Outside the Box

Quarterly Review and Outlook - Q3 2004

John Mauldin

October 18, 2004

This week's letter is from two of my favorite economists, Van Hoisington and Dr. Lacy Hunt of Hoisington Investment Management Company in Austin, Texas. They specialize in management of fixed income portfolios for large institutional clients by setting long-term investment strategies based on economic analysis. They have been one of the most successful of bond managers in the country. (I have no affiliation with them.) I eagerly read all of their writing and analysis, and find it to be some of the most thought-provoking anywhere.

Their third quarter 2004 Quarterly Review and Outlook examines where the economy might be going by looking at inflation, savings, consumption and jobs. Let's explore the current economic environment in this weeks "Outside the Box."

John Mauldin, Editor
Outside the Box

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Quarterly Review and Outlook Q3 2004

By Van Hoisington and Dr. Lacy Hunt

ATYPICAL

Unusual would be an appropriate description of the interest rate movement thus far in 2004. Short dated interest rates, typified by the Fed funds rate, moved higher from 1% to 1 3/4%. Simultaneously, the longest dated Treasury bonds declined in yield from 5.07% on January 1 to below 4.9% currently. This disparate movement in the yield curve, while indeed…

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