This page has been archived and commenting is disabled.
John Hussman: The Importance Of Understanding The Tenuous Equilibria Of The Markets
Via Adam Taggart of Peak Prosperity,
At the Wine Country Conference in Sonoma, California two weeks ago, John Hussman gave a presentation on the importance of equilibrium in today's markets.
Many of the conference attendees were at the conference specifically to hear John speak, as he so rarely makes public appearances like this (his Hussman foundation made the event, which raised funds for the Les Turner ALS Research Foundation, possible). And John did not disappoint.
John spoke on the various types of equilibria in today's financial markets. There are many different types, and it's through the understanding of which ones we're faced with that we can begin to accurately predict the most probable outcomes. Because these outcomes themselves (including the "endgame" outcome) are each a type of equilibrium -- likely much more stable ones than that of today's markets.
(If this seems a little wonky, just watch John's example using chairs to demonstrate fragile, unstable and stable equilibria at 7m:22s, and all will be clear)
John dispels several popular but erroneous market myths along the way, including the concepts of "buyers outnumbering sellers" or "money moving into/out of a secondary market".
His punch-line is that our financial markets actually have a natural equilibrium state that is far removed from where they are today. But interfering monetary policy (e.g. QE) and delusional fiscal policy have pulled the system away from its authentic state, to the point now where the forces to correct are placing growing strain on the status quo. As the system seeks to return to where it should naturally be, the yields that the Fed is so desperately trying to engineer are going to become less in size and number.
Investors need to realize that much of the "growth" the Fed is trying to return to was manufactured and unnatural. We are returning to a lower-growth environment, whether we want to or not.
Full Presentation below:
»
- 20310 reads
- Printer-friendly version
- Send to friend
- advertisements -
"Buyers out number sellers". There are lots of sellers, but only one buyer: The FED. No one else can afford to buy at these prices.
Also, you can only pull so much demand from the future forward. How many cars and washers and dryers and TV's and I-phones can you buy before you can't buy anymore, not because you ran out of money, but because you don't need another one.
If I buy a car today because its on sale, but I dont really need it until a year from now, I won't be there to buy it next year. Then whats the dealer gonna do next year? If more people buy today, there will be less to buy tomorrow.
Dynamic Obsolescence is when we junk a perfectly good car or appliance and buy a better one. This comes to an end when we run out of money to make more payments.
"Growth" is one of the most misused words in the English language.
Growth is not what you think. Because "they" work very hard to change the meaning of words, concepts or descriptions. All to bend the perception and debate in their favor. Like the term “illegal aliens” for example, has now progressed to “undocumented workers” .
Right. Like, "my growth today was embarassing".... :\
CS Lewis wrote a book about this - destroying humans by perverting the language they think in.
Abolition of man. Written quite a long time ago, quite prescient.
For example, conservative and liberal now both mean fascist wing nut - only a few utrerly fake wedge issues separate them. Neither is either liberal or conservative in the meanings of those words when I grew up.
"Undocumented workers" is such a tidy phrase, bearing connotation that: (1) All immigrants who've entered illegally work rather than commit crimes, sponge off the system, import undesirable cultural conflicts or are otherwise objectionable; and, (2) all in-country workers must be properly documented with papers deemed appropriate under authority of the State.
Here's another voter for the purple team...so let's get 'im documented as a worker. Halt there human, where's your certificate of authenticity?
I can create all kinds of growth if one of you guys can loan me a printer with a 16.6 trillion gallon tank of ink.
http://www.youtube.com/watch?v=ZS2Z19yTuPI
One gallon of ink for every dollar printed!? Who the hell is suppressing the HP share price?
It's a high yield cartridge.
That chair looks like our economy.
but ... there is no savings as we have a printing press
that is cheaper. policy, forward, funds, lending ....
economy ....
who are you kidding beside yourself?
.
Jim Willie interview April 15 2013 about the metal smash down - Real physical
http://www.youtube.com/watch?v=c5rZlkoDZKQ
.
» Update to the Update: The Attack on Gold — Paul Craig Roberts
By: pcr3| April 16, 2013
http://www.paulcraigroberts.org/
.
minute 12.00.
[KR411] Keiser Report: Media Moron Mockery
http://maxkeiser.com/2013/02/26/kr411-keiser-report-media-moron-mockery/
".. Professor Antal Fekete, about the gold basis – cash versus the nearest futures
contract and why that the cash price for gold is never reported is by design. They also
discuss gold repatriation from Germany as a trial balloon, to see how much demand there
is for cash gold and how it is that permanent backwardation means internal bleeding in
the monetary system.
.
minute 12 again ...
