Excerpt from the Hussman Funds' Weekly Market Comment (11/9/09):

“RealtyTrac today released its Q3 2009 Metropolitan Foreclosure Market Report, which shows that cities in California, Florida, and Nevada accounted for the 10 highest foreclosure rates in the third quarter among metro areas with a population of 200,000 or more. But five of those Top 10 metro areas reported decreasing foreclosure activity from the third quarter of 2008, while many other metro areas with Top 50 foreclosure rates reported sharp increases in foreclosure activity.”

Excerpt from the Hussman Funds' Weekly Market Comment (11/2/09):

This week, I want to continue the analysis of “convexity,” and its implications for how we should approach uncertainty in what seems likely to remain a very tenuous investment environment.

Excerpt from the Hussman Funds' Weekly Market Comment (10/26/09):

Last week, I received several notes quoting the same analyst who suggested that the majority of Alt-A and Option-ARM loans have already been modified, that associated losses have already been taken, and that the “leading indicators” of foreclosure have improved. All of these assertions are fabrication. Indeed, Richard Posner recently highlighted a study by the Federal Reserve (also cited in the Economist), which found that in a very large sample of residential mortgages, only 3 percent of seriously delinquent borrowers received a modification of their mortgage "that reduced their monthly payments in the year after they got into trouble." Only 8 percent of those borrowers received any kind of modification. Meanwhile, it is beyond reason to believe that homeowners would voluntarily modify Option-ARMs before the reset date, when those mortgages currently allow them to arbitrarily choose their payments or pay interest only until that date arrives. According to Fitch, nearly 90% of of Option-ARMs have yet to reset, and of those, about 94% of them have used the minimum monthly payments to allow the loans to “negatively amortize.” This does not seem very supportive of the idea that the problem is behind us.

Excerpt from the Hussman Funds' Weekly Market Comment (10/19/09):

In reviewing the status of the market late last week, the condition of the data was something of an anomaly in that regard. On the valuation front, stocks are presently overvalued, but to levels that we've observed at least several times in history. The anomaly relates to market action, where we can no longer find a single historical instance where stocks were more overbought on the combination of short- and intermediate-term measures we respond to most strongly. Indeed, only one instance comes close, which is November 28, 1980.

Excerpt from the Hussman Funds' Weekly Market Comment (10/11/09):

It is important that we don't place so much emphasis on “average outcomes” that we ignore the facts about particular instances. We still have to look carefully at reality to make sure that we aren't assuming away particular features that are important.

Excerpt from the Hussman Funds' Weekly Market Comment (10/05/09):

Four weeks ago, I noted that if indeed the economy is in recovery, we have already entered the “show me” phase. The jobs report was dismal on that front, with even overtime hours and temporary workers declining. Those are the first measures that should advance, well before we can expect any turn in headline employment. The unemployment rate met expectations at 9.8%, but only because 571,000 workers left the labor force, dropping out of the calculation entirely.

Excerpt from the Hussman Funds' Weekly Market Comment (9/21809):

If one seeks analysis about the recent financial crisis, and what most probably lies ahead, it would be wise to place particular weight on the views of economists who saw it coming (and ideally those who provided careful analysis rather than hyperbole). I've cited a paper by Reinhart and Rogoff above, which was published by the National Bureau of Economic Research in January of 2008. At a speech at the Princeton Club last week, economist Carmen Reinhart reiterated that by propping up unhealthy banks, the U.S. is unwittingly committing the same mistakes as the Japanese did in their decade-long stagnation, saying, “These are not zombie loans. They're just non-performing. We're speaking Japanese without knowing it.”

Excerpt from the Hussman Funds' Weekly Market Comment (9/21/09):

My discomfort about strenuously overbought and moderately overvalued conditions overlaps with skepticism about the U.S. economic “recovery,” which appears to be nothing but an artifact of government spending, while intrinsic economic activity remains weak. Stimulus induced “strength” is unlikely to propagate because, as I've noted before, economic recoveries are invariably led by expansion in debt-financed forms of spending such as gross domestic investment and durable goods. These classes of spending tend to lead other forms of economic activity by nearly a year, and it is difficult to expect this in an environment of heavy continued deleveraging pressure. Rather than abating, foreclosures and mortgage delinquencies are setting further records (pressured even more by continued net job losses), and we have now hit the point where Alt-A and Option-ARM resets are beginning (after a lull in the reset schedule since March). We know that post-crash markets feature partial recoveries followed by a very extended period of sideways movement. To expect an entirely different result in this instance – to assume that this is a typical post-war recovery and that everything is back to normal – seems hopeful to say the least.

Excerpt from the Hussman Funds' Weekly Market Comment (9/14/09):

One of the arguments we've seen a lot lately is the idea that September and October have historically been the worst months for the stock market, coupled with rebuttals by bullish analysts along the lines that the discussion of this historical tendency by the bears makes it likely that nothing bad will happen this time.

Excerpt from the Hussman Funds' Weekly Market Comment (9/7/09):

In my view, the next 12-16 weeks will be extremely important in shedding light on any incipient economic recovery. Investors have become so used to the idea that stocks often foreshadow economic strength that actual, convincing evidence has been dispensable – beyond the excitement over “less bad” economic news. The next 12-16 weeks will change that. As it happens, aside from the unemployment rate (which is a lagging indicator), past economic recoveries have been very forceful in generating clear evidence of real economic improvement in the months immediately following the economic low. Not every indicator moves at once, or in every cycle, but the composite movement of economic indicators of production, new orders, temporary workers, and housing starts has been clearly and almost immediately positive as soon as a recovery begins. Notably, except for a few months in the aftermath of 9/11, even net job growth (not just temporaries) has turned positive within three months of a recession low. (For a look at how temporary employment leads overall payroll figures, see Bill Hester's new article Is The Job Market Ready for a Recovery? - additional link at the end of this comment).

