Hussman Calls Out Buffett

[writser]

I'd say cynicism is an excellent trait for a value investor. 8)

 

Just saying 1) his track record is abysmal and 2) he charges quite a bit of money for his terrible performance. He might be very smart but he doesn't look like a good fund manager to me. But if you like this guy then by all means invest with him and/or read his weekly commentary.

[AzCactus]

I'd say cynicism is an excellent trait for a value investor. 8)

 

Just saying 1) his track record is abysmal and 2) he charges quite a bit of money for his terrible performance. He might be very smart but he doesn't look like a good fund manager to me. But if you like this guy then by all means invest with him and/or read his weekly commentary.

 

At least this part in bold is free. 

[Parsad]

Part of the problem is that if you are a macro-nut, and most assets are over-inflated in an artificially induced low interest rate environment, then you presume that there is nothing to buy, you hedge in the other direction and spout your rhetoric.  Truth is, there is always something to buy, but you moderate the risk in your portfolio in case "THE" macro-event occurs. 

 

Like I said previously, while we are getting cautious with our older holdings and have tapered down, we just loaded up on something at 7-8x earnings, strong cash flows, no debt and a solid business in an area getting hammered.  How can you not execute on that idea regardless of your macro-views.

 

Cheers! 

[rkbabang]

Part of the problem is that if you are a macro-nut, and most assets are over-inflated in an artificially induced low interest rate environment, then you presume that there is nothing to buy, you hedge in the other direction and spout your rhetoric.  Truth is, there is always something to buy, but you moderate the risk in your portfolio in case "THE" macro-event occurs. 

 

Like I said previously, while we are getting cautious with our older holdings and have tapered down, we just loaded up on something at 7-8x earnings, strong cash flows, no debt and a solid business in an area getting hammered.  How can you not execute on that idea regardless of your macro-views.

 

Cheers! 

 

 

I understand being a macro nut where when the market is high, you are bearish, and when the market is low you are bullish.  But what I don't understand is these pera-bears who are always bearish.  This guy can't even bring himself to be positive after a crash (i.e. 2000, 2007).  If the market crashes this year, he will make money this year, then lose money again for the next decade.

 

[Tim Eriksen]

https://www.hussmanfunds.com/wmc/wmc170306.htm

Meanwhile, the valuation of the median component of the S&P 500 is already far beyond the median valuations observed at the peaks of 2000, 2007 and prior market cycles, while our estimate for 10-12 year returns on a conventional 60/30/10 mix of stocks, bonds, and T-bills fell to a record low last week, making this the most broadly overvalued moment in market history.

 

 

Am I the only one who thinks this is an idiotic analysis?  It is playing on fears instead of credible analysis.  In 2000 certain industries were absurdly high (internet, telecom, and some other mega caps) so the indexes were overvalued but that had nothing to do with the median stock valuation.  There were hundreds of dirt cheap "old economy" stocks in 2000.  2007 was different but the crash was not about over valuation but a largely unforeseen housing crash that damaged everything else.   

[Travis Wiedower]

rkbabang,

 

Honestly, being a perma-bear probably isn't a terrible strategy for attracting assets. I'm amazed how many Americans think we are days away from the apocalypse. All those people eat up what Hussman is selling. Although most of these people that I've met also believe the stock market is rigged so who knows.

[Peregrine]

https://www.hussmanfunds.com/wmc/wmc170306.htm

Meanwhile, the valuation of the median component of the S&P 500 is already far beyond the median valuations observed at the peaks of 2000, 2007 and prior market cycles, while our estimate for 10-12 year returns on a conventional 60/30/10 mix of stocks, bonds, and T-bills fell to a record low last week, making this the most broadly overvalued moment in market history.

 

 

Am I the only one who thinks this is an idiotic analysis?  It is playing on fears instead of credible analysis.  In 2000 certain industries were absurdly high (internet, telecom, and some other mega caps) so the indexes were overvalued but that had nothing to do with the median stock valuation.  There were hundreds of dirt cheap "old economy" stocks in 2000.  2007 was different but the crash was not about over valuation but a largely unforeseen housing crash that damaged everything else. 

 

No, you're not wrong. Using means may diffuse some of the extremes better, but it doesn't do it entirely either.

[rkbabang]

rkbabang,

 

Honestly, being a perma-bear probably isn't a terrible strategy for attracting assets. I'm amazed how many Americans think we are days away from the apocalypse. All those people eat up what Hussman is selling. Although most of these people that I've met also believe the stock market is rigged so who knows.

