Expecting A Recession
In recent months, I've repeatedly noted that while recession risks were gradually increasing, there was not sufficient evidence to expect an imminent economic downturn. Most economists still believe this. On Saturday, the consensus of economists surveyed by Blue Chip Economic Indicators indicated expectations that growth will be sluggish into next year, but that there will be no recession. Unfortunately, the economic consensus has never accurately anticipated a recession. For my part, the outlook has changed. I expect that a U.S. economic recession is immediately ahead.
Although I have never owned Hussman Funds I do read his commentary a lot. I think John P. Hussman, Ph.D. understands risk vs. reward. I would invite you to read more of what he has to say by going back through his weekly commentary.
Mark I own both of Hussmans Fund along with both of the Prudent Bear funds which are the only funds (approx 20% of my paper assets) I hold other then several money market funds which are just where my trading money gets parked.
ReplyDeleteI chose Hussman as I think he is looking out for his investors long term interest and he does use hedges versus a long only buy and hold strategy which I find attractive and this is 401k money and I can't use it for active trading which may be a good thing. LOL
All of the four funds have hit 52 week highs over the last month or so although the Prudent bear income fund has had the best performance out of the four. I think Hussman has some valid thoughts on the FED in which what they do is more physiological for the markets and the fact is that when they cut rates they are actually just following the bond market. I lay the blame on the falling dollar more at the feet of US government spending then the FED.
As goes housing - so goes the economy.
As goes the US so goes the world.
What's good for the US is good for the world.
This is how It has worked in the past and I don't believe this time is any different.
Kevin
Quite interesting, thanks StagMark. I wonder if the employment figures in Dr. Hussman's composite index are straight out of the BLS or if he, as I do, think the Birth-Death model serves only to mask reality? It's only one of his indexes but impaired IMO.
ReplyDeleteKevin,
ReplyDeleteAll of the four funds have hit 52 week highs over the last month or so although the Prudent bear income fund has had the best performance out of the four.
My TIP fund hit its 52 week high on Friday. He's generally liked TIPS although has reduced his exposure moderately recently (as seen at the bottom of this week's commentary). I'm actually still comfortable in the fund but am bracing for a possible short-term pullback. If we do get the recession he expects, I'll be even more comfortable in it.
My data shows the 10 year TIPS real yield has averaged 2.07% since 2003 and is currently about 1.8%. That seems a bit overbought (especially since much of the decline came very recently). However, it hit 1.36% in 2004 so I'm not squirming yet. Further, if inflation picks up and Bernanke doesn't flinch, we might just be seeing negative real returns on many things (like the 10 year non-inflation treasury bond to name but one!).
kwark,
ReplyDeleteHere's a link to the data he uses.
http://www.hussmanfunds.com/html/datapage.htm
He's kind of like me in the sense that he tends to have at least some faith in the government version of the data (which also explains why both of us are willing to own TIPS).
That being said, I do believe the Birth-Death model can seriously mask the turning points.
It seems a bit like extrapolating a car's acceleration in the Indy 500's straightaway without giving too much concern to the upcoming corner. It might be a fine and dandy model on average, but man, when it is wrong, it could be seriously wrong. ;)
kwark,
ReplyDeleteI often have a problem with seasonal adjustments for the same reason.
I grow concerned anytime a black box operation is applied to the data, no matter how valid or noble it may appear to be.
For example, how much did hurricane Katrina get factored into the following year's data (using a black box computer automated seasonal adjustment that didn't understand that Katrinas don't happen every year)?
On the other hand, I sense that we've lost the "seasonal" adjustment that says stocks almost always do well in November, lol.
http://www.benbest.com/business/timing.html
The profitable period is extended to include May & October during bull markets, whereas in bear markets November & April can suffer seriously.
Oh oh.
Mark,
ReplyDeleteI agree on the BLS birth death model missing the turn, I think it currently is overestimating employment just as it underestimated it coming out of the last recession.
Kevin
Keven,
ReplyDeleteI agree on the BLS birth death model missing the turn, I think it currently is overestimating employment just as it underestimated it coming out of the last recession.
This same "problem" is also one the BLS faces when using the owner equivalent rent. The CPI is, in theory, underreported during a housing boom and overreported during a housing bust.
In other words, even if rents do fall during a housing bust, they won't fall nearly as far as housing prices (or perhaps even copper for that matter).
That "feature" of the CPI is what makes me somewhat comfortable in TIPS.