Green Shoots Over Thin Ice

Hussman Funds ^ | April 13, 2009 | John Hussman

[Snoopers-868th]

Snip

As veteran market observer Richard Russell noted following a tribute Saturday evening, “one question that was asked repeatedly was ‘What is the difference between investors' sentiment now and that which existed at the 1974 bottom?' My answer was that there is a lot of complacency today. In fact, many leading analysts are already saying that ‘this is a new bull market.' … At the 1974 bottom, the sentiment was the opposite -- people and funds were black-bearish. Nobody talked about ‘the danger of missing this advance.' In fact, when I turned bullish in late-1974 I received hate-letters and angry notes saying that ‘Russell, you have lost your mind,' and ‘Russell, why don't you hang it up and find a business that you're fitted for.' I mean people were furious that I had turned bullish, pretty much the opposite of sentiment today. Actually, I'm surprised to see how quickly analysts and investors are willing to turn bullish today.”

Snip

As Harvard historian Niall Ferguson observed last week, “Only somebody who studies financial history could say, as I was trying to say, ‘Look, something as big as the liquidity crisis of 1914 or as big as the banking crisis of 1931 is imminent.' We don't really have a great many options here. If we stay the present course, you're going to see the tailspin continue. To be effective, a large-scale restructuring of household indebtedness would need to be mandatory. The Great Depression was initially a U.S. financial crisis. But what made it a depression was its global contagion, and then the breakdown of trade and the retreat into protectionism. All of that can happen. All of that is in fact happening with terrifying speed.”

[Snoopers-868th]

(snip) Fundamentally, my view is that the U.S. economy is on very thin ice, and that by focusing on the bailout of corporate bondholders rather than the restructuring of debt, we are courting the risk of a far deeper downturn. Last year, I didn't think it was conceivable that policy-makers would attempt to address this problem by making lenders whole with public funds. This is an ethical abomination, putting the public in the position of absorbing the losses that should properly be borne by those who provided capital to these institutions. It is not sustainable. What it does is place the public in the position of losing first, but it will not, and cannot prevent the ultimate failure of the debt – for the simple reason that without restructuring, the debt can't be serviced.

[driftdiver]

Don’t worry, when we go bankrupt we’ll take the rest of the world with us. Then we can all spend our way out of the mess.

[saganite]

I think the accepted way out of messes like this is to go to war. Hopefully, I won’t be around that long.

[arthurus]

Watch the Caucasus and the Balkans. We haven’t come to invading Poland yet but something like the Sudetenland seems to be shaping up in Georgia.

[Snoopers-868th]

Surely, the anti-war Dems won’t allow their Dear Leader to go to war but yes I do agree with you.