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Rare Interview With John Hussman: Why He Is Bearish Right Now

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July 14, 2010 – Comments (9)

This video is a week old, but extremely worthwhile. I linked to Hussman's WMC that he wrote 2 weeks ago (the one discussed in this video) here: John Hussman: Recession Warning (Unthinkability is Not Evidence) - http://caps.fool.com/Blogs/john-hussman-recession/413455.

WATCH THE VIDEO HERE

9 Comments – Post Your Own

#1) On July 14, 2010 at 12:34 PM, kdakota630 (29.53) wrote:

It appears that more and more people are believing that the market is on its way back down and we're headed into this double-dip recession, but it appears that many people are still torn as to how quickly it will all take place.

One guy I follow who has been particularly accurate said about two weeks ago that for all intents and purposes, this bear market rally is dead, but isn't prepared to begin shorting the market.  I e-mailed him to ask for his reasoning behind that, and he wrote back saying, "I do believe over the coming years the market could go back to the March 2009 lows but I don't think it's going to happen quickly enough to profit handsomely from most leveraged positions. I sooner buy other markets like China, India, Brazil and even Ireland if they fell another 20%+ before the U.S. I guess you can say my attitude is it's better to be a live chicken versus a dead duck until further notice."

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#2) On July 14, 2010 at 12:37 PM, binve (< 20) wrote:

kdakota630 ,

>>It appears that more and more people are believing that the market is on its way back down and we're headed into this double-dip recession, but it appears that many people are still torn as to how quickly it will all take place.

Agreed.

>>I sooner buy other markets like China, India, Brazil and even Ireland if they fell another 20%+ before the U.S. I guess you can say my attitude is it's better to be a live chicken versus a dead duck until further notice.".

LOL! That's a good one, and I daresay makes sense. Thanks man!.

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#3) On July 14, 2010 at 1:02 PM, Griffin416 (99.98) wrote:

Speaking of Hussman. Why is simple math so dang hard for analysts? Hussman says the average trailing p/e on the S&P is 11.5 here: http://www.hussmanfunds.com/wmc/wmc100712.htm . While another analysts says the trailing p/e on the S&P is 19.22 and the median is 17.24 (taking out large abberations in earnings). Here:  http://www.tradersnarrative.com/pe-ratios-in-low-interest-rate-environments-4426.html.

Why can't you get a straight answer from these people, with such differences in opinion, they MUST be screwing with the statistics. When I read articles like these it makes me want to rely solely on the technicals. Death cross + lower lows = sell.

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#4) On July 14, 2010 at 1:11 PM, binve (< 20) wrote:

Griffin416 ,

I hear you man. But if I were to trust anybody, it is Hussman. I have read him for years and he is very rigorous and statisically based in his methods, and he looks at a *very large* data set to come up with his analysis.

>>When I read articles like these it makes me want to rely solely on the technicals. Death cross + lower lows = sell.

Agreed. Thanks!..

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#5) On July 14, 2010 at 5:37 PM, amassafortune (29.45) wrote:

Hussman's comments about not being able to trust analysts' predictions is a constant frustration for investors. Poor earnings predictions are also a key reason that trading is surpassing investing for retail customers these days.

Alcoa's kick-off earnings this quarter are a great example. 0.24 was expected 90-days ago, 0.21 60-days out, 0.17 7-days out, and finally 0.11 which set-up the grand celebration for the penny beat. The -35% downward adjustment in the final week is also a clear indication that analysts are not using independent, arms-length analysis to get their numbers. 

Last fall, when 2010 S&P estimates were in the $73-$79 range, bloggers like binve were pointing out that the market was significantly overpriced based on historical P/E ratios. Rather than bring down the "P" that was making the country optimistic, analysts just jacked up the "E". Today, the $85-$95 S&P earnings estimates are used as a primary reason that a double-dip is unlikely. 

