5 POSITIVE AND NEGATIVE INVESTMENT THEMES FROM GARY SHILLING
4 October 2010 by Cullen Roche
65 Comments
Gary Shilling has been one of the few macro economists who has nailed most of the big trends during the Great Recession. His 2008 predictions prior to the market implosion were remarkably accurate. In his latest Insights column Mr. Shilling highlighted 5 favorable and unfavorable trends for an uncertain market:
Favorable:
- Treasury bonds – Treasurys will continue to rally as a safe haven in a sea of trouble, slowing growth and looming deflation.
- The dollar vs the Euro – The eurozone remains in deep trouble and the buck is the world’s safe haven.
- The dollar vs Australian dollar – Australia has become a Chinese colony as the island continent’s minerals are dug up and sent to China.
- Eurodollar futures – This theme depends on the Fed continuing to keep rates flat in the face of an uncertain economy at least through the middle of next year. Big moves in the eurodollar prices are small in absolute terms, so you need the leverage of futures to make meaningful money. Calls on the futures are also available.
- Income-producing stocks – Included are utilities, drugs and telecoms with high, safe and rising dividends. Also, high grade munis, corporates, preferred stocks and master limited partnerships.
Unfavorable:
- U.S. stock market – With the slowing U.S. economy, looming deflation and likely resumption of eurozone woes, stocks in general appear vulnerable.
- Commercial real estate – REIT’s look overblown in view of the continuing commercial real estate woes.
- Banks and other financial institutions – Medium size banks are laden with questionable commercial real estate loans, and large banks are under a cloud with the ongoing eurozone crisis.
- Commodities – Many commodities are priced in dollars, so the greenback’s strength depresses their prices. Also, popular sentiment is moving toward our forecast of slow global growth in the second half of 2010 and beyond. All will reduce demand for commodities as stockpiling in China ends.
- Chinese stocks – Chinese stocks remain questionable as the “stop” phase of her stop-go economic policy reigns.
Source: Gary Shilling
Gary Shilling is also a pseudo intellectual, perma-bear deflationista.
Throughout the last decade, he was advising his subscribers to go long the Dollar and he was advising everyone to short commodities! Needless to say, his devotees are now in the poorhouse.
You can certainly add shilling to mr. prechter’s camp. No doubt, mr. prechter is the king of the deluded deflationist camp but shilling is also a prominent member of this pseudo movement. LOL!!!
You certainly are a vocal bull. Let’s all hope you’re right.
PS,
I hope you will be around to eat crows come Dec 31st when the market is lower than now…We have seen the IT or a few SPX points away from it (1170). Advocating a long position here is just irresponsible.
Here’re some reasons why I disagree with Gary Shilling:
1. A rally in T-bonds ? Perhaps next quarter or next year but IMO the rally is – for the time being – over. And I expect to see interest rates to go higher in the next year. (after first going lower).
2. Income producing stocks ? No, those companies – IMO – will lower their dividends sooner or later, as well.
3. Didn’t Gary Shilling mention gold and gold stocks ? That’s – IMO – the place to be in the coming years. Espcially in a deflationary trend.
4. The loony segment of deflationistas think that in deflation interest rates go one way only: – Down – (An absurd idea -IMO-, just look at Greece).
5. The USD a safe haven for money ? If the USD is such a great place to be then why is the Eur/USD going up ?
Just one thing- you can’t compare Greece and the USA. Different monetary systems. There is no threat of solvency in the USA.
That’s a point where I continue to disagree with TPC.
What’s to disagree about? An entity with monetary sovereignty can never run out of money. We are not Greece which relies on the kindness of strangers to fund ourselves. This is a fact.
I agree. The US can print all the money they need. But the flipside of printing (lots of) money is high(er) inflation, somewhere down the road.
But the US with its chronic Current Account Deficits (every year since the Vietnam war in the 1960s) is very dependent on the kindness of strangers.
TPC is correct but there is another way to explain this theory.
The US can not go broke simply because it still as the capacity to pays its debt with a devaluating currency.
