bobwins - I think you may have "jumped the shark" on this one. I can't seriously believe the market is rigged for national security purposes. Also, I DO believe (as Hussman does) that stock prices (ultimately) follow earnings - and thus "resemble" the NPV of future cash flows. However, where Hussman is most wrong is in his underestimation of future cash flows. Remember, Hussman was screaming about a recession a couple of years ago. Thusly, his model swung and missed badly regarding corporate earnings. Look - the market is at all-time highs and corporate earnings are at all-time highs. Why Hussman thinks this is aberrational is beyond me.
njs - from what I understand, the only way (in theory) that HSGFX can rise on down days/markets is if the returns from his hedges are positive net of the decline in his long portfolio, plus financing costs - ultimately meaning that his long positions have to fall less than the overall market. However, fully hedged equity managers ca't make a living without leverage - otherwise their returns resemble the risk free rate. Hussman does not use leverage (nor does he go net short) - so his expected return in a down market (if he remains fully hedged) ranges from the risk free rate to negative alpha. Why is that preferable to a money market fund?
Explain? This is fairly straight forward, is it not? I'm not following you. I THINK we both agree that this fund can and has declined in down markets. There are several here on the message board who seem inclined to hold HSGFX because they believe the markets are headed down in the near future. I stated that if that is the case, they should hold a money market fund (or a short fund) because HSGFX doesn't go net short (as per its prospectus). Some disagreed with me. Thus my statement. And you struggle with that why...?
Who? Um, floyd, when I raised this subject last week, you wrote:
"But it did go up in crashes and 'should' continue to do so if run by design"
"... I know what I saw checking the price every day. Defensive options make money when the market drops. Otherwise based on what your implying what would be the point of the fund?"
"Many on this board"? There are no longer many on this board. Hussman's fund has been an unmitigated disaster, so most people have moved on. So I imagine that I must be one of "those types" you are referring to. I don't claim to always make "perfect timing decisions" or that I "beat the market EVERY year". But you are right about one thing - I can't imagine not participating in a bull market - the key word being "participating". Participating in a bull market is one of the easiest things to accomplish in investing. It's called "humility" - or always maintaining some significant minimum investment in equities because the market is a tough nut to crack. Moreover, it is hypocritical to claim (as Hussman does and as you do hgc) that they are a long-term investor, yet they take all risk off the table, because of a - wait for it - short term view. Get that? :-)
"I cannot emphasize strongly enough that those challenges trace primarily to the stress-testing decision that I made in 2009..."
I am sorry, but I believe that claim to be pure fiction.
If what Hussman says is true, how come his WMCs in 2009 do not give the slightest indication of an overall positive model? And if, indeed, the model was positive in 2009 (which he is implying), then why were his WMCs ripe with negative verbiage and an extremely defensive outlook?
Moreover, if the models were positive, then why did he remain 100% hedged while he "stress tested". That makes zero sense. Why not 50% hedged? Why hedge at all (given his benchmark is the S&P500)? Certainly 100% hedged is not the fund's default position, is it?
In my opinion, none of this adds up. By the way, I was going to buy a lottery ticket with this week's winning numbers, however, I stress tested my approach and did not buy the ticket. Prove me wrong! :-)
Well, Hussman would say the point of the fund is to grow capital in up markets and preserve capital in down markets - but, as we have all seen, he has struggled to grow capital in up markets.
Floyd, the fund may have moved up on a down day (or in a down market), but according to Hussman's own prospectus, that doesn't occur by design. He states in the prospectus that "the total notional value of the Fund's hedged positions is not expected to exceed the value of the stocks owned by the fund, so that the most defensive position expected by the fund will be a 'fully hedged' position in which the notional values of long and short exposures are of equal size."
Translated - the most defensive position will be zero exposure to the market. Theoretically, you can't move up in a down market when you have no exposure - or when you don't have short exposure.
So, again, I ask: why would anyone invest in this fund as opposed to a short fund or money market fund in they thought the market was going to crash - especially given Hussman's apparent inability to identify market bottoms? Is it loyalty? Stubborness? Ignorance? Masochism. lol.?
