Category Archives: John Hussman

That’ll Buff Out

Well I got that one wrong, fortunately my trading system had no dog in the hunt. Yes, Powell did hint at slowing rate increases. But the markets were shocked, shocked I say, by his acknowledgement of the 15 years of futile attempts to curb inflation before Volcker took matters in hand. That an economist should consider history rather than models and calculus is pretty much unprecedented, at least in modern times. His academic credentials may be called into question. The calculus thing was introduced because economists – it was called, correctly, “political economy” at the time – felt they were underpaid, relative to the physical sciences, and therefore needed to emulate them. It helped their prestige but not their forecasts.

Sarcasm aside, it’s a good thing. But the bad thing is there is way too much money in circulation. Consider the following mantra from Milton Friedman in 1963, years before the 1970s inflation.

“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

Then please consider the following:

fredgraph

money to gdp

That’s going to take a lot of buffing. And yes, Mr Powell, it is the product of years of central bank economic idiocy and arrogance. First chart St. Louis Fed, second John Hussman.

Inflation Projection

John  Hussman posted an inflation estimate on his Twitter account.

Hussman inflation forecast

Just One Chart

When you buy shares in a company, you are really buying a share of the stream of profits yet to come. This chart from John Hussman shows what is going to happen as labor reclaims its share of company income.

labor costs vs profits

The extra profits in the early 2000s were financed by the housing bubble, while the recent spike is mostly the result of massive government deficit spending on subsidies and handouts of various kinds. These are coming to an end despite the best efforts of the Dems to blow up inflation.

Choice

I just have to include this quote from John Hussman’s latest screed:

“the Federal Reserve has fashioned itself into a reckless circus clown handing out lollipops to diabetic toddlers. Having taught them that they will be continually appeased, regardless of the long-term consequences, even a “taper” is now met with wails of surprise, crisis, and tantrum.”

Small Craft Warning

Looks like the time is right for financial hurricanes.

storm warnings

Playing With Fire

Warren Buffett’s market valuation metric is a simple one – The market capitalization of  all U.S. equities (financial + nonfinancial) as reported in the Fed’s Z.1 flow of funds data. divided by GDP.

In 1999, Buffett said “If the ratio approaches 200% you are playing with fire.” Which it did in 1999 and 2000. The ratio is now about 275%.

A similar but not identical indicator is the Wilshire 5000 market cap, which reached about 140% in 2000.

Oh

Just read a tweet on Hussman’s feed: “And implied volatility feeling like the tide before a tidal wave.” Powerful image. Recording it here to see if it plays out.

Bitcoin

John Hussman on Bitcoin:

Should be obvious why a wildly energy-inefficient, closely-held token from a replicable app with no fiat or reserve tether to the payments system and can only process ~2500 transactions every 10 min (vs ~2 million for the USD) should have 1/6 the cap of the U.S. monetary base.

Just for reference, the VISA credit card system is capable of processing 65K transaction messages/sec. That’s 30 million transactions in 10 minutes. Yes, that’s on a global basis, not USD only, but Bitcoin claims to be global.

John Hussman

Much as I respect John’s careful analysis, he is not in the same class as Sir Winston, a genius and leader as well as a master of the bon mot. But John’s tweet from a few hours ago was too good not to preserve:

Well, when you’re livin’ in a van down by the river, at least you can say you had the balls to stay bullish at the most extreme valuations in history, with negative 10-12 year return estimates, lopsided bullishness, and the spu pushing through its upper bands at every resolution.

The Sheriff Fights Back

Well the brokerage houses cut the Reddit-and-Stimmie-fueled mob off at the knees this morning by assigning a variety of the squeezed stocks to liquidate-only status. Of course the mob, deprived of its prey, howled in fury and then howled even louder when it was reported that Robinhood had started liquidating positions in the stocks. Presumably those where margin loans were involved, but I don’t know that.

What the mob has done is scare off a lot of short sellers. This is not a good thing for the markets overall as shorts are the buyers who slow or stop declines by covering their shorts. If there are none, then you have to rely on the real bottom feeders. The following was liberated from John Hussman’s twitter feed:

We’ll see how this evolves but there is significant damage to market mechanics and, I expect, to confidence. However, there is an important point here that everyone involved seems to be ignoring. The subReddit is called “WallStreetBets.” That’s an honest assessment of what’s going on, it is Wall Street as a casino that is being discussed, not as a part of the essential process of raising investment capital. The stocks being bought by the mob were most likely sold short because the sellers thought that they were overpriced relative to their value as investments. The mob didn’t think the sellers were wrong, it thought that it could force them to buy back the shares at high prices. And it was correct. If the Federal Reserve had not driven stock prices up to the most overvalued level in history, perhaps the mob could have learned something about saving and investment instead of market manipulation and gambling.