There is no debt just more money. If you held on to that 1960 dollar bill since “The US with its chronic Current Account Deficits (every year since the Vietnam war in the 1960s)” (as you mention above). Well, that dollar is worth about .14 cents.
Since the 30′s deflation as never been an option for the fed. The “official” goal as always been to fight inflation as if it came from Mars.
This is a joke as they are the origin of Inflation, They should change there there name for The Federal Inflation Bank. In reality they regulate inflation. When there is inflation we are forced to produce in order to compensate for the dilution.
I think it is a bit naive to think it will be any different this time.
The US cannot go broke as long as its obligations are denominated in dollars, as they currently are. In this, TPC is absolutely correct. But will our obligations always remain denominated in dollars? This is the fatal flaw in TPC’s argument. Ultimately, money has no inherent value. It is just a piece of paper (or the digital equivalent) with a dead president’s face that is printed by the Government. Inherent value is in goods and the labor required to make those goods. The ultimate trump card of value is those goods that are true necessities – or in other words fuel. Fuel for people (food) and fuel for our machines (oil, gas, coal, uranium). The US is fortunate to be more than self-sufficient in food, but we have to import huge amounts of oil. Peak oil exports has already been passed in 2005, and the supplies are running down. There is no practical alternative to petroleum based vehicle fuels. When the real crunch comes, the oil exporters will be able to increase prices without limit. They will even be able to denominate the price of oil in gold bullion. This will totally screw the USA, and force us to print unlimited amounts of dollars to buy ever scarser gold so we can buy scarcer oil. There is no way out of this. It is called a hyperinflationary collapse.
That all assumes OPEC is willing to kick its largest customer in the teeth. It also assumes that we won’t simply attack Saudi Arabia when push comes to shove. After all, why do you really think we’ve established military bases in all of the surrounding countries?
We’re playing the global game of chess and we’ve thought about the next move. Make no mistake about that.
But the flipside of printing (lots of) money is high(er) inflation, somewhere down the road. Willy2
Why? If the banks leverage about 20-1 then doesn’t that mean the base money supply would have to be increased 20 fold just to prevent deflation if fractional reserve lending was abolished?
So why not bailout the population with new legal tender fiat while at the same time increasing reserve/capital requirements to keep the money supply constant (or slightly growing)? Why can’t we leave that accursed system (FRL) behind? If money is only paper at most then why oh why is it necessary to pyramid on top of it?
We will learn to do money properly or it will kill most of us one day, imo. WWII killed 50-86 million and was caused by the Great Depression that Bernanke admits the Fed caused.
Hello?
The US does not rely on the kindness of foreigners to fund itself?
Mr. Prag Cap, roughly half of US Treasuries are owned by foreigners! So, what are you talking about?
The US very much depends on foreigners to fund itself. One day, when these foreigners stop buying Treasuries, then, your central bank will create trillions of dollars to lend to the US government.
This is when hyperinflation will occur.
By the way, I agree with you that the US is not Greece because unlike Greece, the US can always print dollars and pay back its debt. This is why hyperinflation in the US is much more likely.
Ay, caramba!
I wouldn’t even know where to start with that comment except by saying welcome to the site and stick around for a few months. You’ll pick up on my perspective with time.
In the meantime you may want to check out this link:
http://pragcap.com/mmt-101
Mr. Pragcap,
Your article above contains your views, not facts.
My post above regarding the US debt situation contains facts. Please provide me facts to prove that my view is wrong and your outlook is correct.
Thanks!
Willy,
Your fifth bullet point is nonsense.
You’re merely reflecting the current situation as evidence of this being predicative of future events. Not only that, but you’re looking at the current situation in a very narrow time frame. Let’s have a look at the EUR/USD for the current year instead of just the past couple months; even after this huge September rally price action is still 600 pips (points) below early January highs.
The recent surge in the EUR/USD does not disprove the USD safe haven theory. I think you would need to see major indexes flailing while the EUR rallies over a sustained period of time to justify any statement like that.
