junk bonds. of the whole group, i think hussman has been the class act, but i think his methodology and limitation to u.s. markets are limiting his perspective. i've brought my holding down to 5%.

What people seem to be looking for is currency exposure without the duration exposure of an international bond fund (i.e. believing global bond interest rates will rise, and bond values fall). One vehicle I have been eyeing is PowerShares DB G10 Currency Harvest Fund (DBV). It applies a very simple method of shorting the three major currencies with the lowest interest rates, and longing the three with the highest rates. (These are short-term interest rates, which do not have the duration risk associated with long-term bonds.) I have not bought this one myself, since I haven't been convinced that the long-term bond rates are going to rise. Instead I'm holding foreign sovereign bonds and emerging market bonds denominated in local currencies (both are privately managed vehicles).

i'm wary of dbv- you're going to long the australian and new zealand dollars and short yen and swiss francs. on a carry trade unwind you'll be killed.

there are a lot of foreign bond funds. pimco also has the local developing markets fund which gives em bond market exposure in local currencies.