So let's see - the inception date of his fund is August 2000 - so that means that the fund's performance reflects a bear market (2000-2002), a bull market (2003-2007), a bear market (2007-2009), and a bull market (2009-2013). HSGFX's relative performance has SUCKED over that period. Is that "full cycle" enough for all of you HSGFX believers?
If an investor truly believes the market will crash (as Hussman is projecting), why would they want to own HSGFX as opposed to a money market fund? HSGFX does not go "net short", so there is no reason to believe the fund will rise as the market falls - and Hussman has demonstrated zero ability to buy a market bottom. Makes no sense at all to me...
Wrong. I have and so have many others. You don't know what you are talking about. Stop projecting Hussman's nonsense onto everyone else.
And - please - stop making excuses for the the worst investment fund in the business. You realize, don't you, that he went 100% hedged in October 2009 and has been out of the market ever since? That isn't just wrong - that is catastrophically wrong. He didn't even get 100% long at the bottom of one of the biggest and steepest market declines in market history (Feb 2009).
Oh, I can assure you that Hussman will ultimately be "right" - unfortunately, he made his defensive call four years ago and has missed a 160% upsurge in the market. In my opinion, Hussman comprehends neither the significantly higher quality of contemporary corporate earnings nor the impact of technology on corporate management. The corporate paradigm has shifted significantly, but his models are likely anachronistic. However, I am being redundant. Econometric based models are always anachronistic, so I suppose I am stating the obvious.
Wow. He finally jumped the shark. The stress must be getting to Hussman. He appears to have finally crawled inside his own mind, ala "Being John Malkovich."
Apparently, he has given up trying to manage his portfolio to meet market conditions, instead HE IS ATTEMPTING TO MANAGE MARKET CONDITIONS TO MEET HIS PORTFOLIO. Unreal.
Some choice excerpts from the WMC:
"I don’t question your motives or integrity."
I am certain that Bernanke/Yellen was worried about this.
"What follows is simply information that may be helpful in realistically assessing the outcomes and risks of the present policy course, and perhaps to help prevent a bad situation from becoming worse."
Bad situation? Talk about projecting one's own problems unto others. Does the Fed Board really perceive the current circumstances (market highs, low interest rates, low inflation) as a bad situation? Sure, the Fed Board would like more growth/employment, but that is not what Hussman is trying to "help" them with.
"As the head of an investment company, it’s natural to conclude that what follows is simply “talking my book”...
"We’ve done well in prior complete market cycles...and were among the few who warned of the market collapses and recessions of 2000-2002 and 2007-2009. In contrast, the half-cycle of the past 5 years has been challenging because... (blah, blah, blah).... contributed to a collapse in economic confidence beyond anything witnessed in post-war data. That forced us to stress-test every aspect of our approach against Depression-era outcomes."
Apparently, Hussman expects this letter to be "big" news - a national story. Otherwise, why include this #$%$? His investors have heard this story ad nauseum. The Fed couldn't possibly care.
This is just too ridiculous.
Sorry, but I don't believe it (not your comment, floyd, but Hussman's comment). I went through a whole bunch of his WMCs from 2009-2010, and I did not see one shred of evidence that his model was positive, but he overrode it. I did see some comments in early 2009 about valuations being more reasonable, however he quickly countered that with other measures that were negative. That said, I did not read every WMC. Perhaps someone can show me where he indicated that his model was positive.
Regardless, IF what Hussman says is true (that he suspended his models due to "fiduciary obligations") - why did he not return the fund to its default position, or the S&P 500 / Russell 2000? That is his benchmark, right? You see how silly this is? How does it possibly makes sense to suspend your model - effectively saying "I don't know" - and yet go 100% hedged? Is 100% hedged Hussman's DEFAULT position? And he wonders why people call him a "perma-bear"....
I think we all understand it - even you do, as evidenced by your editorial comment. You correctly highlight Hussman's shocking lack of humility (not personal, but professional). One would think that a student of market history (as Hussman is) would know better. His 100% hedged position is a very telling statement regarding his own confidence in his ability to precisely navigate markets. It would have been wiser for him to hedge against his own forecast. That was where the real risk was.