Post-Crash Dynamics
John P. Hussman, Ph.D.

Fund News: As I've often had the occasion to announce since the inception of the Hussman Funds, I'm pleased to report that on August 5th, the expense ratio for the Hussman Strategic Growth Fund (HSGFX) was lowered again, from 1.10% to 1.04%. The expense ratio for the Hussman Strategic Total Return Fund (HSTRX) was lowered from 0.75% to 0.67%. These cuts reflect active reductions in investment advisory and fund administration fees, the addition of new fee breakpoints (approved at the July meeting of the Hussman Funds Board of Trustees), and general growth in Fund assets. Fund expense ratios are affected by a number of factors including fee breakpoints and the level of Fund assets, and may increase or decrease over time.
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The U.S. economy lost a quarter of a million jobs in July. Meanwhile, over 400,000 workers abandoned the labor force (and are therefore no longer counted among the unemployed), which prompted a slight decline in the unemployment rate despite the job losses. In the context of an economy still strained by high levels of consumer debt and still record delinquency and foreclosure rates, labor market conditions are still troublesome. Still, the pace of job losses and new unemployment claims has clearly softened from the pace we observed early in the year.
If we knew that this was a standard economic downturn, we might conclude that the recent improvements are durable. However, nothing convinces us that this is a standard economic downturn. As for market action, the major indices have generally been strong, as has breadth (as measured by advances versus declines), but the 妬nvestor sponsorship evident from trading volume has been uncharacteristically dismal compared with initial advances of past bull markets. So here too, we have very strong concerns that the recent advance may not be as durable as investors appear to believe.
All of that said, we aren't inclined to fight even what we view as errant analysis, and the Strategic Growth Fund has about 1% of assets allocated to near-the-money index call options about enough to gradually close down about 40% of our hedge in the event that the market advances markedly higher from here, but without putting us at risk of much loss in the event of failure. With investors now anticipating and pricing in a sustained economic recovery, as well as a spectacular earnings rebound (see Bill Hester's piece Earnings Growth Forecasts May Require a Robust Economic Recovery additional link below), a lot of things will have to go right from here in order to sustain higher prices than we currently observe. ( learn more at )