As with AA that slipped from $16 to $10/sh while earnings estimates continued to be propped up, Hussman notes that the market is priced where it was six months ago. This indicates that more and more people are aware of other earnings adjustments that will need to take place, even though news headlines will continue to celebrate a long parade of beats. 

Corporate earnings will continue to be better than the underlying economy would indicate, but good earning are commonly being generated by layoffs, cuts in capital expenditures, underfunding pensions, reduced work weeks, higher productivity of surviving workers, jettisoning workers with higher health needs, etc. The earnings may be pretty good overall, but these results may still not mean a double-dip can be avoided, or that the March 09 lows will not be revisited. Until top-line sales improve, this trend is likely to continue. 

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#6) On July 14, 2010 at 7:24 PM, binve (< 20) wrote:

amassafortune,

Hey man!

>>Hussman's comments about not being able to trust analysts' predictions is a constant frustration for investors. Poor earnings predictions are also a key reason that trading is surpassing investing for retail customers these days.

Exactly. They are a joke. They are inflated / optimistic just like they were in 2000 and 2007.

>>Alcoa's kick-off earnings this quarter are a great example. 0.24 was expected 90-days ago, 0.21 60-days out, 0.17 7-days out, and finally 0.11 which set-up the grand celebration for the penny beat. The -35% downward adjustment in the final week is also a clear indication that analysts are not using independent, arms-length analysis to get their numbers.

LOL! I know man. It was revised down by 50% in 30 months but that move down in the final week was simply ridiculous.

>>Last fall, when 2010 S&P estimates were in the $73-$79 range, bloggers like binve were pointing out that the market was significantly overpriced based on historical P/E ratios. Rather than bring down the "P" that was making the country optimistic, analysts just jacked up the "E". Today, the $85-$95 S&P earnings estimates are used as a primary reason that a double-dip is unlikely.

Thanks man. Yeah I was just tying to call it like I saw it. I underestimated how much "not worse" (I still hesistate to call them good) earnings would be last year, but we are getting into severe over-optimism again.

>>Until top-line sales improve, this trend is likely to continue. 

Exactly. Everything is still driven by either extreme cuts or governement stimulus. There is still not overwhelming organic growth.

Thanks man!..

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#7) On July 15, 2010 at 3:22 AM, Tastylunch (29.26) wrote:

Loves me some Hussman

Let me have some constructive additions for once  to your excellent content binve (sorry I've been so busy of late to do anything of real value)

is the market cheap?

case shiller 10 year P/e says.....

NOPE !

Current P/E: 19.93 +0 (0%)

Mean: 16.37
Median: 15.74
Min: 4.78 (Dec 1920)
Max: 44.20 (Dec 1999)

 source http://www.multpl.com/

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#8) On July 15, 2010 at 3:46 AM, Mstinterestinman (< 20) wrote:

I wouldnt look at the market on a pure P/E basis companies such as Industrials and Financials are no where near their typical profability. The Average PE is about 16 btw the dude saying ten I don't care how famous he is thats what you'll find during a bear market not on average hes full of shit..lol

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#9) On July 15, 2010 at 8:54 AM, binve (< 20) wrote:

Tastylunch,

Hey man! I agree, Hussman is da man. And I love your chart. I have seen a few versions of that around, and I agree the market is not as cheap as people think (it is only "averagely" cheap based on forward earnings estimates). Thanks!

ozzfan1316 ,

>>I wouldnt look at the market on a pure P/E basis 

I don't. And the point of this post is that neither does Hussman. You can see in the video and in the article I linked to that he casts a very wide net when looking at economic indicators (not just valuations).

>>The Average PE is about 16 btw the dude saying ten I don't care how famous he is thats what you'll find during a bear market not on average hes full of shit..lol

Actually all the major bear market bottoms in the last 200 years bottomed with broad market valuations (SPX and Dow) well into single digits. The exception being March 2009... which is why I don't think it is an exception at all and we still have more downside to come. My $0.02..

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