Zhang Weiying, Professor of Economics Peking University, PhD from Oxford, has been making speeches entitled, “Bury Keynesianism”. He said, “…since the financial crisis was caused by easy money, it couldn’t be saved by the same...The current economy is like a drug addict, and the prescription from the doctor is morphine, so the final result will be much worse.” Zhang follows the Hayek school of economics. More on that subject later. Let’s see some good news now.
GOOD NEWS - Doug Short questions ECRI Conclusions.
Doug Short at Advisor Perspective notes that the Economic Cycle research Institute's (ECRI) leading indicator data has turned up recently and he suggests (again) that they may have to revisit their recession call. Remember, the ECRI started calling for recession over a year ago and as recently as 5 October I noted on this blog that the ECRI was still calling for recession. For the story see...
http://www.advisorperspectives.com/dshort/
BAD NEWS - HUSSMAN STILL PREDICTING SIGNIFICANT MARKET DECLINES
John Hussman, Phd, uses ECRI data in some of his work and he remains convinced that the US economy is already in recession and his tone remains frightening at best. I enjoy reading John Hussman's columns and I respect his analysis; but is he correct? After nearly a year of reading his predictions for a significant market downturn, one begins to wonder. Here's an excerpt from this week's weekly comment:
"On the basis of normalized earnings (which correct for the cyclicality of profit margins over the business cycle...our projection for 10-year S&P 500 total returns is lower than it has been at any point prior to the late-1990's bubble, with the exception of 1929. While it is very true that valuations have been even richer at various points in recent years, it should also be noted the S&P 500 (including dividends) has now underperformed Treasury bills for well over 13 years as a direct result...Hugh Hendry of Eclectica recently got the tone right in his concerns about the endgame we are facing:... 'I think we are single digit years away from the most profound market clearing moment - a 1932 or a 1982'..." read the Weekly Market Comment from Hussman Funds at...
http://www.hussmanfunds.com/
Frankly, I have to agree with that assessment. It seems unlikely that any of the politicians involved (here, Europe, Japan, or elsewhere) have the guts to deal with the debt-crisis or recession in a meaningful way. Those who believe in Keynesian economics think the stimulus was far too little; the Hayek economists think that stimulus is part of the problem. The Federal Reserve’s actions bring on spirited arguments on both sides too.
I may have to read another year's worth of dire predictions from John Hussman before the issue is resolved - and we may not like the resolution. As always, it’s easy to predict disaster – sooner or later some sort of disaster will happen – it’s the timing that is the hard part. My own analysis is currently neutral.
MARKET RECAP
Monday the S&P 500 was
UP 3/4% to 1440 (rounded) and VIX was down more than 5% to 15.27. Doug Short at Advisor Perspective notes that the Economic Cycle research Institute's (ECRI) leading indicator data has turned up recently and he suggests (again) that they may have to revisit their recession call. Remember, the ECRI started calling for recession over a year ago and as recently as 5 October I noted on this blog that the ECRI was still calling for recession. For the story see...
http://www.advisorperspectives.com/dshort/
BAD NEWS - HUSSMAN STILL PREDICTING SIGNIFICANT MARKET DECLINES
John Hussman, Phd, uses ECRI data in some of his work and he remains convinced that the US economy is already in recession and his tone remains frightening at best. I enjoy reading John Hussman's columns and I respect his analysis; but is he correct? After nearly a year of reading his predictions for a significant market downturn, one begins to wonder. Here's an excerpt from this week's weekly comment:
"On the basis of normalized earnings (which correct for the cyclicality of profit margins over the business cycle...our projection for 10-year S&P 500 total returns is lower than it has been at any point prior to the late-1990's bubble, with the exception of 1929. While it is very true that valuations have been even richer at various points in recent years, it should also be noted the S&P 500 (including dividends) has now underperformed Treasury bills for well over 13 years as a direct result...Hugh Hendry of Eclectica recently got the tone right in his concerns about the endgame we are facing:... 'I think we are single digit years away from the most profound market clearing moment - a 1932 or a 1982'..." read the Weekly Market Comment from Hussman Funds at...
http://www.hussmanfunds.com/
Frankly, I have to agree with that assessment. It seems unlikely that any of the politicians involved (here, Europe, Japan, or elsewhere) have the guts to deal with the debt-crisis or recession in a meaningful way. Those who believe in Keynesian economics think the stimulus was far too little; the Hayek economists think that stimulus is part of the problem. The Federal Reserve’s actions bring on spirited arguments on both sides too.
I may have to read another year's worth of dire predictions from John Hussman before the issue is resolved - and we may not like the resolution. As always, it’s easy to predict disaster – sooner or later some sort of disaster will happen – it’s the timing that is the hard part. My own analysis is currently neutral.
MARKET RECAP
Longer term measures of
breadth and new-high/new low numbers are still pointing down. Big up days (like today) are often followed
by down-days. In spite of that trend,
futures are looking up as I write this so tomorrow will be interesting to see
what happens.
NTSM
The
NTSM analysis remained HOLD Monday.
MY INVESTED POSITION
Based on the BUY signal, 6
July, I moved back into the market on 9 July (after the weekend) at S&P 500
1352.
I currently have a 50%
stock allocation overall. For my age,
that is what many advisors recommend as a fully invested position, however, I
am normally much more aggressive. I have
less invested in stocks now because there’s a lot of risk.
