Outside the Box

Hoisington Quarterly Review and Outlook

January 17, 2012

The "Quarterly Review and Outlook" from Hoisington Investment Management is one of the most significant pieces that crosses my desk – I try and drop everything else as soon as possible. This quarter's is no exception. The authors, Dr. Lacy Hunt and Van Hoisington, get right down to brass tacks with their opening sentence: "As the U.S. economy enters 2012, the gross government debt-to-GDP ratio stands near 100%." They cite an influential 2010 historical study of high-debt-level economies around the world, by Professors Kenneth Rogoff and Carmen Reinhart, that concluded that when a country's gross government debt rises above 90% of GDP, "median growth rates fall by one percent, and average growth falls considerably more."

And that, Hunt and Hoisington note, is exactly what is happening to us: "After suffering the most serious recession since the 1930s, the U.S. has recorded an economic growth rate of only 2.4%. Subtracting 1% from this meager expansion suggests that the economy should expand no faster than 1.4% in real terms on a trend basis going forward, which is virtually identical with the economy's expansion in the past twelve months."

Bottom line, say the authors: expect recession in 2012, here and in most of the world.

On a personal note, let me say that I consider Lacy Hunt one of the premier economists in the world today. It is my great privilege to call him up (even on his cell phone at night!) and ask questions and get to play the role of student, sometimes for hours, as Lacy takes me through the history, writing, and research in the economic world. It can sometimes be a tad intimidating, as he has seemingly read everything and remembers what he read and how it fits. I do take notes.

Hoisington Investment Management Company (www.hoisingtonmgt.com) is a registered investment advisor specializing in fixed-income portfolios for large institutional clients. Located in Austin, Texas, the firm has over $4 billion under management, composed of corporate and public funds, foundations, endowments, Taft-Hartley funds, and insurance companies.

Your thrilled to be in Singapore at last analyst,

John Mauldin, Editor
Outside the Box

subscribers@mauldineconomics.com

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