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John Hussman: Yes, This is a Bubble


Parsad
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Mr. Hussman, an economist

 

Ok hold on a second

 

He got his PhD in Economics from Stanford.

I was more making fun of economists there :)

 

But looking at multiples:

http://www.multpl.com/

 

It does not look that bad?

 

It seems to me that we will see a tech boom in the next 20-30 years. Number of people doing research and access to information is at levels never seen before. This is like a exponentially growing colony of bacteria. You have some guy in Mongolia who learned math and physics by himself, and was invited to study in the US, all through the internet. Population is now much larger then 50-100 years ago. And the number of people that is educating themselves is much much greater with more funding access to various kinds of research. I think the next 50 years will make the last 100 look pale in comparison.

 

Basicly science is a numbers game, and the odds of innovation have massively improved over the last 100 years. There is a lot less ignorance, and some curious genius can now educate him (or her) self through the internet, and get in touch with the latest information and other smart people out there.

 

We could do a lot more in terms of improving education though.

 

And it seems this would all be good for the economy?

 

edit:

 

As for Shiller's PE, what about globalization? We now have China and other countries with fast growing middle classes. You did not have that 10 years ago. That could explain Shiller's PE being high. When it comes to regular PE ratio it does not look that high.

http://www.economist.com/node/13063298

Look at graphs.

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Just talking his book, look at his returns!

 

Up until 2009/2010 or so his returns were awesome.

 

From inception to Feb of 2009, a $10,000 investment would have been $20,557 in his fund vs $5801 for the S&P 500. 

 

Granted that was the bottom of the market, but let's look at 2007:

 

His fund Dec 2007: $21,805 vs $11,332.

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Mr. Hussman, an economist

 

Ok hold on a second

 

He got his PhD in Economics from Stanford.

 

And he's been bearish for 5 years, right?

 

Anyone can feel free to correct me here, but I believe he started to put his hedges back on in 2010.

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I like his comments and his reasoning is sound and makes sense.

 

Nevertheless, he has badly underperformed the last 5 years.

 

Fascinating that he manages to hold on to that much money. He certainly runs a great business.

 

;)

 

His AUM has gotten crushed. According to Morningstar, he had $8.7 billion under management...now it's $1.9 billion.

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I sincerely feel bad for him. Something has to be off with his thought process to go this long fighting one of the greatest bull markets in history. Markets just are not that inefficient to be wrong for this long. And his obsession with pinning everything on the Fed is bizarre!! The ECB balance sheet has contracted significantly yet the European market has done fantastic. The BOJ balance sheet has exploded, and the market hasn't budged in a year.

 

Bottom line - he needs help. I was a bear, and I sought help and figured it out. I wish he would do the same. 

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I think I'm just the opposite of you, bmi haha. I was a pretty hardcore bull up until this year or so. I think it could last a bit longer but I've been slowly paring down my equity exposure. Burry and Watsa both looked like they were crazy until they didn't.  I've made an assumption (we'll see if it plays out) that Hussman and Klarman (I follow Klarman more closely) would be right, but that they would be wrong for a while.  I think they'll be proven right eventually. I've started to position my portfolio to reflect that.

 

Bearish camp: Watsa, Burry (at least that's what I gathered based on lower prices (and older interviews), Klarman and, now I think even Buffett and Dalio are getting somewhat concerned. Perhaps all of these guys are wrong, but hey, it's good company to be in!

 

I'm not aware of any elite investors in the bullish camp. Tepper and Cooperman, maybe?

 

Most of my conservative positioning is in retirement accounts where I can't buy individual stocks.

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I think I'm just the opposite of you, bmi haha. I was a pretty hardcore bull up until this year or so. I think it could last a bit longer but I've been slowly paring down my equity exposure. Burry and Watsa both looked like they were crazy until they didn't.  I've made an assumption (we'll see if it plays out) that Hussman and Klarman (I follow Klarman more closely) would be right, but that they would be wrong for a while.  I think they'll be proven right eventually. I've started to position my portfolio to reflect that.

 

Bearish camp: Watsa, Burry (at least that's what I gathered based on lower prices (and older interviews), Klarman and, now I think even Buffett and Dalio are getting somewhat concerned. Perhaps all of these guys are wrong, but hey, it's good company to be in!

 

I'm not aware of any elite investors in the bullish camp. Tepper and Cooperman, maybe?

 

Most of my conservative positioning is in retirement accounts where I can't buy individual stocks.

 

What are you referring to with respect to the Buffett comment?  I can only recall him sticking to the "zone of fair value" type comment with respect to general stock market valuation.   

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Not necessarily saying I'm bullish. Just that I've learned to not simply be a bear based on valuation, which is what all of the bears are. How about....

