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Author: ADrumlinDaisy Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 454760  
Subject: Hussman, Gross & Deuteronomy Date: 2/4/2013 12:35 AM
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For a fire is kindled . . . and shall burn unto the lowest hell, and shall consume the earth with her increase, and set on fire the foundations of the mountains.

Deuteronomy 32:22


Yea verily, and that macroeconomic fire is, according to the usual suspects, too much credit – with all the puffy consequences thereof -- paired with blissful ignorance.

To wit:

Seasons Don’t Fear the Reaper – But Investors Should.

In his current market commentary, which is as usual intelligent and well-argued and should be read in its entirety, John Hussman reiterates his advice that – and I am paraphrasing a bit here – WE ARE ALL DOOMED:

Present market conditions . . . represent a syndrome of overvalued, overbought, overbullish, rising yield conditions that has emerged near the most significant market peaks – and preceded the most severe market declines – in history . . . . Pursuing short-term returns in those environments would have been a mistake, because the initial losses typically came in the form of vertical “air pockets. . . .”

Investors underestimate the risk:

. . . investors unanimously point to the Fed, believing that it will be safe to hold stocks until the instant some signal occurs that inflation is picking up or the Fed is stepping back, and assuming that tens of millions of investors can simultaneously exit stocks at that point, into what would surely be a vacuum of demand.

The situation is like . . . well, it is like one of the worst analogies in the history of commentary:

This is like standing by a window at a party, seeing an oncoming wrecking ball, and reasoning that the prevailing wind will slow the ball down long enough to eat another cupcake and still beat the crowd down the stairs the moment the glass breaks.

Wow! This raises so many questions . . . .

“Eat another cupcake?” Just what kind of parties do economists have, exactly?

And who has a party upstairs?

Not to mention, what leads one to think that the way to explain the idea of a crowded trade to the common man is to liken it to a wrecking ball ruining an upstairs cupcake party? And who thinks that the prevailing wind would slow down a wrecking ball?

I am not sure that Dr. Hussman has a very clear understanding of the common investor.

For example, let us suppose, just for the sake of argument, that a bunch of West Virginia guys are having a party, and one of them – call him Hildy – looks out the window and sees a wrecking ball heading his way. Here is how it would play out in real life:

Hildy: Hey guys, there is a wrecking ball heading toward the window!
Howie: What?
Hildy: There is a wrecking ball heading toward the window!
Bob: Is it Mike Milligan and his steam shovel?
Hildy: No really, look . . .
Jimmy: Whatcha drinking there, Hildy? I think I’ll have some myself!
Hildy: Gee, it sure looks real . . .
Jesse: Here’s to Hildy!!
Hildy: But . . .
Howie: Here, Hildy, catch! [tossing Hildy a Stroh’s long-neck]
Hildy: Thanks, man!

KABOOM!!!

I was going to provide an even worse analogy, just for fun, but I could not come up with one. So, back to Dr. Hussman:

. . . present valuations are consistent with near-zero total returns on the S&P 500 over the coming 5-year period.

To be fair, Dr. Hussman then provides a series of thoughts going through an investor’s mind over time that is really quite good – much better than the cupcake/wrecking ball story. Please go to the original article to read it.

More excerpts:

. . . “what I worry about most is that conservative investors will become impatient with maintaining a defensive position in a dangerous and elevated market - not because investment prospects have materially improved, but simply because short-lived runs of speculative relief seem too enticing to miss.” This is exactly what I see happening.

I doubt that investors who are late to exit this party – when everyone on Planet Earth appears to have the identical exit criteria – will be able to successfully walk away at all. . . . I would strongly encourage investors to allow for the possibility of the stock market losing something on the order of 40% of its value over the completion of the present market cycle.


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

International Diversification.

One of Jovial John Hussman’s acolytes, William “Hurricane” Hester, has recently made a well-researched and somewhat convincing argument that investors in search of international diversification should eschew the standard broad international index-based strategy in favor or a more country-specific strategy. Here are a couple of excerpts, but please read the entire article:

Diversification into international equity markets by US investors has relied on one constant benefit: better portfolio risk attributes. . . . These risk attributes were the result of low correlations and low betas between broad global benchmarks and the US markets.

. . . the beta of international benchmarks relative to the US has been rising . . . . For investors seeking out the proverbial free lunch of international equity diversification – like returns with lower risk – this doesn’t sound like a favorable shift in trends. And it’s not . . . . Over the last couple of years . . . [t]he portfolio risk of a diversified equity portfolio has been higher than a US domestic-focused portfolio.

How should investor’s respond to the changing landscape of international investing? One solution would be to wait out the recent trends in the data . . . .That may be too risky a strategy. . . a more promising solution may be to begin to think about the investment potential and diversification characteristics of individual countries . . . gaining international exposure not through broad benchmarks, but instead through a subset of countries based on individual characteristics.


http://www.hussmanfunds.com/rsi/intldiversification.htm


The Credit Tsunami/Avalanche/Supernova.

