Category Archives: John Hussman

The End Of Volatility?

This morning, the VIX has a 9 handle. The stock market has gone 8 days without a move of more than 0.2%. Buffett, Grantham and others are arguing that this time really is different. In fact, they agree that the market has reached a permanently high plateau, although they do not dare us those words. Who are these people and what have they done with Warren Buffett and Jeremy Grantham?

Of course it is different. It is always different. History never repeats itself. In the first four months of 2017, according to Bank of America, central banks – mostly the ECB and BoJ – purchased more than $1 trillion in securities, a record rate. So of course that means blue skies forever.

And that blue sky is full of tree-tops. As the Chinese proverb goes, this too will pass. That massive liquidity pumping is not benign, it is a symptom of panic as economies refuse to respond to the therapy the bankers prescribe.

As John Hussman observes, these signs and portents are a call to lace up the gloves, not hang them up. Extended periods of low volatility and excessive bullishness are always followed by the converse. Commodities and trade are quietly collapsing, GDP barely has a heartbeat and subprime defaults are rising, especially in cards and autos, pension funds are struggling, valuations are beyond extreme.

Beware the gathering storm.

Take A Memo

John Hussman this morning tweeted “Just time-stamping this chart for future generations”


This one needs to be saved, as well.


Guess What?

Productivity improvement is highly correlated with investment.

From John Hussman via Twitter

Failure To Thrive


This chart is all you need to see to understand why the economy isn’t growing. Thanks to John Hussman.

Chicago and Illinois

Union-supported Democrats have ruled the roost in the city and state, Obama’s base, for many years. The cost of that union support is now coming due. Chicago’s so-called net pension liability to its Municipal Employees’ Annuity and Benefit Fund soared to $18.6 billion by the end of 2015 from $7.1 billion a year earlier, according to its annual report. The fund, one of Chicago’s four pensions, serves some 70,000 workers and retirees. The increase will add to what had been an unfunded liability estimated at $20 billion. These estimates are vastly optimistic because they continue to assume a level of portfolio return that simply isn’t going to happen, see John Hussman’s work. Obviously, there is no way the city can make up this shortfall, so unions are working to pass a bailout from Illinois state taxpayers through the legislature.

Illinois state workers are the highest paid in the nation, even ahead of California when adjusted for cost of living. Yet, despite the fact that Illinois is for all practical purposes insolvent, the AFSCME* union demands four-year raises ranging from 11.5 to 29 percent, overtime after 37.5 hours of work per week, five weeks of vacation and enhanced health care coverage.

AFSCME workers already get platinum healthcare benefits that would make nearly everyone in the country green with envy. Median AFSCME worker salaries increased more than 40 percent from 2005 to 2014, reaching more than $62,800. During that same period, median private-sector earnings in Illinois remained virtually flat. But they are still not satisfied. Now the union is working overtime to remove Gov. Bruce Rauner – who actually represents taxpayers’ interests – from labor contract negotiations. The union supports House Bill 580, which would strip the governor of his ability to negotiate. AFSCME wants the current contract dealings turned over to unelected arbitrators who are likelier to decide in the union’s favor.

See any problem here?

* AFSCME is the American Federation of State, County and Municipal Employees

Stick A Fork

John Hussman posted this on his Twitter account this morning:


The State Of Nature

“In the state of nature profit is the measure of right.”

— Thomas Hobbes (1588-1679)

It has been a depressing day, so far. This morning I read “The Economist” as is my wont of a Sunday morning. A compendium of corruption, violence, ignorance and religious fanaticism, fraud, theft, megalomania… So I turned to the Internet. That didn’t work either, but I thought it worth recording some of the turds I tripped over.

From the Curmudgeon and John Hussman on the effects of corporate buybacks. Corporations are the dip buyers that are supporting the equity markets, while over-leveraging their balance sheets as we head into a vicious recession. Their history is buying high and selling low. This time will be no different.

Corporations have emerged as one of the biggest sources of fresh cash in the stock market, eclipsing even mutual funds with more than half a trillion dollars spent last year, according to data compiled by S&P Dow Jones Indices. They swooped in and bought again on Wednesday as the Standard & Poor’s 500 Index flirted with its largest two-day selloff since January.”

Though nominal economic growth has been tepid, revenue growth has turned negative, and profits as a share of GDP have been falling for more than a year, companies have scampered to boost their per-share earnings by taking out debt to repurchase and reduce the number of shares outstanding. This leveraging has been done at market valuations that are near the highest levels in history on historically reliable measures.

Lacy Hunt manages over $6 billion of Treasuries.

We’ve learned that contrary to Keynesian theory the government expenditure multiplier is zero, if not slightly negative. So there may be a transitory benefit to deficit spending but it is so quickly reversed that ultimately an expansion in government expenditure financed with debt will make economies weaker. So what you have to do is scale back government spending, particularly those types of spending that go to finance daily needs. But that’s politically impossible to do.