Excerpt from the Hussman Funds' Weekly Market Comment (8/31/09):

The chart below, for example, presents nominal GDP growth in recent decades, as well as the amount of nominal GDP growth that has occurred over-and-above the amount of new government debt that has been issued. This essentially measures the amount of dollar-GDP growth that has occurred independent of federal deficit spending. You can see that much of the economic performance during the 1980's and during the period since 2002 has been accompanied by expansion in federal debt, though we did observe fairly strong intrinsic demand during much of the 1990's.

Excerpt from the Hussman Funds' Weekly Market Comment (8/24/09):

A good economist thoughtfully recognizes “general equilibrium” – resources moved to one place must be taken from somewhere else. Securities or monetary liabilities, once issued, must be held by someone in the economy until they are retired (the failure to recognize this is the basis for the “cash on the sidelines” fallacy). Instead, Bernanke's economic research is a minefield of partial equilibrium analysis. Helicopter Ben is a lot like John Maynard Keynes, who wrote in his General Theory “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again, there need be no more unemployment.”

Excerpt from the Hussman Funds' Weekly Market Comment (8/17/09):

Stocks are currently overvalued, which – if the recession is indeed over – makes the present situation an outlier. Unfortunately, since valuations and subsequent returns go hand in hand, the likelihood is that the probable returns over the coming years will also be a disappointingly low outlier. In short, we should not assume, even if the recession is ending, that above average multi-year returns will follow.

Excerpt from the Hussman Funds' Weekly Market Comment (8/10/09):

The chart below updates the position of the S&P 500 (red line) in the context of other post-crash bubbles. The horizontal axis is measured in months. Note that very strong and extended interim advances have been part and parcel of similar experiences.

Excerpt from the Hussman Funds' Weekly Market Comment (8/3/09):

Although the stock market's advance since March is taken as evidence that the economy is on the mend, the extent of that advance represents just over one-third of the prior bear market loss, which is somewhat standard (if not reliable or predictable) for bear market rallies. Interestingly, the advance since March has almost exactly matched the size and duration of the rally that followed the initial market plunge in 1929, just before the stocks and the economy suffered fresh deterioration.

Excerpt from the Hussman Funds' Weekly Market Comment (7/27/09):

As John Mauldin notes, “this is going to feel like a very different recovery from what we normally think of as recovery. It will be more of a statistical recovery than a real one.” Essentially, we've observed a great deal of contraction in some sectors of the economy, such as housing, inventories and business investment, but at this point sheer stagnation would mean that they would no longer subtract from GDP growth, allowing us to observe flat or positive GDP figures. As John asks, “Does that mean recovery? No, it just means that things aren't getting worse.”

Excerpt from the Hussman Funds' Weekly Market Comment (7/20/09):

To take this back to the practice of investment, it's clear that an investor who constantly waters a particular seed – fear of being wrong – will be forced into a particular set of daily actions, specifically, the investor will tend to hesitate when faced with opportunities that require deliberate, active choice, and at the same time, the investor will panic to adjust the investment position in reaction to every significant disappointment. While those adjustments can very well be rewarding when the market is running in a very clear direction, it is more generally a recipe for buying on strength and selling on weakness, and the cost of doing that on a repeated basis will tend to whittle down returns over a long period of time. Investors who tend the seeds of greed tend to reduce their returns more quickly and often spectacularly, but not without some amount of excitement and victory first. Tending and watering greed translates into the daily action of looking for improbable outliers and long-shots, and of accepting far more risk than can ultimately be tolerated.

Excerpt from the Hussman Funds' Weekly Market Comment (7/13/09):

With the decline of recent weeks, the market has cleared away the short-term overbought condition it established in June. The percentage of stocks above their respective 50-day averages, for example, has retreated from a disturbingly high 92% to a slightly but not profoundly oversold level of 32% here. Investors have predictably been staring at the “green shoots” and have noticed a conspicuous absence of root formations so far. From our standpoint, the next several weeks look as if they may be critical in either offering evidence that something deeper is taking hold, or pulling those shoots up as weeds.

Excerpt from the Hussman Funds' Weekly Market Comment (7/6/09):

Given current household leverage from mortgage and consumer debt, coupled with the inability to access mortgage equity withdrawals (that largely fed spending increases during the most recent economic expansion), my concern continues to be that unemployment will behave as a leading indicator rather than a lagging one. During typical economic downturns, there is always some feedback from employment losses to credit losses, but that effect has been more contained because debt burdens have not been nearly as high, and homeowners have not been saddled with negative home equity. The dynamic of this downturn is different, so investors should be slow to accept the employment is a lagging indicator argument under present conditions.

Excerpt from the Hussman Funds' Weekly Market Comment (6/29/09):

The key fact is that we have significant economic headwinds before us, and we should be careful to take our green shoots with a grain of salt. No piece of economic news, even a strong employment figure here or there, is likely to flip the switch that makes the problems all go away. It would be one thing if stock valuations were at a level that deeply discounted significant and ongoing negative news, but on the basis of normalized earnings, the S&P 500 is actually slightly overvalued here, and is likely to deliver long-term returns over the coming decade of only about 7.8% annually. An economy that is prone to disappointments, coupled with a market that requires a lack of them, is not a good combination.