Hoisington: Quarterly Review and Outlook

Based upon the historical record of effects of excessive and low quality indebtedness, along with the academic research, the 30-year Treasury bond, with a recent yield of less than 3%, still holds value for patient long-term investors. Even when this bond drops to a 2% yield, it may still have value in relation to other assets. (my emphasis)

This comment from Lacy Hunt, an advisor to Hoisington Investment Management Company, has to be tempered with the realization that he has called the market correctly in long bonds for years. So it pays to dig a little deeper into his analysis. And when I did, I came up with some surprising tidbits and some confirmation about where we are and where we are heading.

For example Hunt writes:

In the eleven quarters of this expansion, the growth of real per capita GDP was the lowest for all of the comparable post-WWII business cycle expansions. Real per capita disposable personal income has risen by a scant 0.1% annual rate, remarkably weak when compared with the 2.9% post-war average.

It is often said that economic conditions would have been much worse if the government had not run massive budget deficits and the Fed had not implemented extraordinary policies.

This whole premise is wrong.

In all likelihood the governmental measures made conditions worse, and the poor results reflect the counterproductive nature of fiscal and monetary policies. None of these numerous actions produced anything more than transitory improvement in economic conditions, followed by a quick to a faltering pattern while leaving the saddled with even greater indebtedness.

The diminutive gain in this expansion is clearly consistent with the view that government actions have hurt, rather than helped, economic performance. (my emphases)

This has been a basic theme of mine. For years I have used the analogy of a drug addict who needs an increasing quantity of heroin to get high. It’s either get high or go into withdrawal. The Fed is injecting into the economic body. In the past such injections stimulated economic growth (for a while) but then the would falter, start to correct and try to rebalance itself, and then be stimulated again by additional quantities of money. The Fed has no interest in a recession, for obvious political reasons.

So Hunt comes out of all of this by concluding that our will be more like Japan’s: stagnant growth in for years, with interest rates likely to go lower. Since they are already at zero on short debt securities, the only place for interest rates to fall is at the long end—specifically the 30-year U.S. Treasury bond.

His position is bolstered by the proposition that there is no place else for safety conscious investors to go. By bidding for those securities, investors drive up the price of those bonds which is reflected in lower and lower yields on those bonds.

Notice his warning: “in relation to other assets.”

BTW: this is not investment advice. I’m no longer in the investment business. This is an economic observation by Lacy Hunt whom many consider a great talent in the field of economic and investment forecasting.

Opt In Image
Soak Up More Light from the Right
with a free copy of Bob's most popular eBook!

Sign up to to receive Bob's explosive articles in your inbox every week, and as a thank you we'll send a copy of his most popular eBook - completely free of charge!

How can you help stop the 's latest gun grab? How is the deceiving America today? What is the latest Obama administration coverup? Sign up for the Light from the Right email newsletter and help stop the progressives' takeover of America!