Before we all fall in love with the EUR, lets see if it can retrace more than .618 of the previous leg down from the 1.50 area. Then we’ll need to see it can move above the afore mentioned 1.50 area highs. Till then – chill.
I agree here. The market is currently reflecting an overshoot based on very high fears of defaults in Europe. The European economy is at far more risk of downside than the USA in my opinion and deflation will likely persist there. That means the 2010 trend of buying dollar vs EUR will likely continue in the long-run.
I don’t consider neither the Euro nor the USD to be a safe haven currency.
Mike,
Why don’t we bet that the US stock market will be MUCH higher on 31 Dec?
Forget about me eating crow, let’s wager with hard earned cash.
Just for fun, why don’t we bet US$100? If u lose, I’ll donate this amount to a local charity in Hong Kong, otherwise you will do the same. Agreed?
Everyone on this board will be the witness to out bet.
Willy2,
There is no deflation!!!! Stop partying at the wrong deflation avenue my friend, or else like Cinderella, everything will turn into mice!
The consequences of inflation are everywhere! When was the last time you went shopping?
Yes, I know prices are going up but in the CURRENT environment that’s an extra deflationary force. Prices going up does not automatically mean that inflation is in play. Everyone who has pricing power is increasing taxation and prices but those who do that don’t understand that they’re digging their own grave as well.
My word!!! Mr. Willie2, what are you talking about?
‘In the current environment, prices going up is an extra deflationary force’!!!!???
I can’t believe you just said that. Either, you are really clueless or you so love your pseudo deflation story, that you have totally lost touch with reality.
Apologies for being so harsh, but these baseless deflation arguments make my blood boil.
So, rising prices is deflation – right?
So, money supply expansion and an explosion in the US federal debt is deflation – right?
gold at $1,300 per ounce is deflation – right?
Oil above $80 per barrel is deflation – right?
soft commodities at multi-year highs is deflation – right?
grains at record highs is deflation – right?
And my name is Brad Pitt and I am married to Jolie.
LOL!
“married to Jolie.” Now that could inflate any men.
Prices going up in the current environment is indeed an extra deflationary force. because it makes servicing one’s debt more and more difficult.
From 2000 through 2008 the US consumer was able to pay for those higher prioes by going deeper into debt but the consumer isn’t going deeper into debt any more. They mountain of debt is shrinking and that’s highly deflationary.
In an attempt to keep the US economy afloat the FED keeps printing lots of money and depreciating the USD. But that money is now used for speculation in the commodity markets and that’s pushing up prices across the board for commodities. (=price inflation).
Willy 2,
Your arguments are so Keynesian, I don’t even know where to start!
If you believe we are experiencing deflation, than sell ALL your assets and put everything in a US$ time deposit. When the ‘deflation’ is over, you’ll be the richest man in America! Or not…
If deflation is not a threat then maybe you can explain why treasury bonds are outperforming gold in 2010.
Captain America,
Treasuries have been rallying because a buyer with unlimited money (Federal Reserve) has been buying them by the ship loads!!! Go and check the data from the auctions, roughly 50% of newly issued Treasuries are being bought by the primary banks (code name, Federal Reserve).
Put an end to the Fed’s buying and we’ll see where Treasuries trade.
Please, the rally in Treasuries is NOT due to deflation; it is due to the Fed artificially suppressing interest rates by buying bonds.
Hope this helps.
Tough environment to make a buck in. The only attractive investment idea I’ve been able to come up with lately is going long volatility via vxx and calls on vix/vxx.
Don’t worry, the Fed will protect us all.
All the markets are going up – what is so tough about this environment?
With near-zero rates and QE2 around the corner, it does not get easier than this!
Forget Volatility and calls on VIX.
Load up on precious metals, energy, commodities and China.
Especially China, which is super cheap and on the bargain table.
I live in Hong Kong and can tell you that the economy is booming. China bears will be very embarrassed in the future!
Hmm, wasnt the West booming in 2007!?
What’s it like to live in fantasy land?
Do you guys trade the markets or the economy?
