V-SHAPED RECOVERY? HOUSING BOTTOM? HUSSMAN ISN’T BUYING IT.
Two great pieces this weekend from John Hussman and William Hester at Hussman Funds. I would highly encourage readers to take a moment to read both pieces in their entirety. John Hussman’s piece attacks a topic we recently covered – the coming wave of mortgage resets that will create further headwinds for housing. Hester’s piece shows how the leading indicators of the economy are far from justifying the v-shaped recovery theory – a view the ECRI would vehemently disagree with. With large secular risks still at play and valuations stretched Hussman’s funds remain largely hedged as they continue to focus on downside risk.
Although I’ve been very bullish at critical junctures during this rally (including the March 8th low and before each important earnings season) I still agree to a large extent with the secular argument that Hussman and Hester so eloquently elaborate on. We are still confronted with enormous structural problems in the U.S. economy and although money printing can alleviate pressures in the near-term, this has never proven to be a sustainable economic growth strategy. Furthermore, we have directly addressed exactly none of the actual causes of the crisis – our bloated and omnipotent banking sector, the ever experimenting Federal Reserve and regulation.
You can find the Hussman pieces here and here.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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Educative website from the IMF and worth making use when gauging economics forecast by country or country s group
http://www.imf.org/external/pubs/ft/weo/2009/02/weodata/weoselgr.aspx
Having done that,I draw no enthousiasm for :
Investment
Savings growth
GDP growth
Investment growth.
Employment growth.
Modesty obliges my time horizon is set one/two years forward
Cheering and reliable on a longer time frame >>>>>Public debts!
TPC,
Is there any subject that’s relevant in the near-term (next 3-6 months) besides the continued decline of the dollar? Frankly, half the people in the US could be unemployed and I could easily see the dollar declining and financial assets on the rise. Assuming we continue bouncing along the bottom on the economic front Bernanke couldn’t get a damn about the middle class. Collateral damage.
Edna
Edna,
Some things other than the dollar that could shake things up:
- Bloomberg prevailing in its request for foia information and turning up things that undercut political support for further printing / bailouts.
- Bank bonuses provoking a backlash that undercuts political support for further printing.
- Getting within 6 months of projections of a spike in alt-a and option arm defaults, which is the time frame in which a lot of investors start to pay attention to things.
- Release of economic data that look weak sans stimulus.
Add H1N1 into the mix – now that it is widespread. I would think that we will start seeing news reports of school closings and impact to air travel/cruise lines etc…
H1N1 in full swing just at the start of holiday shopping and ~10million unemployed doesn’t make a good economic mix I would think.
http://www.cdc.gov/h1n1flu/updates/us/
I told my banker two years ago, if they try to keep the “good” real estate investor out the recovery, it won’t take place. And that is exactly what they did. First time home buyers has done little to improve the market. It WILL take the input of the seasoned “good” real estate investor buying up these foreclosed homes in order to turn this thing around. But if you ARE an investor…you now can’t get credit. Or your rate is much higher making the deal unprofitable. A seasoned investor knows that by making a rental home purchase 1) price must be right 2) house must be in a good rentable area, ie jobs availibility, etc. 3) they most likely won’t be able to “flip” property 4) they must be able to get enough rent to cover expenses, all of them and still cash flow 5) their own credit worthiness will determine how much they can buy. If the banks would make the rate the same for the seasoned, qualifed investor with good credit and a proven track record for doing rentals, then many of these houses would be removed from the market post haste. But then that would be too easy wouldn’t it?
Real Estate investors won’t buy unless the properties are substantially discounted from the face value of the mortgage or the carry value the bank has used on it’s balance sheet. So they are “discouraging” investors because, as we have seen recently in the banks the FDIC could afford to shut down , the average asset value was 30% lower than what the banks stated. This is a direct result of the Mark-to myth enacted by FASB on April 1, 2009. You might find some banks with proprieties that have been written down prior to the FASB capitulation on mark-to-market but they are looking for cash buyers as all those assets they are carrying at full value are sucking liquidity out.
If we got smart and returned to mark-to-market you could afford to pay cash at the bankruptcy auctions or you might find some smart banker there passing out his card.
Interesting view
http://www.bloomberg.com/apps/news?pid=20603037&sid=ak7b2m.b1v7A
Billionaire Fisher Sees S&P 500 Above 1,300 as Economy Recovers
By Rita Nazareth
Nov. 10 (Bloomberg) — The Standard & Poor’s 500 Index will probably exceed 1,300 as early as February because the economy continues to rebound from the worst recession since the 1930s, billionaire Kenneth Fisher said.
The benchmark index for U.S. stocks has surged 62 percent to 1,093.08 after sinking to a 12-year low in March. It will add up to 25 percent from last week’s close in the next three months, said Fisher, 58, who oversees $35 billion as chairman of Woodside, California-based Fisher Investments Inc.
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Berkshire Says Credit Crisis ‘Abated’ as Profit Jumps (Update3)
Improvements in the creditworthiness of U.S. companies helped triple third-quarter profit, announced by Berkshire in a Nov. 6 filing, and provide a cushion for Buffett as he buys railroad Burlington Northern Santa Fe Corp. Berkshire made the comment on credit markets in the same filing, saying that “interest rates for investment grade issuers relative to government obligations have declined.”