Disagreeing with John Hussman

Readers of Retirement Watch know that this spring we sold the Hussman Strategic Growth fund fro most of our portfolios. It was a tough move to make. We held the fund a long time, and it was very good to us for most of that time. But it appears that Hussman’s models are out of tune with this market and the Fed’s unlimited quantitative easing policy.

Here’s a similar view from a long time fan of Hussman’s who disagrees with his current analysis. The basic issue is whether the long-term analysis tools used by Hussman can produce positive results in this artificial, manipulated environment.

What can an investor do under these circumstances? That’s where I differ from John Hussman. It appears that Hussman manages his fund primarily based on his 10-year rate of return outlook expectation. If return expectations for all asset classes are low, it makes sense to focus on capital preservation and to go long opportunistically. It’s a long-term investment viewpoint, much like the sort adopted by pension fund committees and fiduciaries that I used to speak to in my previous life as an institutional money manager. I understand that point of view completely.

Today, I, along with people like Mebane Faber, believe that we have models that can trade the swings in this market – and there are plenty of swings. In effect, Hussman is saying that we are in a modern day depression – sort of a Japanese Lost Decades-like environment. The economies of the developed world is likely to go through cycles of upswings caused by fiscal and monetary stimulus and declines as the stimulus is withdrawn, largely scarce savings is not being directed at productive investments.