As long as you guys invest based on economic ‘news’, you will always be on the wrong side of the major trend.
The news is always the most rosy at market tops and always the most negative around major market bottoms.
Mark my words, when it comes to investing, the most important thing is the monetary backdrop. If interest-rates are at record lows, equities command/deserve a much higher valuation. This is due to the fact that with such low borrowing costs, businesses are able to borrow much more at a negligible rate.
More importantly, with yields on cash so low, bank deposits do not offer much competition to the growing earnings streams and cash flows of businesses. In today’s environment, the earnings yields of companies are much more attractive than the miniscule yield available on cash. This is why equities are rallying and will continue to do so UNTIL the monetary conditions change.
Also, the yield curve is steep and this is bullish.
The economy can go to hell in a hand basket; if you drop rates to zero and create money, ‘risky assets’ will rise. In fact, I will argue that this rising stock market will then turn around and improve the economy. Read Sorors’ reflexivity theory – it is brilliant.
the yield curve has been steep in Japan for 20 years. Explain that one.
No, Japan’s yield curve has been flat for years! Go and do some homework.
Hey you guys don’t make me laugh. US dollar is safe heaven? Look at chart, whatever time frame you pick, daily, weekly, monthly, quarterly, yearly, what makes you think that thing is safe heaven?
It’s a matter of size. The reserve currency is a function of being the largest economy in the world. Any time fears flare up you’ll see high demand for dollars because of this. You can fight this all you want, but it’s a fact of life. It’s the safe haven by definition.
But once rain stops everyone runs away faster than they come in. This is parking lot only because of its capacity.
But you can’t call it safe heaven.
And also, Please don’t tell me USD will be reserve currency forever. Let’s face it, USD is losing reserve currency status although it is not one day event.
Sure, one day it might change, but we’re still 3 times as large as China. People talk about reserve currency status as if it is something that can just disappear. No, it must be earned, and the USA has earned by matter of being enormously productive. Outrageously productive.
In order for that to change another country has to knock us off the pedestal. Will it happen? Almost certainly, but not for many decades.
The USDX going up does not automatically mean that the USD is a safe haven. It merely a reflection of being the USD the senior currency like the GBP was in the 19th century.
You mean when the GBP was the safe haven?
Mr. Prag Cap,
The US Dollar is a safe haven!?
My gosh, what are you smoking?
Thanks to Fed sponsored inflation, the $ has lost 97% of its purchasing power since 1913. Over the past decade alone, the $ Index has lost roughly 40% of its value!
If the $ is a safe haven, then Iraq is the safest place in the world to raise a young family.
PLEASE, take off your deflation coloured/sound money goggles and look at the real world.
All currencies are worthless pieces of junk.
PS: I must point out that if you had followed Gary Shilling’s advice in the early 80′s and bought long term treasuries you would have made over 20 percent a year on your money- that is TWENTY PERCENT PER YEAR FOR THIRTY YEARS. Also, how much has been made in the stock market over the last ten years? I made money in stocks during the last decade only because I owned stocks in companies that paid and increased their dividends each year, like Mr Shilling is recommending. But, I have kept most of my money in U.S Treasuries. Mr. Shilling may be a pseudo intellectual, perma-bear, or he may be Smokey himself, but I won’t disregard his advice. Peter Lynch did something like 20 percent a year for 16 years in the stock market and he is a legend. How does he compare with Gary Shilling?
GLH,
Shilling made one good call thirty years ago!!!! How does it make him a good analyst today?
Go surf the internet and see for yourself how many angry subscribers he has!!! Soooo many people went broke shorting commodities, going ‘long’ the dollar – thanks to shilling’s advice.
The world has a serious shortfall of commodities, china and india are buying like crazy and he is suggesting that investors short commodities.
Ask mr. shilling to study ‘peak oil’. I have spent the last 5 years studying the supply and demand data for oil and can assure you that oil is going much higher.
shilling is wrong about commodities at least for the next 2-3 years. In the next recession, they will collapse again but that isn’t likely for at least 2-3 years.
