Hussman Funds - Weekly Market Comment: January 3, 2005

January 3, 2005

The stock market enters 2005 in a Market Climate characterized by extremely unfavorable valuations but still moderately favorable market action. A number of overhangs remain in the form of heavy insider selling, unusually high investment advisory bullishness, and a general overbought condition in the major indices. The Strategic Growth Fund remains well-hedged, though with a modestly constructive bias due to the fact that approximately 35% of the Fund is hedged with put options only rather than full short-sales (long put / short call combinations) in the S&P 100 and Russell 2000 indices.

In bonds, the Market Climate remains characterized by modestly unfavorable valuations and modestly unfavorable market action. The Strategic Total Return Fund enters 2005 with a modest 2.5 year duration (a 100 basis point shift in interest rates would be expected to impact the Fund by roughly 2.5% on account of bond price fluctuations), mostly in Treasury Inflation Protected Securities, with a roughly 16% allocation to precious metals shares, which is likely to be responsible for the bulk of short-term day-to-day fluctuations.