Outside the Box

Quarterly Review and Outlook

John Mauldin

October 17, 2005

This week's letter is once again 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 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 2005 Quarterly Review and Outlook looks at the current economic situation in the US. Tighter monetary supply, a slowdown in housing and higher oil does not bode well for the US consumer. While many see economic strength and inflation worries, Hoisington still sees a flattening yield curve which could turn negative and lead to the next recession. This is not a consensus view, which is why I picked it for this week's "Outside the Box."

John Mauldin, Editor
Outside the Box

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Quarterly Review and Outlook

By Van R. Hoisington and Lacy H. Hunt, Ph.D., Hoisington Investment Management Company

Remarkable Variability In Returns

Over the first nine months of this year, the yield on the two year note increased from 3.1% to 4.2% as the monetary authorities hiked the Federal funds rate six times, each by 25 basis points. Thus, 2005 has been a continuation from 2004's final quarter when the Fed funds and…

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