Sunday, November 29, 2009

Reckless Myopia - Hussman

"Banana Republic", "Disaster", "Reckless", "Unconstitutional Breach" ...... Uh ? When Hussman ( one of the best mangers out there > Performance Hussman 2000-2009 ) is using this kind of words it clearly qualifies for a rant..... Needless to say that i think he is spot on...... Just a few reasons why i´m long term bullish on Gold ( short term it looks a little bit crowded )....Along with Rosenberg, Faber one of my long time favourites......

Wenn ein ansonsten sehr besonnener und überaus erfolgreicher ( siehe Performance Hussman 2000-2009 ) Zeitgenosse wie Hussman zu solch drastischen Worten wie "Bananenrepublik", "Desaster", Verfassungswidrig" usw. greift sollte man aufhorchen..... Und das sind nur einige der gewichtigen Gründe warum ich langfristig bullisch für Gold bin ( kurzfristig sieht es allerdings etwas überhitzt aus ).... Wer meinen Blog etwas länger verfolgt weiß, das ich zu 100% übereinstimme.....

Reckless Myopia

From a long-term perspective, my record is very comfortable. But clearly, I was wrong about the extent to which Wall Street would respond to the ebb-and-flow in the economic data – particularly the obvious and temporary lull in the mortgage reset schedule between March and November 2009 – and drive stocks to the point where they are not only overvalued again, but strikingly dependent on a sustained economic recovery and the achievement and maintenance of record profit margins in the years ahead.

I should have assumed that Wall Street's tendency toward reckless myopia – ingrained over the past decade – would return at the first sign of even temporary stability. The eagerness of investors to chase revailing trends, and their unwillingness to concern themselves with predictable longer-term risks, drove a successive series of speculative advances and crashes during the past decade – the dot-com bubble, the tech bubble, the mortgage bubble, the private-equity bubble, and the commodities bubble. And here we are again.

We face two possible states of the world. One is a world in which our economic problems are largely solved, profits are on the mend, and things will soon be back to normal, except for a lot of unemployed people whose fate is, let's face it, of no concern to Wall Street. The other is a world that has enjoyed a brief intermission prior to a terrific second act in which an even larger share of credit losses will be taken, and in which the range of policy choices will be more restricted because we've already issued more government liabilities than a banana republic, and will steeply debase our currency if we do it again. It is not at all clear that the recent data have removed any uncertainty as to which world we are in.

What I do think is that over the past decade, investors (including people who hold themselves out as investment professionals) have become far more susceptible to reckless myopia than I would have liked to believe. They have become speculators up to the point of disaster.

Frankly, I've come to believe that the markets are no longer reliable or sound discounting mechanisms.

The repeated cycle of bubbles and predictable crashes over the recent decade makes that clear. Rather, investors appear to respond to emerging risks no more than about three months ahead of time.

Worse, far too many analysts and strategists appear to discount the future only in the most pedestrian way, by taking year-ahead earnings estimates at face value, and mindlessly applying some arbitrary and historically inconsistent multiple to them.

Discounting the markets three month ahead of time..... ? This is probably only true when they are sniffing around for the next dose of QE or some kind of bailout, subsidy, stimulus etc ...But to do that you don´t need to be a rocket scientist... Washington & the Fed have a 100 percent track record in bailing out anything.....Unlike in Dubai ....;-) I think here is Hussman way too kind........

Vorwegnehmen ?. Denke das die Vergangenheit bewiesen hat das die Märkte und besonders Wall Street Finest hier keinesfall im Vorwege Probleme kommen sehen.... Die Fähigkeit etwas vorwegzunehmen trifft wohl am ehesten zu, wenn es darum geht den nächsten Bailout usw zu erahnen ( der kommt ja bekanntermaßen bestimmt ).... Hier kommt zwischenzeitlich mal wieder der "alte" höfliche Hussman durch.... ;-)

In part, the market's increasing propensity toward speculation reflects the increasing lack of fiscal and monetary discipline from our leaders. Policy makers who seek quick fixes and could care less about long-term consequences undoubtedly encourage investors to embrace the same value system.

