Michael Panzner directs us to John Hussman, who explains that the Federal Reserve's power to manage the financial system is very limited - the funds it provides are dwarfed by the amount out in the economy.
... the problem with the U.S. financial system ... is not liquidity, but the solvency of mortgage loans and securitized debt. The Fed's actions are not likely to have material impact on this.
This, plus Larry Lindsey's comments noted in my previous post, adds weight to Karl Denninger's continuing theme of inevitable deflation.
Showing posts with label John Hussman. Show all posts
Showing posts with label John Hussman. Show all posts
Wednesday, December 05, 2007
Saturday, November 24, 2007
Hussman's view: white water
John Hussman is an American fund manager and takes pains to show that his judgments are carefully weighed; so his warnings are unlikely to be Chicken Little squawks:
In July, he looked at historical "awful times to invest", and found that July 2007 fits the same criteria. The 10-year outlook for the US investor is not attractive:
Presently, the probable total return on the S&P 500 over the coming decade ranges between -4% and 5% annually, with the most likely outcome in the low single digits.
More recently (November 12), he's considered many indicators and concluded:
I expect that a U.S. economic recession is immediately ahead.
This week (November 19), he remarks that much of the money apparently being pumped into the economic system is simply a rollover of earlier loans coming to maturity: the net increase is very small compared to the total oustanding, and so the rate of monetary inflation is slowing. He quotes Jan Hatzius of Goldman Sachs as saying (in effect) that if souring subprime debt hits financial institutions directly, they are likely to call in loans in order to preserve the ratio between their lending and their reserves, which in turn will slow the economy further.
What should investors do? He quotes the view of famous investment manager Jack Bogle:
"I would say do nothing – ride it out, if your asset allocation is right. The bonds in your portfolio and the long-term growth of businesses will bail you out. Unfortunately 80% of the market is speculators now, not investors. What would I say to the speculator? I would say I'm nervous and I might even say get out.”
So I guess it's the usual couple of points: are you in for the long term, or trying to make a quick killing? And where are you on the 25:75 Benjamin Graham bond-equity balance?
In July, he looked at historical "awful times to invest", and found that July 2007 fits the same criteria. The 10-year outlook for the US investor is not attractive:
Presently, the probable total return on the S&P 500 over the coming decade ranges between -4% and 5% annually, with the most likely outcome in the low single digits.
More recently (November 12), he's considered many indicators and concluded:
I expect that a U.S. economic recession is immediately ahead.
(highlights mine)
This week (November 19), he remarks that much of the money apparently being pumped into the economic system is simply a rollover of earlier loans coming to maturity: the net increase is very small compared to the total oustanding, and so the rate of monetary inflation is slowing. He quotes Jan Hatzius of Goldman Sachs as saying (in effect) that if souring subprime debt hits financial institutions directly, they are likely to call in loans in order to preserve the ratio between their lending and their reserves, which in turn will slow the economy further.
What should investors do? He quotes the view of famous investment manager Jack Bogle:
"I would say do nothing – ride it out, if your asset allocation is right. The bonds in your portfolio and the long-term growth of businesses will bail you out. Unfortunately 80% of the market is speculators now, not investors. What would I say to the speculator? I would say I'm nervous and I might even say get out.”
So I guess it's the usual couple of points: are you in for the long term, or trying to make a quick killing? And where are you on the 25:75 Benjamin Graham bond-equity balance?
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