And at the same time you basically need to shift income based taxes to consumption based taxes, but you have to address the regressivity of the consumption based taxes. The multipliers of consumption based taxes are minus one, the multipliers on income based taxes are in the minus two to minus three.

These concepts are too difficult for the general public to understand. So they really can’t be explained to them. And furthermore you don’t have the strong political leadership and it has to be done in the context of shared sacrifice.

Charles Hugh Smith shares a story from a correspondent, which describes the impassable thicket of arbitrary regulations that caused him to abandon his plans to open a business and create jobs.

Guess what, our government: you forgot that ultimately you live off the private sector. Yes, let’s pile on another 500 pages of regulations–no problem–nothing could be easier for those in secure jobs funded by taxpayers. But if the private-sector jobs go away, who’s left to pay for state employees to shuffle thousands of pages of regulations and enforce countless “improvements”?

Zero Hedge’s “Tyler Durden” points out that the global debt crisis is spreading.

China, Australia, Brazil, Canada, Sweden – it is beyond us how anyone can declare the crisis isn’t spreading. Be prepared – there are going to be lots of opportunities to both make and lose money.

But first, you have to recognize what is happening.

In addition to the macro-economic woes, we must not forget the crooks that are front-running every trade in the financial markets. From Nanex, via Zero Hedge of course, a concise but complete “Treasure Map” that shows the time advantages that HFTs purchase so that every day is profitable.

What a steaming pile.

Nothing To See Here

John Hussman offers the following chart which shows why there is no risk in the market.


The Dish

John Hussman’s weekly commentary this week is an incisive and damning analysis of the Fed’s damaging, dangerous and irrational policies. Read it all and weep for the tragedy of academic economics, which ignores reality for the sake of pseudo-science.

It’s The Economy, Stupid

The chart below is from the St. Louis Fed, direct from the horse’s orifice, so to speak. It shows hourly earnings (unchanged for the last year in real terms) and real median household income. This is the economy as seen by 99%ers, not Barack and Michelle (or Hillary and Bill). Do you see a “recovery?” I don’t. The vast majority are getting poorer and poorer. Many have given up finding work.


The economy only looks sort of OK because massive injections of new credit are supporting it. Since the housing market remains broken (and is falling again as buy-to-rent speculators retreat, licking their wounds), mortgage financing can’t provide new credit as it did in the last bubble. Obvious sources of increase in credit account for nearly 12% of GDP:

  • Government borrowing. The increase in Treasury debt for 2013 amounted to 5.7% of GDP. (0.919T on 16.4T). Of course this was all directly monetized by the Federal Reserve.
  • Student and Auto loans. The increase in outstanding balances is running about 1.1% of GDP. Subprime auto loans are back, now 55% of all car loans, along with 72-month terms as the norm and average LTVs of 110% for new cars and a stunning 133% for used cars. Student loans… enough about that massive fraud. Makes my blood boil. The default rate on (federal) student loans is now 22% and rising
  • Corporate share buybacks. Running about 4.9% of GDP, buybacks are holding a high rate while corporate cash is essentially unaffected, showing that buybacks are being financed with debt. Which makes sense, as it is the companies with weak or no earnings that are using buybacks to juice reported EPS (and bonuses).

Well, you say, GDP was growing at an annual rate of 4% in the last report. Well, yes, but most of the stuff produced was going into inventory because people don’t have the money to buy it if they can’t finance it with government’s freshly printed money. Real final sales so far this year are growing at an annual rate of only 1.3%, historically only seen around recessions.

What kind of set me off was Hussman’s weekly comment, which mention Galbraith’s comments about the 1929 crash, viz:

“the crash did not come – as some have suggested – because the market suddenly became aware that a serious depression was in the offing. A depression, serious or otherwise, could not be foreseen when the market fell.”

So he says, but most histories I have read noted that a serious recession began in August such that, during the two month period leading up to the crash, production declined at an annual rate of 20 percent, wholesale prices at 7.5 percent, and personal income at 5 percent. It seems to me that an alert observer could, as today, have observed that the economy was, to say the least, not doing well. Take away the injections mentioned above and you would have a similar or worse situation today.

While I am not saying that this is 1929, I do observe that since the 2009 bottom the S&P is up 200% while the economy has not offered most people anything but a gradual decline in their standard of living. We observe the riots in Ferguson as the people who are on the very bottom of the economic ladder have had enough, to the point where government feels threatened enough to show up in full battle rattle to protect itself from the enraged citizenry. This is only coincidentally about race – it is really a symptom of horrible economic mismanagement. Not to worry, Barack is back on the golf course.

Edit: I didn’t see this until later: “Experian, which analyses millions of auto loans, said Wednesday that the percentage of those loans that were delinquent or ended up in default with the vehicle being repossessed surged in the second quarter of this year. The rate of repossessions jumped 70.2 percent in the second quarter, …” usw.