TPC — kinda hard to know what to play according to this. Going short anything right now is bold move — fighting a trend and picking a top has been a fools game in the past year. No support levels have even been tested yet A bull could make a legit argument that this is just a healthy pause before the next upswing. Currency futures are not really my thing. So what to do? Short copper? Some inverse metal etf? A China bear ETF? Any thoughts?
Akron Beacon Journal : BEARS SAY RECESSION IS POSSIBLE \ …
$2.95 – Beacon Journal – NewsBank – Feb 15, 1995
Gary Shilling, president of A. Gary Shilling & Co. in Springfield, NJ, sees the recession arriving even earlier — perhaps by the middle of the year. …
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CASH MAY BE INVESTORS’ KEY TO KEEPING TIME WITH FED’S ORCHESTRATION
[3 STAR Edition]
Orlando Sentinel – Orlando, Fla.
Author: Dick Marlowe of The Sentinel Staff
Date: Sep 9, 1994
Start Page: B.1
Section: BUSINESS
Text Word Count: 612
Abstract (Document Summary)
A. Gary Shilling expressed an interesting view of the current economic situation recently. Writing in the July 18 issue of Forbes magazine, Shilling – an economic consultant and investment adviser who is president of A. Gary Shilling & Co. – said the money-tightening strategy of the Federal Reserve won’t turn out any different this time than it has before. “The Fed has tightened 13 previous times in the postwar era,” Shilling wrote, “and in 9 of those, it continued to raise rates until a recession resulted.” High interest rates, he explains, are not kind to corporate earning, and “recessions have a way of causing earnings disappointments.”
————–
Some say earnings must fall
Pay-Per-View – San Diego Union – Tribune – ProQuest Archiver – May 30, 1995
Capital goods are booming But they are a small part of the economy Consumers still represent twothirds of it Springfield N.J.based economist A Gary Shilling …
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LAUREN COLEMAN-LOCHNER, Staff Writer
The Record (Bergen County, NJ)
07-12-1996
PROPHET OF DOOM RESOLUTE — N.J. ANALYST WARNED OF RISING DOW JONES
By LAUREN COLEMAN-LOCHNER, Staff Writer
Date: 07-12-1996, Friday
Section: BUSINESS
Edition: All Editions — 3 Star, 2 Star P, 2 Star B, 1 Star Late, 1 Star Early
As the Dow ascended and the world applauded, there was none more
miserly with praise, no bear more bristling, than Gary Shilling, the
Springfield sage who heads Shilling & Co., an economic consulting and
investment firm.
Shilling had been skeptical of the zealous march of the Dow long
before it heaved itself up over the 5,000, …
Read all of this
—————–
Recession in ’95? One economist is saying so
Pay-Per-View – San Diego Union – Tribune – ProQuest Archiver – Jul 12, 1994
Economist A Gary Shilling is all by himself again far out on a limb … The consensus was for economic growth of 2.6 percent Shilling looks for a decline of …
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St. Louis Post-Dispatch : SHORT GAME: THEY HOPE FOR MARKET …
$2.95 – St. Louis Post-Dispatch – NewsBank – Feb 12, 1994
A. Gary Shilling, president of A. Gary Shilling & Co. of Springfield, NJ, with assets of $100 million, believes the market might have peaked last week and …
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The Atlanta Journal and The Atlanta Constitution : ATLANTA BUSINESS: …
Pay-Per-View – Atlanta Journal-Constitution – NewsBank – Apr 17, 1994
More pessimistic is Wall Street analyst A Gary Shilling who thinks were in a bear market that will be like a Chinese water torturea relentless neverending …
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Article: MASTERS OF THE MUTUALS – The Record (Bergen County, NJ) | …
Pay-Per-View – The Record – ProQuest – Dec 7, 1994
A Gary Shilling a noted economist who runs a hedge fund predicted that the bear is about to go on a tearIm short everything in sight he announced …
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Business outlook.
Pay-Per-View – Chicago Tribune – ProQuest Archiver – Oct 16, 1995
… shocks warns economist A Gary Shilling who forecasts thatearnings reports over the next year will almost certainly disappoint investors making the stock …
This is scary. Might be everything P.S. said. We will see.
