Today's Market
by Dr Invest

John Hussman has undergone some criticism for his conservative investment strategy, some of his colleagues have chided him and taking him to task for what seemed to be losses in the light of the DOW's remarkable 14% gains for the year. A study from the Harvard School of Business pointed out that financial managers were remarkably late to be invested and 98% under-performed the market by 4% to 8%.  Only a mere 2% could out-perform the market and never the same 2% of fund managers year after year. John recently quoted John Paul Getty:

“For as long as I can remember, veteran businessmen and investors – I among them – have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips… The professional investor has no choice but to sit by quietly while the mob has its day, until the enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator. The seeds of any bust are inherent in any boom that outstrips the pace of whatever solid factors gave it its impetus in the first place. There are no safeguards that can protect the emotional investor from himself.”

- J. Paul Getty

You may be asking why the Jet Plane has taken-off and John Hussman is not-on-board. There may be something that John Hussman knows that you don't. John wrote:

I’ve often noted that even a run-of-the-mill bear market decline wipes out more than half of the preceding bull market advance. I doubt that the present instance will be different. Indeed, cyclical bear market declines that occur in the context of secular bear markets average a market loss of about 39%, wiping out about 80% of the prior bull market advance. We presently estimate a nominal total return for the S&P 500 of just 3.2% annually over the coming decade.

Some investors are so determined to get back into the market so as to not miss out on the NEW BULL MARKET, that they have ignored the obvious risks and dangers to the entirety of their portfolios. Listen to some of his further comments:

The perception that investors are “forced” to hold stocks is driven by a growing inattention to risk. But Investors are not simply choosing between a 3.2% prospective 10-year return in stocks versus a zero return on cash. They are also choosing between an exposure to 30-50% interim losses in stocks versus an exposure to zero loss in cash. They aren't focused on the “risk” aspect of the tradeoff, either because they assume that downside risk has been eliminated, or because they believe that they will somehow be able to exit stocks before the tens of millions of other investors who hold an identical expectation that they can do so.

I have had no comments over the past weeks because there has been nothing to comment on. The Federal Reserve is playing out their hand by adding over $40 BILLION monthly to liquidity, even the most simple among us could see that the economy is built on stimulus and the market is purely ARTIFICIAL. There is a slight of hand, a deception that turns in the house's favor. Someone will have to pay, to pay in inflated prices or lost savings, to pay in lost stock values (deflation).

For now, I know that my sleep is sweeter by staying out of stocks, rather than rushing in. In my lifetime, I have never seen such a dangerous season for the investor. Whether I patiently wait out investing until 2014 is of little concern to me. The stock market will FALL and I will be ready to move into the season of investment opportunity. For now, I'm staying out and watching the bragging financial advisers in their day of glory.

(Note: the above article is for entertainment purposes only and not to be used as investment advice.)