08/15/13 Red House

It’s fair to say that since the day I hopped off the La-Z-Boy I’ve been ‘wrong’ (although not by much). Today marks the first day the total stock market closes below my July 11 exit price. Bond yields hit a 2-year high today (rising yields are normally not a friendly environment for market bulls). A 1987-type crash has been all over the headlines, so that pretty much guarantees we don’t crash. But it’s a good time to think about capital preservation. Those of you who (continue to) read Hussman’s weekly comments know that he expects at least one downdraft in the -40% to -50% range before the completion of what he refers to as the ‘unfinished half- cycle.’ No one can predict when that happens, but he likes to underscore the point that cyclical bears typically wipe out most, if not all, of the gains seen in the preceding bull. “The market lost 85% between 1929-1932, lost over 50% between 1972-1974, crashed abruptly in 1987, lost over 50% in 2000-2002 and again between 2007-2009, and even lost nearly 20% in the less-memorable 2011 instance.”