Owen

John Hussman: The Market Is Not in Uncharted Territory

I read John Hussman's commentary on his funds' web site on a regular basis. He is one of the few money managers (and analysts) who can rightly claim, "Told you so!"

His strategy of holding high quality stocks, combined with hedging against market revaluation using SPX Put options has paid off handsomely this year, making his fund one of the most successful in the industry. This is even more impressive considering it has lower risk than the market.

What's Happening to the Fed Funds?

The Fed tries to control short term rates by having the NY Fed act as a market-maker in the overnight repo market. As any market maker can tell you, this works well when volumes are small compared to the MM's pool of liquidity, but falls apart once volumes exceed their short-term internal capital resources.

Daily balancing and weekly Bill auctions keep the NY Fed well supplied, but during a single day, a sudden inflow of tens of billions of securities tendered can easily shift the actual rate by several basis points away from the target rate. Remember, the Fed is a very large market participant, but it is just one among many other large players.

VIX's Double Jump

The VIX index itself already measures relative volatility in percentage points, so absolute changes to it are more meaningful than percentage changes.

How many other instances were there when the VIX index jumped 16 points in two days? In addition to yesterday, this happened recently between 20 and 22 of October, and in the two days leading up to Aug. 6, 1990, when it jumped from 20 to 36.

The Markets: Comedy or Tragedy?

If the overnight inter-Shylock interest rate drops below a pound of flesh, we'll be in for a pleasant midsummer night's dream, and all will be well that ends well.

Is It Time to Bottom Fish?

Since November, the US market has lost about $5 Trillion of shareholder value. So based on that anonymous journalist, Wall Street employees received about $15 Trillion in bonuses, or an average of $50 million each--including every junior analyst, assistant broker or floor sweeper. This number is bigger than the US GDP; where did this windfall come from? I guess it's good news, as it means the GDP has doubled.

Does that journalist have basic math skills? For that matter, do you? Last month you advised us to "not be clever". You are clearly following your own advice.

Will We Know When We've Made a Low?

Smarty_Pants, In 2005 Nortel traded between $25 and $40, adjusted for the 1:10 reverse split. You must be thinking of 2000, when it was trading at $120 _unadjusted_, or $1200 adjusted for the reverse split.

Based on standard valuation metrics, Nortel wasn't worth $1200 in 2000, $25 in 2005, or even $1.60 now.

Will We Know When We've Made a Low?

'The World's Worst Stock Picker',

You may call yourself The World's Worst Stock Picker, but you sound smarter than many here. Your entry point and stop strategy sound well thought and I believe will prove to be right on the money.

I'm not sure what you mean by 'bought a covered call'. Do you mean you _wrote_ a covered call on Ford? If you received the premium, that means you sold the Call, not bought it. And who is the other 'win' in the 'win win' you mention?

Will We Know When We've Made a Low?

Those waiting for "The Bottom" will have to wake up at some point and realize we've already passed it last Friday, October 10, at 2pm ET. But to vindicate their failure to act, they'll say they are 'waiting for a pullback'. When the masses finally start getting back into the market in droves, you'll know we are near the top.

This Isn't a Bottom, It's a Disturbance in The Force

rge270, funniest post ever!

Please stick around, we want to hear more from you.

This Isn't a Bottom, It's a Disturbance in The Force

Update: we are now up 19% from the Friday intraday low. But no worries, we'll go up another 30% or so before people stop telling us we haven't seen the real bottom yet.

A free crow stew for the first analysts to use the term "dead cat bounce".

This Isn't a Bottom, It's a Disturbance in The Force

Smarty_Pants,

Makes sense. Just be sure you don't miss the boat--we're already 12% above the Friday intraday low of 837. Rebounds after major selloffs are sharp and violent. If you blink, you miss it.

This Isn't a Bottom, It's a Disturbance in The Force

Smarty_Pants,

I have no problem with a US dollar decline and a rise in interest rate. In fact, for full disclosure, I am currently short Treasuries (10 and 30 year) through the Futures market. I don't see hyperinflation ahead, but I do see a rise to the long-time average range of 5-7% on the 10-year.

Is that a problem? Not for me or other equity investors. Stock markets have done very well during periods of increasing interest rates--don't take my word for it; check it for yourself.

I'm also not concerned with China and Japan taking a bigger portion of the world pie. My investments include a large portion of European and Asian stocks. Only a fool would limit themselves to the US market.

Housing prices will plummet? Again, not a problem for me. I'm not looking to sell a house.

While you are trying to make it sound over-dramatic, your predictions aren't as wild as you'd think. Personally I don't see China or Japan dumping $2 trillion worth of treasuries all at once. They're smart enough to know how to avoid flooding the market and destroying their own wealth. In time, they will diversify away from US treasuries. In fact, I believe it's happening right now, although we'll only find out about it a few months from now.

Yes, I have no doubt Chinese sovereign funds are buying US and European companies right now at these ridiculous prices, paying for their purchases with US treasuries. And if they're doing it, I'm happy to make the same trade along with them, selling treasuries and buying stocks. Are you confident enough to bet against China and Japan?

The Crash of 2008

Good analysis, Mr. Steinhilber.

Even more telling is the equity risk premium, which is the difference between the earnings yield (the inverse of P/E) and the risk-free interest rate, which is now clocking at around 800bp, the highest since the 1930s and twice as high as other market bottoms since World War II. Equities are now earning 8 percentage points above, or three times as much as the best yielding treasuries, versus the typical 1-3 percentage points.

Another telling indicator is the sweeping bearish sentiment, as we'll likely soon see here in the next few comments.

This Isn't a Bottom, It's a Disturbance in The Force

Ya! Curbs-In, I agree. No, not that smart investors should stay out of the market, but that you, Curbs-In, should.

This way, when the S&P rebounds by 20% to 1100, you'll come here and tell us this is a "dead cat bounce".

When we hit 1300, you'll explain it as a "bear market rally", and advise us to stay out.


When the S&P gets to 1500, you'll tell us that valuations are too high, and the market is due for a correction, and talk about soup lines the likes of which we haven't seen since 1929.

Sometime over the next four years, when we get to 1700, you'll call this a "bubble", and tell us we are irrational to own equities at these prices.

Finally around an index value of 1900 or so, you'll realize you are missing the bull market of the decade, and change your tune. You'll have a new theory about the "new economy" and why valuations don't matter when it comes to solar energy/oil sands/pet rocks, and along with your like-minded buddies allow us to unload our stocks for a nice 100-150% gain, as is typically the case for bull market runs.

If not for people like you, we'd have no one to buy from at the bottom and sell to at the top. Keep up the good work!

VIX Spikes - But It's Been Worse

I doubt anyone is still checking this old article, but the VIX just hit 75, as of 13:50 EDT.