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Just for Kids

Let's make a quarter disappear!

By John P. Hussman, Ph.D.
This article was first published in February 2002.
All rights reserved and actively enforced.

Rather than talking about operating earnings, which are boring, let's learn how to make a quarter disappear!

Borrow a quarter. Preferably, you want to be able to do the trick with more valuable things, like half-dollars, or the entire retirement savings of your employees, but let's start by obtaining a quarter from an excited audience member. This is known as an IPO.

Hold the quarter in your right hand, face up between the tips of the thumb and forefinger like it's a little trading floor. Your knuckles should face the ground, palm facing up. The three other fingers of your right hand should be gently bent inward, forming an archway over the palm.

Make a "C" shape out of your left hand, thumb on the bottom, and 4 fingers curved on top. Move the C shape toward your right hand, with your left thumb going through the archway and the fingers of the left hand now covering the quarter. This is known as lack of transparency.

At this point, the quarter is no longer visible to observers. Your hands are cupped so widely over each other that you could fit Joe Battapaglia into the cavity they have formed. Now drop the quarter into the right palm. This is known as an off-balance-sheet transaction. Let it land near the point where the right ring finger meets the palm. Keep the thumb and forefinger of the right hand up, and leave the space between them intact, where the quarter used to be. Curl the three fingers of your right hand gently over the quarter.

Now, close the left hand. Not too tightly - leave a little air inside, since you want everybody to think there is actually a quarter in there. This is known as inflating the assets. As you pull the left hand away, your right thumb pops out first, and you let your left thumb cover up any opening. The forefinger of your right hand should then pop out from the pinkie side of your closed left fist, and gently point toward the empty left hand. For the sake of misdirection, it's essential to keep your right thumb and forefinger in the air, so the only thing that seems different is that the quarter has been pulled away.

You can now tap the wrist of your left hand lightly with the right forefinger a couple of times, to convey an extra measure of security and shift everyone's attention to the empty hand. This is known as an analyst conference call.

Unfortunately, every once in a while some spoilsport will call out "It's still in your right hand." These people are known as public accountants. Obviously, you want to have "consulting arrangements" with these people on the side.

It also helps if you can get a few people to rave about how skillful you are, how securely you seem to be holding that quarter in your (empty) left hand, and how certain you are to turn that quarter into a handful of them. These people are known as brokerage analysts. Since they get paid to sell tickets to your show, they're pretty much in your pocket anyway.

You should also have people who talk breathlessly about how much money is flowing into your left hand. These people are generally known as Maria Bartiromo.

Finally, and this is important, follow your closed (and empty) left hand upward and to the left with your eyes. You want to convince people not only that the quarter is safely in your left hand, but that it's dynamic - on the move. This is known as earnings guidance.

The right hand should look natural, not clenched. Do not, under any circumstance, look at the right hand or move it quickly. Focus all of your attention and motion on the empty left hand. As you watch it move higher, slowly move the right hand to your side. Still watching the left hand, do any sort of mystical move you prefer, like having somebody blow on the hand, or opening the hand with a sprinkling motion as if you were dissolving the quarter into powder. This is known as filing for Chapter 11.

While everyone's attention is focused on the empty left hand, feel free to quietly slip the quarter into your pocket, generally known as the Cayman Islands.

Congratulations. You are now eligible for listing on NYSE and Nasdaq.

 

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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.

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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 ).


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