Shilling, Prechter, Mike Shedlock, Tim Woods (cycle man), Mr. Prag Cap, Hugh Hendry
They are all perma- bears; pseudo intellectual, deflationistas.
Even if inflation bit them in their arse, they will still be calling for deflation
Mr. Prag Cap seems like a nice guy, but the others in the list above are arrogant, foolish and stupid.
Mr. Prechter is the most shameless person I have seen in my life. For over 30 years, he has been calling for deflation and an epic crash. For 30 bloody years!!!!!!!! He has been advocating shorting stocks since 1980 and in 2002, he came out with a book ‘Conquer the crash’. I was dumb enough to read and follow it and it cost me dearly. That is when I researched mr. prechter and realised that he is a shameless, broken clock which never changes its tune.
Sky high prices and an explosion in debt be damned, he believes we are in deflation. I’m surprised that he is still in business.
As far as Hendry is concerned, he is an arrogant twat. He has insulted so many people on live TV, that I have totally lost any respect for him. Anytime someone opposes his view, he attacks them. Instead of rebutting their argument, he starts calling them names! He (with the arrogant smirk on his face) will go down in the history books as one arrogant jerk.
PS:
While I largely agree with you on Prechter, you weaken your argument by blatantly using the same tactics you villify.
“Anytime someone opposes his view, he attacks them. Instead of rebutting their argument, he starts calling them names!”
I counted at least 5 personal attacks, more depending on your POV.
Buck up, do some research, bring facts and even opinions. Those are useful. You’ll find TPC IS a nice guy: occasionally wrong, but seldom graceless in his errancy.
I am happy to have a discussion but if people write crap just to defend their views, then what is the point?
You may see above, I did say that Mr. Prag Cap seems like a nice guy. Also, I openly praise others when I feel they have something intelligent to say.
I’m not perfect, far from it. But, as as investor, I have learnt to keep an open mind, so that I have flexible conviction.
Look. As long as central banks are printing money, I will remain in the inflation camp, thus bullish on risky assets. BUT if the bankstas start following sound monetary policies and the yield curve becomes hostile, I will change my position.
Apologies for hurting anyone, not my intention.
just a few points to share
1. Central banks have been printing money for many years, but the stock market didn’t do well
2. Both housing price and rent are under down pressure, inflation?
3. Japan has zero rate for couple of decades, stocks?
4. Most people are talking about U.S. here, not China. China has hyperinflation U.S. has inflation
I don’t think China will do very well (compared to the last 10 years), but I do agree chinese stocks are cheap today (it’s still gonna grow in a reasonable pace). It’s funny that the Chinese stocks are priced in for major slow down and U.S. stocks are priced in for good growth.
just too funny.
correct typo:
china has hyperinflation doesn’t mean that U.S. has inflation
Asha 101,
The stock market has risen since March 2009 because of the Fed sponsored inflation (QE and record low rates)
Falling asset prices is NOT deflation; it is simply a bear-market. Deflation is defined as a contraction in the supply of money and total debt. That has NOT happened anywhere in the world!
Japan is the exception; not the norm. Japanese companies have been in a two decade bear-market for the following reasons -
a. Bubble valuations when the bubble popped
b. Japanese companies were very heavily leveraged going into the slump and they also got whacked by Asian competition at the worst possible time
c. The Return on equity in Japan is a pathetic 5%
Japan’s lengthy bear-market in assets has NOTHING to do with deflation. If you review data, you will see that Japan’s money-supply, total debt and nominal GDP have continued to grow since 1990!
Every country is inflating its money-supply and debt. This is inflation, not deflation!
M3 in the USA had been contracting for a year until just a few months ago. What are you talking about?
Inflation is an increase in the quantity of money AND debt. The M3 may have been contracting, but federal debt has done a moon shot, so net result is still inflation of the money stock. This is what I am talking about. 100% facts, no BS.
