Sunday, December 18, 2011

Monday Morning Thoughts

Both the EURUSD and the Chinese stock market have broken through their October lows. Meanwhile, the dollar index has broken out to a higher high than October. There is a divergence between these markets and the US equity market. I would expect the US equities to follow them, by declining.

Hussman has another great column out tonight:

"[T]here still remains some short-run ability of policymakers to distort market forces, to badly misallocate capital in the process, and to wreck the economy more thoroughly in the long-run. The hope for QE3 continues to mount, despite the lack of evidence that QE2 had any meaningful effect except to bring a some pent-up demand forward and create a speculative investment environment that constantly depends on new doses of sugar to prop it up."
Read what he says about economic "surprises." It's hard to believe how poorly Hussman's fund has done over the past ten years, given what a brilliant analyst he is. That may be due to the constraints associated with running a mutual fund.

1 comment:

eahilf said...

That may be due to the constraints associated with running a mutual fund.

Could be.

But it's also true that market prices are often -- when looked at via the kind of analysis Hussman does -- pretty wacky. For example, there are times when you can short on valuation, other times not. Most trends go on longer and further than you would've ever thought possible, and then end sooner and more abruptly than you would've imagined. It's just the way it is.

It's best just to take the price action for what it is, and not spend too much time trying to understand or anticipate it. Use stops to protect yourself, because what's working right now sure as hell will soon stop working. Learn to do that, and be willing to accept the losses that inevitably come with this approach, and, after some practice and experience, you'll do OK.