Paul Volcker was the last Fed Chairman to have any sense that discipline and the acceptance of temporary discomfort was good for the nation.

In my estimation, there is still close to an 80% probability (Bayes' Rule) that a second market plunge and economic downturn will unfold during the coming year. This is not certainty, but the evidence that we've observed in the equity market, labor market, and credit markets to-date is simply much more consistent with the recent advance being a component of a more drawn-out and painful deleveraging cycle.

As Gluskin Sheff chief economist David Rosenberg noted last week, “Even if the recession is over, the historical record shows that downturns induced by asset deflation and credit contraction are different than a garden-variety recession induced by Fed tightening and excessive manufacturing inventories since the former typically induce a secular shift in behavior and attitudes towards debt, asset allocation, avings, discretionary spending and homeownership. The latter fades more quickly.

Larger / Vergrößerte Version via VOX EU

> On this topic comes another excellent report ( see Charting The Great World Trade Collapse ) via VOX EU

> Empfehle in diesem Zusammenhang einen Blick auf Charting The Great World Trade Collapse ( ebenfalls von VOX EU ) zu werfen.....

“This is why people didn't figure out that it was the Great Depression until two years after the worst point in the crisis in the 1930s; and why it took decades, not months, quarters or even years, for the complete transition to the next sustainable economic expansion and bull market.

... 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.”

What matters is sustainability, and unfortunately, it is clear that credit continues to collapse.....

Emphatically, the trillions of dollars spent over the past year were not in the interest of protecting bank depositors or the general public. They went to protect bank bondholders.

Instead of taking appropriate losses on those bonds (which financed reckless mortgage lending), those bonds are happily priced near their face value, for the benefit of private individuals, thanks to an equivalent issuance of U.S. Treasury debt. But that's not enough. Outside of a very narrow set of institutions that are subject to compensation limits, just watch how much of the public's money – which benefitted several major investment banks following a very direct route – gets allocated to Wall Street bonuses in the next few weeks.



Guest Post: Dividends Are Still Trending Worse Than The Great Depression ZH

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Blogger jmf said...

Another long time bear/realist has capitulated....

Not many left.....

3:53 AM  
Blogger jmf said...


For the latest week insiders sold $841.9MM worth of stock while buying just $37.7MM. Notable sales include sales from Goldman Sachs executives:

4:10 AM  
Anonymous eh said...

At least he admits it when he's wrong, e.g. about the extent of the rebound/rally this year; that's more than most of those guys do. But he is definitely not alone in being surprised by this rally (which I heard described as 'the most hated rally in history'). In any case, risk management is more important than missing a few opportunities, even a whopper like this, and who could be blamed for being skeptical?

Still a little more technical analysis/momentum trading, and not just fundamentals, might be of use to him.

But people usually stick with what they're emotionally comfortable with.

Grüß dich jmf.

1:03 AM  
Blogger jmf said...

Moin Eh,

i agree. The risk/reward is very unfavourable right now....

I must admit that this is my point since the DAX hit 4800 and the SP 900.....

But watching Gold makes watching this missed opportunity & madness on a daily basis less painfull....;-)

Feels to me like chasing the last 5percent of the move......

Still in Berlin?

8:26 AM  
Blogger jmf said...

Forget PIK / toggle bonds.... ;-)

Bankers Say Deal Is Near to Restructure Rusal’s Debt

Rusal, the world’s largest aluminum producer, which is struggling under $17 billion in debt, is close to an agreement with about 70 banks to restructure its loans on terms considered favorable to the company and its billionaire owner, bankers said on Wednesday

The banks will allow Rusal to operate essentially under a pay-as-you-can agreement, though pegged to aluminum prices, according to terms made public this year. The company will be permitted to roll missed payments into the capital and begin repaying principal only when the global economy recovers, and with it prices for aluminum.

9:49 PM  
Anonymous eh said...

>Still in Berlin?

Ja. Aber ich habe nicht so viel Zeit zu surfen als vorher...leider.

Und es gibt inzwischen wahnsinnig viel Finance Blogs.

3:49 AM  
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