[KR412] Keiser Report: Slime Mold For President!
http://maxkeiser.com/2013/03/01/kr412-keiser-report-slime-mold-for-presi...
.
The Secret World Of Gold (Documentary)
http://news.goldseek.com/GoldSeek/1366397576.php
.
MeSSaGe To Mr KRuGMaN...
williambanzai7's pictureSubmitted by williambanzai7 on 04/19/2013
http://www.zerohedge.com/contributed/2013-04-19/message-mr-krugman
.
No shit - really?
from what i hear, poor hussman has been getting his ass kicked in returns..........you cant swallow the red pill and invest other peoples money................the old adage about the market being irrational much longer than a sane investor staying solvent...............
Massive interference with a complex system like the economy is like spraying Agent Orange on a Rain Forest to cure it. Damage is already done. I'm sure these fuckers know this and are only tinkering to stall for time to loot the system a little longer.
"We're going to kill the dollar." --Treasury official to Kyle Bass.
Investors need to realize that much of the "growth" the Fed is trying to return to was manufactured and unnatural. We are returning to a lower-growth environment, whether we want to or not...
WRONG!
Investors need to realize that the fed is trying to force them back into fraudulent stawks and junk bonds so Jamie and Lloyd and all the other insiders can get even stinking richer off your ever more meager savings. The fed hates you and wants to help those bastards rob you more every day.
"Here's to stinking rich!! Yea, stinking rich!! Here's to Hussman!! Yea, stinking Hussman!!" :)
House of Cards.
When Ben and the FED, if they do anything, should provide the foundation for sound money - they instead build a house of cards in a hall of mirrors, using taxpayer money.
It benefits Wall Street and Washington while punishing citizens.
END THE FED!
The inverted pendulum is a bitch of a control theory problem. Has all kinds of prospective solutions when the situation can be controlled, even some in chaotic regions.
nfw in the real world, with real complexity, with a "real" "inverted" "pendulum".
- Ned
So Equilibrium cometh when we all start spending our money again. As we earn less over time.
"We are returning to a lower-growth environment, whether we want to or not."
This is exactly right. In addition to what the article points out, we should also keep in mind that the entire global financial system (ponzi) is built on the assumption of perpetual growth. Well, as a matter of scientific fact, ALL forms of growth end at some point because even the tiniest amount of perpetual growth is exponential. Since humans can't really even comprehend the meaning of infinity, I'd say it's pretty safe to say that the economy isn't ever likely to get there either ;)
All these machinations of money printing are just exacerbating the problem by buying time at tomorrow's expense.
"LOWER GROWTH" LMAO world outside USA could still "grow" maybe a while, but I sure can't see any long scenario where everbody's not gonna be ape-shit jubilant over even so much as 0.00001% "increase". Flat-line's gonna be lookin' GREAT
This presentation explains itself being as "inordinately optimistic."
Of course, I agree that this presentation is wonderfully euphemistic and residually idealistic, in ways which are far removed from the runaway realities of triumphant frauds.
These kinds of guys, who were relatively successful within the established systems, are never remotely close to comprehending the deeper realities when they analyse the superficial symptoms of the profound social sicknesses.
History tells us that deflation comes first. Thus, cash is going to have one more moment in the sun when... CASH IS KING. Soon The Fed and Congress will no longer be able to hold the deflationary pressures back and the bubbles will start popping (stock market, bond market, housing sector, derivatives, etc.). The deleveraging, asset values collapsing, saving, gold and silver stacking, frugality, etc. will be very hard to overcome. We will have deflation. Then in one last frenzied orgasm of desperation the Status Quo will print as if it is the end of the world (which it will be... the end of their world). It will take time for that INFLATION to eat through the deflation and swing the pendulum the other way. Before that frenzy we'll need to be positioned for the big INFLATION.
I might add... being positioned for the big INFLATION would mean levering up as high as possible and acquiring productive, tangible assets. And paying them all off with very cheap dollars as you move yourself towards a high net worth future.
