I'm through taking shots at him. What I want to know now is how could this have happened? We all know he's a smart guy. he had previously had a very successful career that included navigating some very difficult times.
So how can he continue to let this happen? It's truly one of the most fascinating things I have ever seen in my life. Perhaps the most stubborn genius of our times.
I think the two key dynamics behind this are:
1) A serious underappreciation of opportunity risk. When it comes to equities, one should never be fully hedged. You are fighting a long-term upward trend (especially given that the duration of downdrafts are much shorter than updrafts). Plus the market seems to remain overvalued for longer periods than it remains undervalued. While investors want to avoid down markets to the extent possible, they generally accept negative returns in bear markets, provided they participate in the bull markets. However, no one is swift enough to both avoid bear markets and fully participate in bull markets. Thus most managers remain at least partially invested at all times.
The most resilient and robust characteristic of the US economy is the ability of US business to find ways to make money despite all adversity (lousy laws, taxes, poor government, etc). US corporate profits are "Rudolph's nose". What truly undid any bear (including Hussman) over these past five years was the growth in US earnings. Betting against US business is a risky business. A full bet against them, again, reflects either a serious underappreciation of opportunity risk - or giant cojones.
2) Econometric models struggle with unprecedented events (QE, tech bubble, etc). Here we are.
It seems that unless interest rates rise, the market will go up forever. So much easy money sloshing around, and easy for companies to borrow at virtually 0 cost and buy back shares. If this continues even Grantham's 2350 may be conservative.
On the other side of that we have Tobin's Q which is the single most reliable indicator in market history calling for S&P 1150. I'm assuming if company's continue buying back shares, the Tobin's Q estimate will rise, but only if the buybacks offset dilution, or at least the dilution isn't enough greater than the buybacks to swamp the rise in the value of productive assets over time.
I dont believe that but where i find fault with hussman is betting against the market even when overvalued. Although i understand as a fund manager you cant exactly sit in cash but you could short the index instead of options