In his most recent Investment Outlook, Bill Gross warns of impending trouble and provides fairly concrete investing advice. The article should be read in full, both for context and for more detail. Here are a few excerpts:

Each additional dollar of credit seems to create less and less heat. In the 1980s, it took four dollars of new credit to generate $1 of real GDP. Over the last decade, it has taken $10, and since 2006, $20 to produce the same result. . . . 2% real growth now instead of an historical 3.5% over the past 50 years; likely even less as the future unfolds.

. . . today’s near zero bound interest rates cripple savers and business models previously constructed on the basis of positive real yields and wider margins for loans. Net interest margins at banks compress; liabilities at insurance companies threaten their levered equity; and underfunded pension plans require greater contributions . . .

So our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic – it is running out of energy and time. . . . The countdown begins when investable assets pose too much risk for too little return . . . .


What should investors do in the face of this grim future? Mr. Gross suggests the following (with more details available in the original article):

(1) Position for eventual inflation . . . .
(2) Get used to slower real growth . . . .
(3) Invest in global equities with stable cash flows . . . .
(4) Transition from financial to real assets if possible at the margin . . . .
(5) Be cognizant of property rights and confiscatory policies in all governments . . . ..


http://www.pimco.com/EN/Insights/Pages/Credit-Supernova.aspx...

What do I recommend? Honestly, I cannot see why anyone would care! But for the record I recommend eating wild-caught fish at least five times a week, reading Nero Wolfe novels, and sitting outside late at night every now and then and contemplating the nature of things.

Oh, and on the investing front, do not stretch for yield; boost your balance sheet through frugality rather than risk.

Rich

A Drumlin Daisy
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Author: rubberthinking Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415012 of 454760
Subject: Re: Hussman, Gross & Deuteronomy Date: 2/4/2013 12:54 AM
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do not stretch for yield;

I would if only I could. You dont mean use margin? or do something stupid do you? What yield where?

Dave

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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415041 of 454760
Subject: Re: Hussman, Gross & Deuteronomy Date: 2/4/2013 1:15 PM
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<For a fire is kindled . . . and shall burn unto the lowest hell, and shall consume the earth with her increase, and set on fire the foundations of the mountains.

Deuteronomy 32:22>

I'm unsuccessfully trying to find the verse that describes the people starving and says, "You will offer yourselves as servants but nobody will hire you."

Wendy

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Author: namkato Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415055 of 454760
Subject: Re: Hussman, Gross & Deuteronomy Date: 2/4/2013 4:26 PM
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In his current market commentary, which is as usual intelligent and well-argued and should be read in its entirety, John Hussman reiterates his advice that – and I am paraphrasing a bit here – WE ARE ALL DOOMED:
=============================================

This prediction must delight your communist friends.

"WE WILL BURY YOU!"

-Nikita Khrushchev 1956

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Author: bjchip Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415069 of 454760
Subject: Re: Hussman, Gross & Deuteronomy Date: 2/4/2013 8:07 PM
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Hmmph... it isn't hard for me to discern why I still have you on ignore.

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Author: namkato Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415073 of 454760
Subject: Re: Hussman, Gross & Deuteronomy Date: 2/4/2013 9:40 PM
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Hmmph... it isn't hard for me to discern why I still have you on ignore.
===========================================

You are ignoring the fact that Rich has a history of posting effusive praise for communism, while he gleefully links predictions of doom for the capitalist system. Metarites are getting played like a violin.

Last month his rant included dumping a load of manure on Warren Buffett. Readers should get a clue as to what the real agenda is here.

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Author: bjchip Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415075 of 454760
Subject: Re: Hussman, Gross & Deuteronomy Date: 2/4/2013 10:11 PM
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You're going back on ignore at the end of this message.

His current piece says nothing about "communism". It says a lot about Hussman and Gross and long term risks.

This is the METAR board. Remember? "Pornography for Pessimists". He has a receptive audience as a result, but don't make the mistake of thinking that WE aren't thinking for ourselves.

YOU brought in irrelevant comment about communism.

Apparently you are not happy that Capitalism, at least as practiced these days with Fractional Reserve Fraud providing the capital, is in exactly the sort of trouble that Marx AND Minsky AND Keen expect... reasoning may vary but that expectation of Capitalism (or the USA) degenerating and becoming self-destructive is not exactly new and not limited to the field of economics. Consider how Jefferson and Franklin expected the government of the USA to evolve over time.

Now I am entirely without patience with someone who brings up irrelevancies about the poster of a message without addressing the message itself. It isn't polite and it isn't apt to make anyone think better of you or worse of him... entirely the reverse.

Which is why you ARE on ignore and he is NOT.

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Author: ADrumlinDaisy Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415083 of 454760
Subject: Re: Hussman, Gross & Deuteronomy Date: 2/5/2013 1:42 AM
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I'm unsuccessfully trying to find the verse that describes the people starving and says, "You will offer yourselves as servants but nobody will hire you."

