But in hindsight, I frankly underestimated the willingness of investors to believe that the underlying structural difficulties of the economy (which still persist in my view) were so easily solved by disabling fair-market accounting disclosure and repeatedly violating the provisions of the Federal Reserve Act (specifically 13c and 14b).
- John Hussman, January 10th 2011
With all due respect, this sounds a lot like "we are not wrong, the Market is wrong".
John Hussman is a brilliant fellow running a very successful investment company. Unfortunately, he's committed Cardinal Sin Number 1 in the investment game: Conflating his views of what should happen with what could happen. He is the anti-David Tepper, more concerned with the the violated rules of the game than with winning the game itself.
Further, by failing to separate the economy's outlook with the stock market's outlook, he's missed a double in the S&P 500 and has kept others on the sideline (or worse, short) with his constant jeremiads for two years now.
The logic for Hussman (and many others) went something like this - profligate spending and bubble-blowing by the Fed and Treasury are offenses so dangerous and reckless that US stocks deserve to be punished. And punishment may yet be in store, but the economic data has begun turning (slowly) and corporate earnings (along with stocks) have staged one of the most furious and relentless comeback rallies in history.
The manager's January 10th commentary reads as part admission of wrongheadedness, part bitter cartoon villain fist-shaking (you'll see!) and part doubling down on his bear case thesis. He admits that it's his job to generate returns in all environments but then pulls the fiduciary card to excuse his excess caution.
Oh yeah, he also basically calls us all idiots. I guess we'll have to make do with only our profits as consolation for the insult.
Interestingly, unlike some of his uber-bear colleagues of late, Hussman has not flipped bullish. He seems to believe that he is more right than ever given the valuation of risk assets after the enormous rally.
Everyone makes mistakes and perfection is not a prerequisite for this business (if it were, I'd have been disqualified long ago), but flexibility is the most essential trait. Hussman's longer-term track record and stature in the industry makes his just-released mea culpa an important and instructional story for all of us in the asset management game.
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