Hussman Weekly Market Comment: Not Yet Out of the Woods
Given the data in hand, it's clear that past growth downturns of the same extent have often gone on to become recessions. However, there are a few exceptions where these growth rates dipped below zero and then recovered. If we had good reason to expect positive economic tailwinds, we would be less concerned about the present deterioration. Unfortunately, my impression is that the bulk of the growth that we did observe coming off of the June 2009 economic low was driven by a burst of stimulus spending coupled with a variety of programs to pull economic activity forward. My concern is that these synthetic factors are now trailing off, with little intrinsic economic activity to carry a recovery forward.
Suffice it to say that we're not yet out of the woods.
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Our investment strategy is a long term one. We don't rely on being "right" about individual instances. Rather, we focus on average outcomes, taking greater exposure to risk in conditions that have historically been associated with favorable returns and taking less risk in conditions that have historically been associated with weak returns - on average. The present overall return-to-risk profile is not favorable, on average. But again, despite our present defensive position, we would prefer - hands down - to be wrong about oncoming economic weakness. In our view the market is already fully priced for an economic recovery anyway, so the challenges are steep for investors even without a further downturn.
As I've noted before, risk management is forgiving. During the past decade of rich valuations, and based on our analysis, throughout history, the temporary returns that investors have missed during periods of hostile valuations and overbought conditions have been more than compensated by the avoidance of subsequent - often profound - losses that correct those valuations. But this is a long term, average tendency. We aren't market timers - we are risk managers. For now, conditions continue to stack on the defensive side.
- Hussman Weekly Market Comment: Hovering With An Anvil
In July 2011, just before the market lost nearly 20% (but also the last time it corrected materially), I observed “Like Wile E. Coyote holding an anvil just past the edge of a cliff, here we are, looking down below as if there is much question about...
- Hussman Weekly Market Comment: Rock, Paper, Scissors
It will come as no surprise that market conditions remain of great concern here. As always, but particularly now, it’s important to stress that our defensiveness is a reflection of prevailing, observable evidence and the alignment of our investment...
- Hussman Weekly Market Comment: Unusual Drawdown Risk
Of course, our present concerns are based on a smaller and more negative subset of conditions that we've seen even less frequently - presently featuring not just "overvalued" and "overbought" conditions, but adding overbullish sentiment, modest but...
- Hussman Weekly Market Comment: Economic Measures Continue To Slow
Based on the data that we've observed in recent months, my view remains that a fresh downturn in the economy remains a not only a possibility but a likelihood. Little of the economic improvement we've observed since 2009 appears intrinsic, but...
- Hussman Funds 2010 Annual Report
Present Conditions A year ago, I noted “investors have become hopeful about ‘green shoots’ of economic recovery. However, nearly all of the improvement has reflected enormous doses of debt-financed government spending, and it is questionable that...