Hi Wendy,

The closest I can come is the following, which perhaps has a similar relevance for those who remain economically disenfranchised following the Great Trial of 2008-2009:

We have mortgaged our lands, vineyards, and houses, that we might buy corn, because of the dearth. There were also that said, We have borrowed money for the king's tribute, and that upon our lands and vineyards. Yet now our flesh is as the flesh of our brethren, our children as their children: and, lo, we bring into bondage our sons and our daughters to be servants, and some of our daughters are brought unto bondage already: neither is it in our power to redeem them; for other men have our lands and vineyards.

Nehemiah 5:3-5

(BTW, it probably goes without saying, but I offer this and my earlier Deuteronomy quotation as literary rather than religious contributions.)

Notwithstanding my somewhat pessimistic contribution to the discussion at the start of this thread, there is an undoubted sense of excitement, even exuberance, permeating discussions of the market and the economy. The Barbies and Kens of CNBC can barely contain themselves; the tide is rising, and it is lifting all boats.

But your post brought to the surface a deep concern. Do you ever wonder if we have tossed some of our weaker shipmates overboard in order to free ourselves from the shoals? Is the rising tide lifting all boats but drowning the unfortunate souls who do not have a place in a boat?

It is so easy for those of us who have the means to recover to tune out those who do not – to think about them less and less, and then, eventually, not at all . . . .

Rich

ADD

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Author: notehound Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415089 of 454760
Subject: Re: Hussman, Gross & Deuteronomy Date: 2/5/2013 4:28 AM
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Do you ever wonder if we have tossed some of our weaker shipmates overboard in order to free ourselves from the shoals? Is the rising tide lifting all boats but drowning the unfortunate souls who do not have a place in a boat?

It is so easy for those of us who have the means to recover to tune out those who do not – to think about them less and less, and then, eventually, not at all . . . .


An important question and a true statement.

Thanks, Rich.

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Author: jwiest Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415104 of 454760
Subject: Re: Hussman, Gross & Deuteronomy Date: 2/5/2013 11:23 AM
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Do you ever wonder if we have tossed some of our weaker shipmates overboard in order to free ourselves from the shoals? Is the rising tide lifting all boats but drowning the unfortunate souls who do not have a place in a boat?

The analogy breaks down. The unfortunate souls don't drown, they turn into barnacles and slow the rest of the boats. The more unfortunate souls we toss, the more barnacles we get.

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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415105 of 454760
Subject: Re: Hussman, Gross & Deuteronomy Date: 2/5/2013 11:52 AM
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Thanks for sharing Nehemiah 5:3-5. (Nehemiah is one of my favorite Biblical books because we were both project managers.) This verse describes a very real situation which occurred during the reign of Ataxerxes when Nehemiah was leading the people of Israel to rebuild Jerusalem's wall (about 444 B.C., which is relatively recent in Jewish history).

http://en.wikipedia.org/wiki/Nehemiah

The verse I was thinking of was Deuteronomy 28:68. This is part of a list of fearsome curses attributed to Moses. (Rabbinical Judaism calculated a lifespan of Moses corresponding to 1391–1271 BCE, roughly a thousand years before Nehemiah.)

The Lord will send you back in ships to Egypt on a journey I said you should never make again. There you will offer yourselves for sale to your enemies as male and female slaves, but no one will buy you.

http://niv.scripturetext.com/deuteronomy/28.htm

Many of the curses in Deuteronomy are very applicable today, including the description of anxiety, longing and dread. Many people who lost their jobs in 2007 and after, ran out of 99 weeks of unemployment insurance, have applied for hundreds of jobs and still cannot find work have lost their homes and the hopes of their families.

<It is so easy for those of us who have the means to recover to tune out those who do not – to think about them less and less, and then, eventually, not at all . . . .>

I continually post updates on long-term unemployment, including U-6 and the civilian participation rate (which reveals how many people are not participating, often because they have given up looking for jobs in despair). If you read METAR, you will find yourself thinking about them because the data will be in front of your eyes. I will continually remind you that the Bureau of Labor Statistics only counts people as unemployed if they are actively seeking jobs, and only counts them in the labor force if they are still participating (although they might choose to participate if good jobs were available).


http://research.stlouisfed.org/fred2/series/UEMPMEAN
http://research.stlouisfed.org/fred2/series/UEMPMED
http://research.stlouisfed.org/fred2/series/U6RATE
http://research.stlouisfed.org/fred2/series/CIVPART

U-6 is Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons = 14.4%

The Civilian Labor Force Participation Rate suddenly dropped from 66% to its current 63.6% during and after the financial crisis. Some people may have retired due to age, but many "retired" or became "disabled" who would probably have kept working if good jobs were available. Because of this, I usually add about 2% or so to U-6 to determine the real unemployment/ underemployment rate.

<But your post brought to the surface a deep concern. Do you ever wonder if we have tossed some of our weaker shipmates overboard in order to free ourselves from the shoals? Is the rising tide lifting all boats but drowning the unfortunate souls who do not have a place in a boat? >

I always wonder about them. Now I see that you do, too.


Wendy

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