John Hussman, Comstock Partners…Stock Market Downturn

From COMSTOCK PARTNERS, Inc, Market Commentary:  “As we have long expected, the economy is tracing out a trajectory typical of the weak recoveries that follow balance-sheet induced recessions and credit crises caused by highly excessive debt...In a balance sheet recession, as is happening now, the dire effects of debt deleveraging overwhelm the efforts of the government to stimulate the economy..Periods of credit crises are almost always followed by many years of below average growth, high unemployment, anemic expansions and frequent recessions. Recent examples include Japan's two-decade period of sluggish growth and the current tepid recovery in the U.S…

…We believe that the correction is only the beginning of a major downturn. At current levels the downside risks are still far greater than the potential upside rewards.” Full commentary at:

http://www.comstockfunds.com/(X(1)S(o2mgpsidbtpmthj12gghdkyr))/default.aspx?act=Newsletter.aspx&category=MarketCommentary&newsletterid=1651&menugroup=Home&AspxAutoDetectCookieSupport=1

JOHN HUSSMAN. PhD

“...given the sharp deterioration in market internals, and the likelihood of an emerging recession...It is important to recognize that the scope of our concerns is on the order of 25-35% market losses over 12-16 months... I continue to view the U.S. economy as most probably entering a recession that will ultimately be marked as beginning in May or June of 2012. We are very much in agreement with the ECRI on this, though our methods are different...”   - John Hussman, PhD, Weekly Market Commentary for 21 May 2012.  Full commentary at: http://www.hussmanfunds.com/

MARKET

The S&P 500 was UP 1.6% Monday to 1316.  VIX fell 12% to 22.  The S&P was due for a bounce so today doesn’t mean much.  The S&P 500 is 3% above the 200-day moving average and 7% below the prior high of 1419.

At best, this may take two to three months to resolve, even if this is a relatively shallow correction.  At worst…well, this could be the start of a major downturn.

NTSM

The NTSM analysis is SELL again Monday. 

MY INVESTED POSITION

I reduced my stock holdings to 30% (0% in stock in the 401k) at S&P 1358 after the SELL signal on 9 May 2012. (See the page “How to Use the NTSM System” – the link is on the right side of this page).  I cut my stock position to 15% on 17 May in order to maintain a 10% gain in a trading/longer-term position I had in the QQQ.