John Hussman wrote an interesting article for his fundholders this week, dealing with his investing strategy, as well as his outlook. He seems very bearish, although he isn't certain of any particular outcome.
So again, the 900 area on the S&P 500 has been both a buy level and a sell level for us, depending on the context of market action and economic fundamentals. The same will probably be true of other levels on the S&P 500 except for the most extreme over- and undervalued possibilities. It is not possible to identify where we would be buyers and where we would be sellers. Context matters.
What about the March low? Given the recent advance, shouldn't investors treat that as an “absolute” buy level now? While it may sound absurd, it is not at all clear to me that the March low was the final low of the current cycle. Yes, it might have been (and we are willing to accept some amount of market exposure if our measures of internals improve), but I believe that investors should not rule out even the 500 level on the S&P 500 as a plausible outcome over the coming 18 months. If you study the fundamentals of this economy – particularly the debt burdens, the narrow margin by which many debtors are above water, and the adjustable rate reset schedule – there is far more to be concerned about than might be gleaned from sentiment surveys like consumer confidence or even the ISM numbers.
Moreover, there is a far weaker prospect for a return to 2007-like profit margins than investors seem to recognize. Economic expansions are paced not by major growth in consumption (which tends to be fairly smooth even during economic downturns), but instead by gross investment in capital goods, technology and housing, as well as debt-financed durables such as autos. Yet our policy makers have aggressively crowded out private investment through this bailout policy, which allocates good capital to the worst stewards, and they have done virtually nothing to abate the housing downturn. Add deleveraging pressure to that mix, and an absence of opportunity for mortgage equity withdrawals (which fed GDP growth during the last expansion), and we have an economy that is likely to produce a very stagnant recovery even if one has begun – of which I am also skeptical.
I'm also very cautious and really haven't done anything in a while. I missed out on the huge gains in the last few months but, then again, I missed out on the huge losses earlier this year as well (the market is basically back near where it started the year.) Tags: John Hussman