Hussman weekly commentary conclusions:
On gold:
"Precious metals stocks corrected last week, but the metal did not correct as significantly. As a result, the ratio of the gold price to the XAU is again above 4.0, which has historically been a reasonable level of valuation. The ideal conditions for gold stocks occur when, in addition to reasonable valuations, there is pressure on the U.S. dollar as a result of upward inflation pressures, early weakness in the economy, and falling nominal interest rates. This combination typically happens very early into economic downturns. We don't see that yet, so it is not appropriate to take a significant exposure to precious metals shares here. But valuations, combined with increasing pressure for revaluation in Asian currencies is enough to make us willing to buy very lightly into weakness in gold stocks. We did a bit of that late last week in a handful of issues. Again, however, overall conditions for precious metals are not compelling enough for us to take positions of significant size yet."
Hussman was exceedingly bearish on the PM stocks immediately prior to the correction.
On the U. S. markets:
As of last week, the Market Climate for stocks remained characterized by unusually unfavorable valuations and still moderately favorable market action. The Strategic Growth Fund remained fully invested in stocks that appear to have some combination of favorable valuation and market action, with just over half of that portfolio hedged against the impact of market fluctuations. We're also holding a modest “contingent” position in out-of-the-money put options. Though this position represents only a fraction of 1% of assets, our measures of market action are becoming increasingly “hot” – it would no longer take a great deal of deterioration to shift the Market Climate to a fully defensive stance, and there is at least some potential for this to occur abruptly. |