I’ve been reading your other comments, and actually appreciate your POV. I love it when smart investors disagree with TPC, and offer reasonable evidence for their opinions.
Thanks for sharing.
No true offense taken, I just like the site for it’s content and especially it’s generally civil and intelligent commentators. Most other sites that offer similar content are too full of macho bluster and noise in the comments.
I hope you stick around. Feel free to correct me if you think I’m out of line. Trying not to be the old guy yelling “you kids get off my lawn”, but…if TPC is the only one “policing” the comments, I think we fail in our obligations to the community at large. Just as if we relied only on the police to keep our real neighborhoods functioning civilly, we’d have pretty crappy neighborhoods.
Thanks Roger.
I am only trying to explain the reality with facts. No opinions, jargon, conjecture but simple data.
Each time, someone opposes me or questions my view, I respond and challenge their thinking.
And every single time, the deflationists don’t reply.
You know what, I have made many mistakes in my investment career but I have learnt not to fight the tape. Every successful investor has ‘flexible conviction’. You should have faith in your assessment but at some point, if the market does not agree, you have to admit your error and move on.
I know that I will continue to make mistakes forever but I try and view things rationally rather than getting married to one outcome.
MASSIVE MARKET CRASH A `SURE THING,’ WARNS A LONELY …
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S&P 500 ANNUAL TOTAL RETURNS
Year Return
1999 21.04%
1998 28.58%
1997 33.36%
1996 22.96%
1995 37.58%
Deseret News, The (Salt Lake City, UT) – June 12, 1994
NEWSLETTER SAYS STOCKS ARE A BEAR
Hussman Econometrics (34119 W. Twelve Mile Road, Farmington Hills, Mich. 48331), which The Hulbert Financial Digest has called “the most promising newcomer among investment newsletters” after its first three-year performance doubled the market’s return, has turned bearish on stocks. “The market is beginning to display the classic traits generally associated with bull-market tops. The time to buy stocks is in the middle of a recession, not when an expansion…
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A Coupla Bears Tell Why They’re Still Growling
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Analyst unimpressed by Pyxis rival
Pay-Per-View – San Diego Union – Tribune – ProQuest Archiver – Jul 30, 1995
John P. Hussman of the Michigan-based newsletter Hussman Econometrics is not bullish on the stock market now,
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BusinessWeek: May 15, 1995
Adds John P. Hussman, a money manager and investment newsletter writer based in Farmington Hills, Mich.: “There’s a likelihood of slipping into a bear market at any time.”
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S&P’S 500 DIVIDEND YIELD IS 2.66%, LOWEST OF CENTURY
$2.95 – Deseret News – NewsBank – Jun 18, 1995
“The stock market has left itself no room for error,” observes Hussman Econometrics (34119 W. Twelve Mile Road, Farmington Hills, MI 48331). …
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May 5, 1996
STOCKS OFFER LOW-RISK PREMIUM, PAPER SAYS
The latest argument for higher stock prices is that Baby Boomers are saving more and investing it in stocks, notes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, Mich. 48334). “In fact, there’s been no evidence of any significant increase in the U.S. savings rate. The money-flow argument ignores the fact that every buyer’s dollar that enters the market leaves it moments later with a seller. Stocks currently offer the lowest risk-premium in…
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Published on March 26, 1996, The Washington Times{PUBLICATION2}
Market’s total value points to bad times
There have been five times this century when the size of the stock market (total capitalization) relative to the size of the economy (nominal gross domestic product) exceeded 75 percent, as it does today, observes Hussman Econometrics (34119 W. Twelve Mile Road, Farmington Hills, Mich. 48331)
“Each instance coincided with a Standard & Poor’s 500 dividend yield of only 3 percent or less, as is also the case now. Each marked the peak of a major bull market
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Mr. Bear and Mr. Bull
By Mark Hulbert, 02.10.97
Forbes
The bear is John Hussman, editor of Hussman Econometrics, and adjunct professor of economics at the University of Michigan. What sets Hussman apart from the other bears isn’t his focus on the market’s fundamental extreme overvaluation. That’s something he shares with virtually every other bear. What makes Hussman’s bearishness noteworthy is his compelling explanation of the mistakes he made several years ago when he and the others turned prematurely bearish. ;
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Published on July 1, 1997, The Washington Times{PUBLICATION2}
Sky-high prices may warn of stocks’ fall
Historically, when the price-earnings ratio on the Standard & Poor’s 500 has been above 20-to-1, as it has been recently, it has always been because earnings are depressed, observes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, Mich. 48334).
