主题：我觉得很好的一篇分析 -- aokrayd

8) Stocks are a poor inflation hedge until high and persistent inflation becomes fully priced into investor expectations. At the same time, short-dated money market debt has historically been a very effective inflation hedge.

Investors sometimes make the mistake of believing that since nominal earnings can be expected to grow during periods of inflation, stocks should be a good inflation hedge. Straightforward reasoning, but unfortunately, it's not true. Sustained periods of inflation are disruptive, so even during the period between 1960 and 1980, S&P 500 nominal earnings still did not accelerate from their normal 6% peak-to-peak long-term growth rate. Moreover, stocks only behave as a good inflation hedge after high inflation is already fully anticipated. During the transition from low inflation to high inflation, stock prices have historically provided awful returns.

In contrast, short-term Treasury securities have historically been quite good inflation hedges. This is because short-term interest rates quickly adjust to reflect prevailing inflation rates, so unless you get a period of persistently negative real interest rates, the strategy of staying relatively liquid in interest-bearing securities has been fairly effective. It is certainly true that non-interest bearing cash is ineffective in preserving real purchasing power during a period of inflation, but the same is not true for short-dated money market securities.

9) It will be harder to inflate our way out of the Federal debt than investors seem to believe.

This is a corollary to 8). A significant portion of the U.S. Treasury debt is represented by short-duration paper, which makes the U.S. far more sensitive to rollover risk, and also makes the value of the debt less sensitive to inflation. See, if you borrow funds for 30 years, you can turn around and create a massive inflation to diminish the real value of that debt. But if you've borrowed funds for a year and then create a massive inflation, you'll find that investors will require a higher interest rate on the debt next year, which prevents the obligation from being diminished over time. This is good for the investors, but bad for the Federal government.

10) It will be harder to grow our way out of the Federal debt than investors seem to believe

This is simple algebra. A reduction in the ratio of debt to GDP - even assuming a balanced budget - requires the growth rate of nominal GDP to exceed the interest rate on the debt. Equivalently, real GDP growth has to exceed the real interest rate on the debt. Historically, 10-year Treasury yields have exceeded inflation in the GDP deflator by about 2.6% annually, while 3-month Treasury yields have averaged about 1.2% over inflation in the GDP deflator. The CBO estimates the probable growth of potential GDP to be about 2.3% over the coming 20 years. At best, and even assuming immediate budget balance, this economic growth would bring down the ratio of debt to GDP by no more than 1% annually.

11) Based on a variety of valuation methods that have a strong historical correlation with subsequent long-term market returns, we estimate that the S&P 500 is presently priced to achieve a total return averaging just 3.6% annually over the coming decade.

We would have a different expectation if other competing methods (such as the Fed model) had a better record of accuracy, but we do not observe this. The decade of negative returns following the market peak in 2000 was entirely predictable. Presently, we have a market that is priced to achieve the weakest 10-year return of any period prior to the late 1990's market bubble. Still, stocks were more overvalued at the 2007 peak than they are today, and were certainly more overvalued in 2000. Both of those peaks were followed by declines that cut prices in half. The current overvalued, overbought, overbullish, rising yields combination compounds the headwinds for the market here, but nothing is certain, and we can't rule out further speculation on hopes of ever larger government distortions.

Despite these valuations, we are willing to adopt moderate, periodic exposure to market fluctuations at points that we clear overbought and overbullish conditions, provided that market internals do not clearly break down in the process. We may see this opportunity in a few weeks, or a few months, but we do not observe it here. For now, we remain tightly defensive.

12) The specific features of a given economic cycle don't change the mathematics of long-term returns - they simply affect the level of valuation that investors demand or are willing to temporarily tolerate.

At the 2000 bubble peak, and again at the 2007 peak, and again today, we received notes asking whether factors such as the internet, or the emergence of China, or the level of interest rates, or Fed intervention somehow had created a world that was "different this time" in a way that made historical analysis inapplicable. From my perspective, the answer in each case is "no."

It's certainly true that the enthusiasm about the internet and other new technologies, coupled with years of uninterrupted, low-volatility economic growth, encouraged investors to tolerate far higher valuations in 2000 than history had ever witnessed. Yet this still did not change the longer-term algebra, which indicated correctly that stocks were likely to produce negative returns over the following decade. Likewise, the emergence of China as a major economic power did not prevent the market from losing well over half of its value from 2007 to 2009.

Indeed, even in early 2009, the valuation mathematics briefly suggested that stocks were priced to achieve 10-year total returns averaging just over 10%. My concern at that time was not that stocks were overvalued. Rather, history indicated that following periods of major credit strains in the U.S. and internationally, investors had typically demanded far greater prospective returns as compensation for the risk. On that assessment, I was clearly wrong, as the actions of the FASB, Fed and Treasury encouraged a quick resumption of speculation. Still, none of this threw the mathematics of long-term returns out the window. It simply compressed a good portion of those prospective 10-year returns into a 2-year window, so that we would estimate the probable total returns for the S&P 500 over the coming 8 years at roughly 3% annually.

In short, it's not impossible that specific features of the current market could make investors more tolerant of rich valuations, or more careful to demand conservative ones. Regardless, my impression is that a decade from today, investors will view the present time as a relatively undesirable moment to put investment capital at risk.

Market Climate

As of last week, the Market Climate for stocks was characterized by an overvalued, overbought, overbullish, rising-yields syndrome that has rarely been resolved well. The Strategic Growth Fund and Strategic International Equity Fund are both fully hedged, with a "staggered strike" hedge in Strategic Growth that brings the put option strikes closer to "at-the-money" levels, representing additional time premium of about 1% of net assets. In bonds, the Market Climate was characterized by neutral yield levels and unfavorable yield pressures, and on the slight deterioration in the Market Climate, we used a bit of price strength to clip our duration back under 2 years, and liquidated the majority of our utility positions. The Strategic Total Return Fund presently has a fraction of 1% of assets in utility shares, about 1% in precious metals shares, and about 1% in foreign currencies. Suffice it to say, we do not view risk as appropriately priced in stocks, bonds, or even precious metals at present.

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A final thought is a bit more personal, but is hopefully appropriate - I believe that God doesn't take sides among his children, and that if he wishes anything for them, it is for them to work toward peace with each other. Wishing you a Merry Christmas, hoping you had a bright Hanukkah, and whatever way you feel connected to something larger in the universe, wishing you peace. Have a wonderful holiday. - John

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Prospectuses for the Hussman Strategic Growth Fund and the Hussman Strategic Total Return Fund, as well as Fund reports and other information, are available by clicking "The Funds" menu button from any page of this website.