Uh Oh

From John Hussman this week.


  1. Hussman seemed especially negative this week. I don’t know how much he influences the market, but along with the Morgan Stanley call yesterday, we were toast regardless of any issues re: the automakers, I think.

  2. I get what Hussman is saying about the banks, but, from an accounting standpoint, I don’t get why he’s changing “shareholder equity.” It’s not affected. And, for that matter, I believe it’s impossible for it to be a negative number. But then again, he probably knows a lot more about accounting than me.

  3. Using WaMu as a shining example of how to manage the failure of a bank is flawed. In that case the FDIC sold deposits & all the assets to JPM for NOTHING, leaving holding company bondholders very little and, suprisingly bank bondholders with nothing. It is no coincidence that no bank has issued bonds (that aren’t FDIC guaranteed) since then. Any plan that involves the government assigning a value to assets where they stand to lose nothing puts the recovery of credit markets further away.

  4. I don’t see too many holes in Hussman’s assessment. What am I missing?

  5. Roger,
    Hopefully this is ok to post as I thought your readers would be interested in today’s comments by Roubini. The following is an excerpt from his blog at http://www.rgemonitor.com/blog/roubini/256216/there_may_eventually_be_light_at_the_end_of_the_tunnelbut_not_as_soon_and_fast_as_the_bullish_consensus_makes_it_cnbc_squawk_box_interview

    “In the CNBC interview I also pointed out that the stock market has predicted six out of the last zero economic recovery: for the last 18 months we have had six bear market rally and at the beginning of each one of these sucker’s rallies the delusional perma-bulls repeated that this was the beginning of a bull market rally. And for six times these perma-bulls were totally wrong as the bear market rally fizzled and new lows were reached. And for six times I correctly pointed out that these were bear market rallies; but such perma-bulls have no shame in showing up over and over again on CNBC for the last two years and talking their books and being proven wrong over and over again. As I have never been a “perma-bear” in spite of the Dr. Doom nickname I will be the first one to call for the bottom of this severe recession and the bottom of the bear market when I see sustained evidence of robust and consistent economic recovery. I see the latest rally as another bear market rally as over the next few months news will be worse than expected by the consensus: macro news, earnings news, financial news, corporate default news, financial firms insolvency news, etc. Look how wobbly the stock market was yesterday when the expected news that the Big Three are in big trouble led to a 3-4% market fall. Do you listen to Tim Geithner who says that some banks need “large amounts of assistance” and who is now pushing – like Bernanke – for fast track Congressional approval of a law that will allow to takeover systemically important financial institutions and bank holding companies? This market recovery has still very shaky legs and it will until the US and global economic recovery does occur and is more robust and sustained.”

    “The global economic contraction is still very severe: in the Eurozone and Japan there is no evidence of “green shoots” or positive second derivatives; and in the US and China such evidence is still very very weak. So investors and markets are way ahead of actual improvements in economic data. And the idea that stock prices are forward looking and bottom out six to nine months before the end of a recession is incorrect. First, you already had six bear market rallies and stock prices predicted six out of the last zero economic recoveries. Second, in 2001 a short and shallow 8 months recession was over by November but stock prices kept on falling for another 16 months until March of 2003 as the recovery was shallow, as job losses continued until 2003, as deflationary forces controlled pricing power of firms and limited the recovery of earnings, as corporate defaults spiked all the way to 13% of outstanding junk bonds. This time around the recession will be at least 24 months – three times as long and five times deeper in terms of GDP contraction – than the one in 2001. This time the deflationary forces are global, not just in the US and Japan as you got a severe global recession; thus pricing power of the corporate sector and earnings recovery will be weak with such sharp global deflationary pressures. This time you have the worst financial crisis and banking crisis since the Great Depression while in 2001 there was no banking crisis. This time you got the worst housing recession since the Great Depression with home prices still bound to fall another 15-20% for a cumulative fall of 40-45%. This time corporate default rates on junk bonds are predicted by Moody’s to peak at 20%, not the13% of the previous recession. Thus, the idea that a weak US and global recovery with massive deflationary pressures and a severe financial crisis and massive corporate defaults will lead to a robust recovery of earnings and a sharp persistent bull market rally in equities is totally far-fetched.”

  6. Paul Farrell from Marketwatch says the Roubini cannot be first to call the turn in equities because stocks turn before the economy does and as an economist he will be looking at the economy not the stock market.

    I’m not sure how Farrell knows what Roubini will be looking at to assess equities but I thought i’d add this to the Roubini commentary left.

  7. I wonder if anybody has analyzed teh refinance data to understand how the reset data will change with all the refinancinf.


  8. I enjoyed your piece on TheStreet.com regarding QAI. I went ahead and took a 1% position in it just to keep my eye on the ball.


  9. Paul Farrell not withstanding, Roubini will be right until he’s wrong. And, at the point where Roubini becomes “wrong,” there will be plenty of time to hop onto the train.


  10. my understanding is that stocks turn 4-6 months before the end of a recession. Economists that I read (and that includes many) seem to think we are in recession the rest of 2009, MINIMUM. Also re: Hussman, he seems to think the bank package is awful and doomed to failure, as does Jim Rogers and Paul Krugman. If the bailout is n.g. and the economy is in the toilet, where does that leave us?? I don’t pretend to be able to predict where the stock market goes in the short term, but it “don’t look good”. People might also want to check out PIMCO’s commentary today, along the same lines…..

  11. Very interesting graph.

    Those of us that have been buying very selective real estate are wise to make haste – slowly. Returns (NOI plus tax benefits) of upwards 30% on rental real estate purchased since early 2008 have worked for me. Accumulating and appropriately divesting through 1031 exchanges rental real estate since the late 1970s as a part of my total portfolio has paid handsome returns.

    The speculators and re-financed real estate being used as ersatz ATM machines by the gullible have presented myself and others with spectacular buying opportunities.
    As with securities, one must be very selective in this endeavor.
    And be especially careful about the 1031 exchange programs of property for tax deferred benefits – some, such as LandAmerica, have gone chapter 11.



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