John Hussman: Decidedly Speculative Week on 12/14/2009
12/14/2009 0 comments
John Hussman's weekly comment on 12/14/2009: Any virtue of stocks here is decidedly speculative. Stocks are overvalued to a level from which uninspiring returns have always followed. That fact is true regardless of whether or not the economy is in a sustainable recovery. [url=http://hussman.net/wmc/wmc091214.htm]More detailed here. [/url]Hussman has been negative since September this year. Recently, however, he has adopted a slight speculative stance on US stock market through call option exposure. Based on his commentary and our estimate [url=http://www.validfi.com/LTISystem/jsp/fundcenter/AATrend.action?symbol=HSGFX&chart=true]here[/url], the stock exposure beta of Hussman Strategic Growth Fund HSGFX is less than 10%. The following are some key points from his above commentary.- S&P historical return: Using Barsky-Delong model, to achieve annual real return of 4.2%, the S&P would need to be at 810. Or putting it the other way, Hussman stated that "the conclusion is not that stocks must decline immediately, but rather, that long-term total returns for the S&P 500 are likely to be less than 4.2% after inflation." "Alternatively, on the assumption that future growth rates match what we've observed over the past two decades and indeed over most of the past century, an expected long-term total return of 10% for the S&P 500 (what investors generally carry in their heads as the “typical” long-term return on stocks) would currently be consistent with an index level of 672".
- “Second wave” concerns begin to appear: Hussman has been warning that the second wave of housing credit crunching (the mortgage reset) is approaching the peak at this moment. He quoted Meredith Whitney's interview on CNBC which was very negative on the outlook of 2010: “which is so disturbing on so many levels to have so many Americans be kicked out of the financial system, and the consequence both political and economic of that is a real issue – you can't get around. It's never happened before in this country or in the modern economy. The biggest trend in 2010 will be seeing who gets kicked out of the banking system.”
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