 

Good point. It makes a better sales tactic than investment strategy.  Have you asked any of the people who believe the stock market is rigged "Rigged by who?".  If someone was rigging the stock market they would be the richest people on Earth, otherwise they are doing a piss poor job of rigging it.  So that means it must be people like Buffett, Gates, and Bezos.

 

 

EDIT:  People tend to not understand things that demonstrate emergent behavior, such as network effects, prices in markets, nature, etc.  This is why they postulate/support socialism, conspiracies, religious intelligent design, etc.  This is just how people explain things which they don't understand to themselves.  "Someone must have created it." or "Someone must be in control of it."

[Liberty]

https://www.hussmanfunds.com/wmc/wmc170306.htm

Meanwhile, the valuation of the median component of the S&P 500 is already far beyond the median valuations observed at the peaks of 2000, 2007 and prior market cycles, while our estimate for 10-12 year returns on a conventional 60/30/10 mix of stocks, bonds, and T-bills fell to a record low last week, making this the most broadly overvalued moment in market history.

 

 

Am I the only one who thinks this is an idiotic analysis?  It is playing on fears instead of credible analysis.  In 2000 certain industries were absurdly high (internet, telecom, and some other mega caps) so the indexes were overvalued but that had nothing to do with the median stock valuation.  There were hundreds of dirt cheap "old economy" stocks in 2000.  2007 was different but the crash was not about over valuation but a largely unforeseen housing crash that damaged everything else. 

 

One of his metric is also based on revenues, which over long periods overlooks how the economy's composition has changed to include industries that have structurally higher margins (ie. software).

[DooDiligence]

 

People tend to not understand things that demonstrate emergent behavior, such as network effects, prices in markets, nature, etc.  This is why they postulate/support socialism, conspiracies, religious intelligent design, etc.  This is just how people explain things which they don't understand to themselves.  "Someone must have created it." or "Someone must be in control of it."

 

"Let there be light"

 

Did a God do that?

 

No; Thomas Edison did that...

[sculpin]

"For reasons I have never understood, people like to hear that the world is going to hell," historian Deirdre N. McCloskey told the New York Times this week.

 

It's hard to argue. Despite the record of things getting better for most people most of the time, pessimism isn't just more common than optimism, it also sounds smarter. It's intellectually captivating, and paid more attention to than the optimist who is often viewed as an oblivious sucker.....

 

https://www.fool.com/investing/general/2016/01/21/why-does-pessimism-sound-so-smart.aspx

[james22]

You know he argues he's *not* a permabear, yes?

 

The reality is that my reputation as a “permabear” is entirely an artifact of two specific elements since the 2009 low, but that miscasting may not become completely clear until we observe a material retreat in valuations coupled with an early improvement in market internals.

 

http://www.hussmanfunds.com/wmc/wmc140929.htm

 

Contrary to my inadvertent mischaracterization as a “permabear”, I’ve responded to that opportunity by adopting a constructive outlook after every bear market loss in three decades as a professional investor.

 

http://www.hussmanfunds.com/wmc/wmc160502.htm

 

A quick note on my reputation as a "permabear." The most recent cycle required us to seriously contemplate Depression-era outcomes, and that presented us with significant challenges. I still believe it would have been reckless to ignore Depression-era data as irrelevant, and I also believe that investors invite ruin if they pursue approaches that are not robust to that data (or worse, restrict their attention to data that primarily includes the bubble period since the mid-1990’s).

 

http://www.hussmanfunds.com/wmc/wmc130107.htm

 

Reminiscences of a misidentified permabear

 

http://www.hussmanfunds.com/wmc/wmc140324.htm

 

In recent years, I've gained the reputation of a "perma-bear." The reality is that I'm quite a reluctant bear, in that I would greatly prefer market conditions and prospective returns to be different from what they are. There's no question that conditions and evidence will change...

 

http://www.hussmanfunds.com/wmc/wmc130204.htm

 

When we shift our outlook over the completion of the current market cycle and begin encouraging a constructive or even leveraged stance, those who’ve incorrectly inferred that I’m some sort of “permabear” may become bewildered, or even believe that I’ve abandoned my investment discipline. The permabear label may be satisfying in a sort of “kick him when he’s down” kind of way, but it doesn’t explain the success prior to 2009.

 

http://www.hussmanfunds.com/wmc/wmc150713.htm

 

People often like the idea of being part of an exclusive club, sometimes the more exclusive the better. As Groucho Marx put it, “I’d never join a club that would have me as a member.” With the percentage of bearish investment advisors recently plunging to just 14%, investment bears are certainly a rather exclusive group, mostly representing advisors who are considered “permabears.”

 

What’s odd is how little affinity I feel with members of that group. Though I seem to be one of the better-identified members, those who actually understand our narrative in recent years should recognize that I stumbled into this clubhouse quite unintentionally.

