Hussman Funds - Weekly Market Comment: January 3, 2005

January 3, 2005

Brief Holiday Update

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

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.

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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 ).