Monday, June 08, 2009

My Thoughts at this Juncture

Another of the investment personas whose work I like to read is John Hussman, Ph.D., president of the Hussman Investment Trust and manager of Hussman Funds.

As I was reading one of Mr. Hussman's recent weekly commentaries (linked below), it occurred to me that the couple of paragraphs I was reading (also below) could exactly sum up my own concerns with the, uh, recent "deep sigh of relief" which it appears the world is currently expressing.

Stock markets up; commodities prices up; interest rates up; risk-averse investments down. All these are things you'd expect to see from investors when a formerly free-falling economy has managed to grab some sort of foothold.

Hussman Funds: Anything But Academic (2009-06-01)

And here's the section which expresses my own thoughts far better than I could ever do myself:

Meanwhile, the debate about the inflationary implications of the bailout continues again, this bailout is not really a defense of the global financial system, as much as it is a defense of bank bondholders against any loss whatsoever, quickly orchestrated and sold to a confused public as the only option, when it is nothing of the sort.

...Presently, however, the debate about the long-term economic fallout from this defense of bank bondholders is anything but academic. I recognize that I have been on a virtual rant about it in recent months, but the reason is that it is literally the most important fiscal and bureaucratic event that we are likely to observe in our lifetimes, and is very possibly the precursor to enormous future economic difficulties. You simply cannot have an economy lend out trillions of dollars in bad debt, and then make the lenders whole with public funds (while still facing a massive second wave of probable mortgage defaults) without destructive repercussions. There is very little chance, in my view, that the current downturn is over. [Emphasis mine.] We have enjoyed a nice reprieve if over a trillion dollars in redistribution could not accomplish even a reprieve, it would be a surprise. It's clear that investors are hopeful that we can simply return to rich valuations, debt-financed economic expansion, and abnormal profit margins based on excessive leverage. From my perspective, this hope is as thin as those that we observed at the peak of the internet bubble, the housing bubble, and the profit margin peak of 2007.

Yes. That's EXACTLY the way I'm seeing things. Not that it matters, of course, because I'm no macroeconomic genius.

Just what my gut's telling me...

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— Posted by Michael @ 9:02 AM


Ok then ... so now what?

Do we just all buy gold?

I mean, the "gloom and doom" predictions never end with any actionable information that can be used to defend against the predicted doom.

The Hussman letter contains the same tired "advice" that you always get from these types: "this could happen, but if this happens, then something else could happen ... expect everything and anything to trade in a wide range."

Gee, now he can't be wrong, can he?


Anonymous Anonymous
, at 11:11 AM, June 08, 2009  

I'm not sure that everything needs to be "actionable" other than to prepare your own financial house for the repercussions that are coming. It makes me smile grimly when I hear about the economy "turning around" - I mean really, does no one think that dumping that much government money into the system is going to be a problem???!! By the end of this year, we are planning to pay off our car loan and then we will be debt free (we don't have a mortgage, either). We will also have over 43 months of living expenses in cash.


Okay. Here's your actionable info:

Buy food, ammo, guns. Oh yeah -- and a Honda full of silver.

(I'm kidding.)

(Or am I?)

Consider: Any pundit who comes out and tells me what I have to be buying/selling in order to profit is, most likely, talking his book.

No, I'm not cynical or anything. :)

As a rule, I'm very skeptical of the "actionable information" you seem to so deeply crave.


Amy wrote:

By the end of this year ... we will also have over 43 months of living expenses in cash.

'Course by then, it'll be worth only 9 months of living expenses. But who's counting? :)


Holy misunderstood comments, Batman!

I don't "deeply crave" actionable information. Good grief!

My point is simply that these "doom and gloom" releases are a dime a dozen these days, and they all have three things in common:

1) Massive use of weasel terms to cover every possible situation that may result in the "doom and gloom" not materializing. "Hey, it didn't happen?! .. well, yeah, I covered that possibility right here. Aren't I smart?".

2) Total lack of verifiable claims, so that we can't go back at a later date see if the prognostication was accurate to any concretely verifiable extent.

3) And, yes, no words on what financial recourse one should take should the predicted "Financial Armageddon" materialize. Oh, yeah, I forgot ... buy gold!

The point is, I can't get to my long term financial goals if I scare myself into gold or cash or "food and ammo" every time some "guru" comes out with another "end of the financial world" prediction. It just can't happen. If one want's to portray that as burying their head in the sand, then fine ... but if you have a sensible asset allocation plan that you are comfortable in sticking with through good times and bad, and you aren't taking more risk than is necessary to reach your goals, then stuff like this "Hussman letter" is worthless.

In other words, it appears I can safely stack the Hussman letter with all the other "doom and gloom" releases from financial gurus, in the pile of "financial porn" that is useless to me in reaching my financial goals.

Anonymous Anonymous
, at 11:35 AM, June 10, 2009  

We in Malaysia are enjoying high growth and high inflation, I do not understand all this complaining. We have to thank China for our strong growth as our economy was going down until March 2009 and China rescued us by buying our commodities. Currently there is strong job market, 2 jobs for every worker, we have to import in foreign labour to do jobs that locals do not want to do ! We have high inflation, an example is a local dessert called "cendol" selling for $1.20 in local currency a month ago, is now selling for $ 1.80 in local currency. Thats a hefty increase, so don't complain, enjoy the boom ! After all if we needed money we just job hop onto a higher salary, the World economy is wonderful and there are plenty of jobs ! Don't be lazy go get a job !

Anonymous Anonymous
, at 1:56 AM, June 15, 2009  
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