 

The fact is that I’ve become constructive or aggressively bullish after each bear market retreat in the past quarter century. The main difficulty began with my 2009 insistence on stress-testing our methods against Depression-era data, which cut short our late-2008 turn to the constructive side (see Why Warren Buffett is Right and Why Nobody Cares). I continue to view that decision as a fiduciary necessity (as 2009-like valuations were followed, in the Depression, by another two-thirds loss in the market), but it was unfortunately timed.

 

...

 

There is a problem with both permabears (among whom I feel decidedly misclassified) and permabulls (who would never call themselves that, preferring instead to extol the virtues of buy-and-hold, but who rarely advise investors to consider their investment horizon and risk tolerance, or to temper their expectations about future returns when valuations are elevated).

 

http://www.hussmanfunds.com/wmc/wmc150406.htm

 

Despite my reputation in recent years as a “permabear,” I’ve actually had quite a variable relationship with equity risk across three decades in the financial markets, and that relationship has always depended on market and economic conditions. It’s difficult to judge stocks as “good” or “bad” investments without reference to valuations and other factors.

 

For example, after the 1990 bear market, I had a reputation as a “lonely raging bull” and advocated a leveraged stance in equities for years, based on a combination of reasonable valuation and strong market internals.

 

http://www.hussmanfunds.com/wmc/wmc140908.htm

 

Etc, etc.

 

Instead:

 

Our investment discipline remains focused on accepting market risk in proportion to the return that we expect to be associated with that risk, on average.

 

But carry on.

[jobyts]

Very little discussion here on the content of the article, most of the posts are on his high fees, track record, his failure as a money manager, merits/demerits of being a permabear,  etc.

 

There’s no question that interest rates are relevant to the fair valuation of stocks. After all, a security is nothing but a claim to some future stream of cash flows that will be delivered into the hands of investors over time. The higher the price an investor pays for a given stream of future cash flows, the lower the long-term return the investor can expect to earn as those cash flows are received. Conversely, the lower the long-term return an investor can tolerate, the higher the price they will agree to pay for that stream of future cash flows. If interest rates are low, it’s not unreasonable to expect that investors would accept a lower expected future return on stocks. If rates are high, it’s not unreasonable to expect that investors would demand a higher expected future return on stocks.

 

This logic seems to be reasonable. Hussman probably underestimated the power of the market to accept a lower expected future return on stocks.  I also think interest rate has an impact on the future cash flows. With a lower interest rate, companies could borrow money cheap, and use it to fuel future growth and future cash flows. Hussman probably missed this aspect as well.

[Ballinvarosig Investors]

Hussman put out another piece of interesting commentary this week. I know most people here think that he's an idiot, but I think at very least he's worth listening to.

 

https://www.hussmanfunds.com/wmc/wmc170522.htm

The lesson to be learned was not that QE or zero interest rates are omnipotent in supporting stock prices. The lesson was not that valuations are irrelevant, or that “this time is different” in ways that investors cannot comprehend. The lesson was not that low interest rates make stocks “cheap” at any price. Rather, the lesson was that in the presence of zero interest rates, yield-seeking speculation can persist even in the face of obscene valuations and recklessly overextended conditions. So while one can become neutral, one has to defer a hard-negative market outlook until the uniformity of market internals explicitly deteriorates (signaling a shift toward increasing risk-aversion among investors).

Basically, he seems to be saying that as long as rates continue to remain low, yield hungry investors will ignore fundamentals (which still matter) and this can drive markets higher.

 

From a full-cycle perspective, I expect that the entire market gain since 2014 will be wiped out rather easily, as a prelude to far deeper market losses.

So when rates rise, the markets are going to take a beating. This is a natural enough assumption, especially on the highly speculative, interest rate sensitive end of the market (things like REIT's that have tiny yields and tiny borrowing costs).

 

Before we continue, be sure to understand the actual lesson from my own difficulty during the advancing half-cycle since 2009. The lesson is that in the face of quantitative easing and zero interest rates, even persistent overvalued, overbought, overbullish syndromes are not enough to warrant a hard-negative market outlook; one has to wait for extreme valuations to be joined by deterioration in the uniformity of market internals.

Basically, he says I was right all along, but made the mistake of standing in front of the steam roller.

 

There's much more in the letter itself that models the future outcomes that you guys can go through yourselves. None of it suggests the market can realistically go higher from these levels based on fundamentals.

[Sunrider]

Didn't his tool for forecasting 10 year returns get debunked by some blog (philosophical economics?) by showing that it just so happens that in a key period the errors offset but that there was no good structural reaosn why that should be so?

C.