 

...You only get real big bear markets inside of recessions. As Grantham has recently said, the economy currently looks far younger than what the bears would have you believe. So ya we may get a 10 to 20% decline. But the big 50% decline Hussman needs just to break even? I don't see how that happens with massively easy money floating around (not just low rates - spreads are crazy low) and an expanding economy. Look at carloads growth.

 

All I'm saying is nobody has any effing clue. Not even Buffett. He was bearish in 1960, 14 years before the big crash. Hussman is a fool for not adapting.

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Might i add that out own Parsad was super nervous about the market at 1500 last year....and if I'm not mistaken the great almighty Moore Capital was fully hedged at the beginning of last year saying that he "had never missed a bull market in his career".

 

What if we are in a 1949 to 1968 type of multi year bull??? And we are only 5 years in? I have no clue. Nobody does. So I've concluded - picks stocks and STFU about the market (talking to myself...). 

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One of the thing with permabears is that when they are right, they are hailed as visionaries, but if you look at the whole picture, I bet you'd often see that you'd have been better off buying an index fund and just riding through any crisis than trying to time things following their advice and ending up on the sidelines or hedged or in bullion or whatever, missing years of good performance (and the better you are an investor, the higher your opportunity cost of not spending these years finding good businesses).

 

I prefer the approach of buying things that will do fine in good times as well as in a recession (either they have a good M&A track record and will pick up assets at low valuations, or do buybacks, or their competitors will suffer more than they do so the field will be less crowded, etc... just constructive stuff that will create value for the next up-cycle).

 

That's easier than timing the market, IMO.

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I like his comments and his reasoning is sound and makes sense.

 

Nevertheless, he has badly underperformed the last 5 years.

 

Fascinating that he manages to hold on to that much money. He certainly runs a great business.

 

;)

 

His AUM has gotten crushed. According to Morningstar, he had $8.7 billion under management...now it's $1.9 billion.

 

However, 2b is still a good chunk of money. Especially if you can manage it with a small staff.

;)

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By the way,  were you investing back in 2007?

 

I was paying attention a little bit to the market, but I was just starting out managing my money. I was mostly in a low-cost bond index and cash, with a little in a TSX index, iirc.

 

I remember constantly reading in the Economist about the goldilocks era, and then about some problems with the subprime and banks, but how it'll be contained... until all hell broke loose.

 

Not that I can predict what the market will do, but now does feel different. You can't read two business articles without reading about 2008-2009, and there's frequently people on TV calling for a crash (well, I don't watch financial TV - don't even have cable - but I see the headlines and clips online). I kind of feel like people are happy about the bull market, but they can't really believe in it... Like their heart has been broken before, so now they have this fear of commitment.

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I sincerely feel bad for him. Something has to be off with his thought process to go this long fighting one of the greatest bull markets in history. Markets just are not that inefficient to be wrong for this long. And his obsession with pinning everything on the Fed is bizarre!! The ECB balance sheet has contracted significantly yet the European market has done fantastic. The BOJ balance sheet has exploded, and the market hasn't budged in a year.

 

Bottom line - he needs help. I was a bear, and I sought help and figured it out. I wish he would do the same.

 

Welcome to the party, its been fun.

I am still having a good time but drinking a bit more water to reduce the hangover in the morning.

 

All hell has broken loose, you were our perma bear* . Not sure what to do now.

 

@ Stahleyp - I am positioning my AUS retirement account to be mostly cash. I think the US and Canada will be fine (minor pullbacks).

I think AUS is due for a rough patch. 20 years of no recession has to end at some point.

 

---

 

Hussman will be right* one day. Hell anyone who is bearish 100% of the time is eventually right...

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Sanj, what are your thoughts on that?

 

I look for cheap investments...simple.  And while that is what I have done and continue to do, anyone who suggests that valuations make sense or assets on a broad scale aren't fully-priced is deluding themselves.  As Sam Mitchell said to us once..."...at some point macro matters!" 

 

While investors on a regular basis should ignore macroeconomics, at certain times, ignoring them occurs at one's own peril.  How anyone can tell me that there aren't gigantic market distortions around us, primarily due to weak monetary policy and a complete lack of fiscal restraint, and controllable debt bubbles with little in the way of economic growth to support them, is mind-boggling.

 

I think investors are in a period where they should simply try to do the best they can.  Some have and may continue to prosper because they took leaps of faith in 2013 and 2014.  Some have remained cautious since 2009 and simply never felt they could take the plunge...to their detriment.  And then there are those that did the best they could with the clouds around them and continue to simply dig for ideas as the clouds remain dark!  Cheers! 

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