“An Unstable Equilibrium” - John Hussman
2013 Wine Country Conference slides:
http://www.sitkapacific.com/files/Hussman%20WineCountryConference_130405.pdf
According to Citi Research:
Summary
We are generally very hesitant to pay much attention to moves in the gold market. However, when large moves in this market are relatively coincident with large moves in TIPS breakeven levels – it bears watching. We think that this may be a symptom of a Fed that is appearing more likely to begin tapering QE earlier into the recovery than was previously expected – even if the initial Fed Funds hike date remains well in the future. We are positioned in Treasury curve steepeners to take advantage of this view.
looks like we've entered into the "shit is headed to the fan" phase people. what we have now is a failure to communicate just what a diaster we're headed for. we've got .gov in the federal preserve pumping out trillions of fiat, trying to push and con the global sheeple into paper fantasyland through equities and such, where the only people making money are the racketeer banksters. they get free money from the taxpayer (AGAIN), in zero % loans to gamble like drunken sailors, (i was once a drunken sailor btw), in the deriavative monster galaxy, the real estate bubbleII, credit card limits to the sky for people without jobs, and of course the write-offs for the money spent on our fucking worthless politicians, including the nuetered negro in the white house, along with his arrogant pos vice president, and lest we forget the army of jpm & goldman ex'es running the economy into the ground from every beauracratic level. we've got germany, with belguim as their proxy, taking over europe without a shot,again with jpm and goldman alumni. paper gold and silver being pushed up and down at will, totally destroying the savings of millions with their fake etfs., etc. minus interest on the diminishing value of frns. bogus cpi & inflation, debt that can NEVER be repaid, wars upon wars and rumors of wars where the military omplex is raping the subserviant taxpayer. corporations with NO tax liabilities from offshoring. joblessness above 50% here, more elsewhere. usd losing it's reserve currency status due to debt and fraud. loss of liberties and the ongoing steamroller to take even more away "for our own well being and safety due to terrorism". shit, i could go on and on but wtf. if you don't know it by now, then the resulting nightmare will be a real wake up call. buy physical au and ag. stash a couple hundred dollars away for any national holidays (as in bank holidays), have a fucking plan. i don't want this shtf episode anymore than anyone else, cause it'll be a painful saga for a once great country. when WE are down and out, what the fuck are russia and china, or iran, north korea, or some other wasted country going to think they can get away with? take care amigos, and thanks tylers for all the great info. just felt like ramblin.
AMEN......................
With the exeption of the 50% unemployment stat,In your statement I find a list of current truths. About which I can be arware of yet can have no effect upon.
OK, so you see our current reality for what it is great, but we still have to live and interact with others by this realitys rules.
May you be granted the wisdom to know that which you cannot change, and that which you can.
How many people may I help in my short time here.
Happy saturday!
Good speech.
One thing I disagree with is his statement,
"The failure of QE to provoke durable economic growth is not a failure of effort, it is a failure of ideas and understanding."
which I would change to,
"The failure of QE to provoke durable economic growth is not a failure of effort, it is a failure of intent."
since I think the Fed's two main goals are to fund the federal government, and to enrich the elite, not necessarily in that order.
I'm a Hussman fan but this was very disappointing. Hussman writes excellent weekly commentary but his speaking here was muddled and ineffectual. Based solely on his writing, I had hopes that Hussman might someday emerge as a Fed/Public official. (In fact, I had considered attending this conference at considerable expense.) This was my first time seeing Hussman speak and I found this so sadly lacking clarity. It was quite unlike his writings. Very muddled.
Hussman funds are laggards and I cut my losses sometime ago. However, I maintained great respect for Hussman. However, this was very disappointing.
I thought it was mostly a rehash of arguments he's made over the years in his commentaries. If you had trouble understanding one or more of his charts or assertions, I might be able to explain it.
Hussman writes great articles, I read them on a regular basis, but, hey, everyone has a bad day now and then. I think he's just not been in his best form.
I did not think the speech was disappointing. It failed, however, to live up to the normal excellence of his written commentary (or at least the few pieces I've occasionally come across over the years). As you've indicated, lacking somewhat in the conciseness and clarity of his written style.
http://news.yahoo.com/cyprus-open-casinos-restart-economy-163453838--fin...
I guess Topless car washes and dog fighting will be next to attract the masses.
Reversion to the mean is a great way to explain what is happening. You can print your way out of trouble, but you cannot escape an aging population that doesn't need to buy merchandise and the reversion to the mean this entails, so printing just makes the inevitable worse. The interesting question is the one we can't answer, when?
and the younger generation of sheeple consumers is using CREDIT to do so, consumer credit back up again, so when that reality crashes due to low wages, be on the sidelines.
The Fed has killed the yield-curve, never engineered before for 6 years. Shorting is suicide due to bots seeing your trades. Step aside, wait.
Effective Federal Funds Rate from 1954 to 2013:
http://www.scribd.com/doc/136924220/Effective-Federal-Funds-Rate-from-1954-to-2013-Federal-Reserve
Right
An accounting identity theory of money as opposed to a quantity theory of money. Brilliant. It ranks right up there with Robert Lucas in my opinion. And +1000 for zero hedge for posting awesome material all the time. It's to the point where I hardly look at anything else.