Today I have been reading lots of comments on a market bottom. Each time I started to compose a reply to say it is a waste of time, but I couldn’t find the right words. I wasn’t going to bother linking to John Hussman’s weekly market comment anymore, but I was gobsmacked when I just read his comments this week. He had no problem finding the words I was after.
“With the S&P 500 down nearly 40% from last year’s highs, and now trading modestly above 10 times last year’s peak …

In the short term I’m not sure where our current path leads us. However, in the long term stocks are currently cheap and should provide excellent returns. Plus a free copy of Margin of Safety.

With the S&P 500 trading below 1100, the U.S. stock market is now in the upper range of what I consider to be reasonable valuations. Stocks are certainly not “cheap” or undervalued overall, but they are no longer priced to deliver unacceptably poor long-term returns. I have no strong belief that stocks have reached a bottom.
Ditto for my sentiments. However as per my heavy investment today I do have a strong conviction that we are at or near a short term low.
Hussman provides an update on his projections for 10-year …

You Can’t Rescue the Financial System If You Can’t Read a Balance Sheet
This is a bad idea.
However the final legislation is written, the Troubled Assets Relief Program (TARP) being rushed through Congress will evidently be built around its single worst provision, which is that the Treasury will have authority to purchase distressed mortgage securities from U.S. financials.
… Buffett’s investment may reflect confidence in Goldman, particularly with a government backstop on whatever questionable assets it does own, but if anything, it suggests that the government should have gone the same …

Similarly, market bottoms are created because investors stop looking for a bottom, and extrapolate ongoing bad news. If you remember the lows of 1982, or 1990-1991, or 2002, you’ll recall that in each instance, the question among investors wasn’t whether the economy would recover in one quarter versus two quarters. The question was how the economy could recover at any point in the foreseeable future. Investors give up hope at bottoms.
Have you given up?
nah, me either. That should concern anyone on margin.

In 2006, the president of the Federal Reserve Bank of St. Louis noted “Everyone knows that a policy of bailouts will increase their number.” This week, Congress is being asked to hastily consider a monstrous bailout plan on a scale nearly equivalent to the existing balance sheet of the Federal Reserve. Read the rest of Hussman’s Open Letter to the U.S. Congress Regarding the Current Financial Crisis.

John Hussman discusses Lehman and how “Only the Stock and Bond Holders Should Expect Losses (Not Customers)”. Read the full weekly market comment here.
It’s important to recognize that the timing of the stress at Lehman is not a coincidence independent of the Fannie and Freddie bailout. Rather, the U.S. government essentially sent an information signal that highly leveraged financial institutions were insolvent. Next to Bear Stearns, Lehman had the highest gross leverage multiple on the street (the continuing problem is that several others are quite close). Last week, Lehman reported …

John Hussman is sticking to the story of recession and market not pricing that in. Read the full story here.
Great graph of the unemployment rate mapped against history with start of recession drawn in a T-8 months.
“we can expect the unemployment rate to move substantially higher over the coming 6-8 months.”
Hussman’s take on Fannie and Freddie bailout, his rates reset graph and thoughts, like this;
the Market Climate for stocks remained characterized by unfavorable valuations and unfavorable market action, holding the Strategic Growth Fund to a fully hedged investment stance. The …

Credit Risk Spreading Beyond Financials
Read full commentary at the Hussman site
Hussman believes markets are trading under assumption that US has dodged a recession. He thinks this assumption is based on lagging indicators which do not provide a current picture. He remains concerned by market participants complacency as shown by the low volatility in the options market.

More on this topic

(What's this?)

Inspired by Another Era

(Financial Armageddon, 8/25/08)

The Coming Depression

(Skeptical CPA, 12/24/08)

Recession Trumping Brand Loyalty

(naked capitalism, 11/5/08)

Read more on

U.S. Economic Cycles,
Historical Volatility,
Volatility Index
at Wikinvest

Last week I wrote about my ten favourite fund managers letters. Writing about those letters made me realise how reliant I have become on RSS feeds and email. One of my favorites from that list don’t offer an RSS or email option. Consequently a month can fly past before I remember to check the site.
Well no more I say! To ensure I read the invaluable Hussman Funds Weekly Market Comment and to provide it via RSS feed and hopefully via email, I will link John P Hussman’s weekly comments here.
This …