“This is the first time in history that we’ve seen a P/E over 20-to-1 on record earnings. The only two times the P/E exceeded even 19-to-1 on record earnings was in 1964 and 1972. In
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Published on June 3, 1997, The Washington Times{PUBLICATION2}
As dividend yields sink, how far can stocks rise?
“The extremely high returns on stocks over the past 14 years have been the result of a decline from the highest dividend yield in two generations, 6.7 percent in August 1982, to the lowest dividend yield in history, now well below 2 percent,” notes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, Mich. 48334).
“It seems unlikely that the dividend yield can fall much from current levels. So it seems equally unlikely that stocks can rise
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Nov 7, 1997
Stocks have never been this highly valued when earnings were at record levels, notes Hussman Econometrics (34405 W. Twelve Mile Road, Farmington Hills, …
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Economist: U.S. might already be in recession
The San Diego Union – Tribune – San Diego, Calif.
Author: DON BAUDER
Date: Oct 30, 1998
He’s John P. Hussman of Sunrise, Fla.-based Hussman Econometric Advisors, and he says the markets are already giving off clear recessionary signals: The interest rate spread between corporate debt and Treasury debt has widened, indicating growing fear of credit risk, while the spread between long- and short-term Treasury instrument interest rates has narrowed considerably, suggesting the market expects a very sharp growth slowdown.
Combine these so-called “forward-looking” indicators with other similar ones, such as the stock market decline, the drop in consumer confidence and the National Association of Purchasing Managers Index suggesting that manufacturing is contracting, and “the signal says, `Hey, we’re expecting very slow growth, probably recession,’” Hussman says.
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Logically deflation lies straight ahead EXCEPT for the fact that the FED will print and print and print. While ever the US dollar is the World’s reserve currency, they can get away with it.
KGARI,
You are 100% correct. If we didn’t have a fiat-money system and if central bankers were not money printers, deflation would have occurred. No question about it.
BUT we live in a fiat money system where trillions are created on a weekly basis. Under this scenario, deflation is out of the question.
Uh, ever heard of Japan?
Japan, Japan, Japan.
Japanese equities were trading at roughly 50 times earnings in 1989-1990. Japanese companies were leveraged by roughly 400% and their return on equity was still pathetic. Even today, Japanese companies earn only 5% return on equity! This is probably the lowest in the world and this is what explains the bear-market in Japan. For the past two decades, foreigners have not bought Japanese stocks and even Mr. & Mrs. Watanabe themselves have been investing their cash in overseas companies.
So, with no buyer of stocks, how can the NIKKEI rally?
In the US today, the S&p500′s return on equity is roughly 20%, American companies are flush with cash and they have little debt. Plus, valuations are not stretched (considering low interest-rates) and a 10-yr bear-market is already behind us!
What more do you want?
@ PS
Why would you not think that US stocks are not overvalued or overlevered as compared to Japan’s in 1989? Can you prove that the J’s metrics in 1989 looked any different than current US or Chinese metrics?
Anonymous,
Regarding Japan, please see my reply to Captain America. Japanese situation in 1989-90 was different when compared to the US (see my reply above).
As far as Chinese stocks are concerned, the Shanghai Index is currently trading at 18 times reported earnings, the market is down by 55% from its all-time high and debt levels in China are miniscule. China’s household debt to GDP is only 16%, amongst the lowest in the world!!! If there is no debt, how can there be excesses?
China’s bears will be proven wrong; Chinese business owners are making a fortune and stocks are likely to rocket higher. So, load up on Chinese stocks.