Brief Holiday Update

John P. Hussman, Ph.D.
All rights reserved and actively enforced.

No change in the Market Climate last week in either stocks or bonds. In stocks, the Market Climate continued to be characterized by unusually unfavorable valuations and unfavorable market action. Again, the salient features of market action are not always reflected in the action of the major indices - if they were, pure trend-following or moving-average systems would be effective, which doesn't really seem to be true over the long-term. Rather, the important feature of market action here is its internal quality as measured by factors such as breadth, leadership, uniformity and spread behavior across industry groups and asset classes, sponsorship as measured by price/volume statistics, and so forth. On those measures, we continue to observe evidence of what would commonly be called "distribution" - instead of seeing signs that investors have strong demand and a robust preference to take market risk, we can observe, among other things, a tendency for volume to pick up on declines and become dull on rallies.

For now, the Market Climate in stocks remains unfavorable, but that doesn't imply a forecast, and we'll be quick to establish at least a moderate exposure to market fluctuations if and when the evidence shifts to support that exposure. At present, the Strategic Growth Fund remains fully hedged.

In bonds, the Market Climate also remains characterized by unfavorable valuations and unfavorable market action. The shape of the yield curve is rather odd at present, with aspects that have historically been associated with an "upward, parallel shift," that is, rising yields at all maturities.

Given that the prevailing Climate is unfavorable, there's really no need to forecast yields, being content just to align our present investment position with the prevailing Climate. I disagree with the notion that a slowdown in economic growth or dollar weakness or the like will give the Fed much room to cut interest rates, the reason being that there is probably substantially more inflationary pressure (given the past few years of profligate and unproductive fiscal spending) than the market might be assuming. In any event, the Market Climate in bonds remains unfavorable at present, and for our purposes, that's all we need to know to sustain a relatively short-duration exposure in bonds.

We had a wonderful, blessed Christmas here - a lot to be thankful for. Wishing you a happy and bright Hanukkah this week, and an enjoyable New Year's celebration.

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The foregoing comments represent the general investment analysis and economic views of the Advisor, and are provided solely for the purpose of information, instruction and discourse.

Prospectuses for the Hussman Strategic Growth Fund, the Hussman Strategic Total Return Fund, the Hussman Strategic International Fund, and the Hussman Strategic Dividend Value Fund, as well as Fund reports and other information, are available by clicking "The Funds" menu button from any page of this website.

Estimates of prospective return and risk for equities, bonds, and other financial markets are forward-looking statements based the analysis and reasonable beliefs of Hussman Strategic Advisors. They are not a guarantee of future performance, and are not indicative of the prospective returns of any of the Hussman Funds. Actual returns may differ substantially from the estimates provided. Estimates of prospective long-term returns for the S&P 500 reflect our standard valuation methodology, focusing on the relationship between current market prices and earnings, dividends and other fundamentals, adjusted for variability over the economic cycle (see for example Investment, Speculation, Valuation, and Tinker Bell, The Likely Range of Market Returns in the Coming Decade and Valuing the S&P 500 Using Forward Operating Earnings ).