Reasonably Thinking

Hussman pens a gem!

Based on evidence that has always and only been observed during or immediately prior to U.S. recessions, the U.S. economy appears headed into a second leg of an unusually challenging downturn.

http://www.hussmanfunds.com/wmc/wmc100628.htm

This week’s Hussman Commentary is a must read for any serious investor.  It almost reads like a capstone article, covering a multitude of relevant topics, which are well orchestrated into broader arguments.  The take-a-ways for me are the probability of an economic downturn (with a ‘recognition phase’ catalyst) along with continuing increases in credit problems.  These are supplemented with shrewd remarks about Europe, the Fed, and volatility.

http://www.hussmanfunds.com/wmc/wmc100601.htm

This is one of the longer commentary that Hussman has published, and it’s great.

In order to avoid having to restate assets, banks have allowed an increasing gap to develop between the volume of delinquent loans and the volume of loans actually in foreclosure, creating a growing “shadow inventory” of impaired but unmodified and unforeclosed loans…

In short, my impression is that investors are deluding themselves about the solvency of the banking system. People learned in the 1930′s that when you don’t require the reported value of assets to have a clear and tangible link to the value that the assets would have in liquidation, bad things happen.

http://www.hussmanfunds.com/wmc/wmc100412.htm

Hussman’s weekly article is short and sweet.  One really only needs to look at the graphs to get a sense of future mortgage pain… but I definitely recommend reading the article.

http://www.hussmanfunds.com/wmc/wmc100315.htm

…it is an event that has just begun to occur with loans now hitting their resets…

I remain concerned that we could quickly accumulate hundreds of billions of dollars of loan resets in the coming months, and in that case, would expect to see about 40% of those go delinquent…

http://www.hussmanfunds.com/

I haven’t posted a third party article in a while, so Hussman’s weekly commentary is a good place to pick back up.  Hussman presents a bearish view, but he is not a perma-bear.  Rather, he bearish because the prevailing conditions have resulted in negative returns.  Here is the link, followed by some excerpts.

http://www.hussmanfunds.com/wmc/wmc100308.htm

Over the past decade, it has been an uncomfortable lesson to accept that investors can be relied on to behave in ways that are ultimately unsustainable and destructive to their wealth, as long as market internals are temporarily supportive…
Many investment professionals have developed a habit of forming expectations based on nothing more than extrapolation of short-term trends in the data, even when those extrapolations are inconsistent with market history or well-established economic relationships.

An interesting graph from Hussman Econometrics:

“…the ability of companies to increase book value over time has been a critical determinant of long-term earnings growth…”

“…Investors now rely on the renewed attainment of bubble valuations in order to achieve acceptable returns…”

http://www.hussmanfunds.com/

Hussman’s article is a little lengthy, but a good refresher.  Reading his point of view continually strengthens my confidence in the ‘open minded approach’ perspective.  Here are a few highlights:

“The best way to destroy the capitalist system is to debauch the currency.”

Vladimir Lenin, leader of the 1917 Russian Revolution

“My impression is that investors underestimate the risk of assuming that those problems are solved because we are riding a wave of deceptively “costless” government bailouts.”

http://www.hussmanfunds.com/wmc/wmc100104.htm

…I will have 4Q09 Performance data up on the site soon!

Hussman kicks off December with a nice visual display.

http://www.hussmanfunds.com/wmc/wmc091207.htm

“…U.S. national debt will rise by $8.5 trillion over the next three years. Debt rises for a variety of reasons, including bailout costs and fiscal stimulus. But the No. 1 factor is the collapse in tax revenues that inevitably accompanies a deep recession.” (Hussman quotes Rogoff & Reinhart)

References for above:  Hussman via OMB, US Treasury; Trepp

“In my estimation, there is still close to an 80% probability that a second market plunge and economic downturn will unfold during the coming year.”

“…Almost by definition, money given to corporations will show up most quickly as improvements in corporate earnings, and then slightly later, as executive compensation… It is truly mind-numbing that a moment after a temporary surge of trillions of dollars, borrowed and tossed out of a helicopter (though to specific corporations and private beneficiaries), analysts would hail a subsequent improvement in corporate results as evidence of “resilience.””

Hussman’s weekly article is a little lengthier than normal, but lays down some strong economic arguments.  Note:  this one might be a challenge to the novice reader.

http://www.hussmanfunds.com/wmc/wmc091130.htm