Recession, Deflation and Deficits
July 12, 2010
I look forward at the beginning of every quarter to receiving the Quarterly Outlook from Hoisington Investment Management. They have been prominent proponents of the view that deflation is the problem, stemming from a variety of factors, and write about their views in a very clear and concise manner. This quarter's letter is no exception, where they once again delve into the history books to bring up fresh and relevant lessons for today. This is a must read piece.
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. And now let's jump right in to the essay.
Quarterly Review and Outlook - Third Quarter 2009
October 12, 2009
I look forward at the beginning of every quarter to receiving the Quarterly Outlook from Hoisington Investment Management. They have been prominent proponents of the view that deflation is the problem, stemming from a variety of factors, and write about their views in a very clear and concise manner. This quarter's letter is no exception, where they once again delve into the history books to bring up fresh and relevant lessons for today. This is a must read piece.
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. And now let's jump right in to the essay.
Quarterly Review and Outlook - First Quarter 2009
April 20, 2009
There is a reason I call this column Outside the Box. I try to get material that forces us to think outside our normal comfort zones and challenges our common assumptions. And this week's letter does just that. I have made the comment more than once that is it unusual for two major bubbles to burst and for the conversation and our experience to be rising inflation and not a serious problem with deflation.
Van Hoisington and Dr. Lacy Hunt give us a seminar on why they think it is deflation that will ultimately be the problem and not inflation we are dealing with today. This week's letter requires you to think, but it will be worth the effort.
Now, if you put all of the various inputs together, Hoisington and Hunt show that theory suggests we will soon be dealing with deflation. It's counter- intuitive to what we hear today, which is why the Bank for International Settlements used the stagflation word in a recent report. The transition that is coming will not be comfortable.
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. And their track record over the last 20 years suggests we should pay attention. And now let's jump right in to the essay.
The Great Experiment
January 19, 2009
There is a reason I call this column Outside the Box. I try to get material that forces us to think outside our normal comfort zones and challenges our common assumptions. And this week's letter from Hoisington Investment Management Company does just that.
Let me give you two quotes to pique your interest: "Monetary policy works by creating the environment for a renewed borrowing and lending cycle. This cycle would require that the debt to GDP ratio, which is already at a record level, grow even higher. Would such an outcome really be that desirable when the controlling problem of the U.S. economy is too much improperly financed debt? If the Fed were able to engender an increase in the debt to GDP ratio, this might merely serve to postpone the reckoning of the current debt levels while laying the foundation for an even more vicious unwinding down the road."
And: "The only really viable option for federal stimulus is a permanent reduction in the marginal tax rates, as highlighted in the research of Christina Romer, incoming Chair of the Council of Economic Advisors. This would have the benefit of raising after tax rates of return, but the drawback in the short run of still having to be financed by an increased budget deficit. Over time, a massive reduction in marginal tax rates would be beneficial, but the operative word is time. Refunds, or transitory tax relief, will have no better results in stemming the recessionary tide in 2009 and 2010 than it did in the spring of 2008."
Van Hoisington and Dr. Lacy Hunt give us a seminar on the current bailout programs that is not the usual analysis we see in mainstream media. This week's letter requires you to think, but it will be worth the effort.
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. And now let's jump right in to the essay.
Quarterly Review and Outlook - Second Quarter 2008
July 7, 2008
There is a reason I call this column Outside the Box. I try to get material that forces us to think outside our normal comfort zones and challenges our common assumptions. And this week's letter does just that. I have made the comment more than once that is it unusual for two major bubbles to burst and for the conversation and our experience to be rising inflation and not a serious problem with deflation.
Van Hoisington and Dr. Lacy Hunt give us a seminar on why it will be deflation that will ultimately be the problem and not the current inflation we are dealing with today. This week's letter requires you to think, but it will be worth the effort. Remember our lesson from Economics 101. If you raise the supply of something, in normal markets the price goes down. And if you increase the price, suppliers will respond by producing more.
Now, if you put all of the various inputs together, Hoisington and Hunt show that theory suggests we will soon be dealing with deflation. It's counter-intuitive to what we see in the stores today, which is why the Bank for International Settlements used the stagflation word in a recent report. The transition that is coming will not be comfortable.
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. And now let's jump right in to the essay.
Quarterly Review and Outlook - First Quarter 2008
April 21, 2008
This week's Outside the Box is from my friends at Hoisington Management. While somewhat technical, they make the case that a slowdown in consumer spending is inevitable. This is worth taking some time and thinking about. Quoting: "This means that consumer spending increases should be approximately zero for the next three years. Further exacerbating the problem is the personal saving rate which declined from 5.2% in the decade of the 1990s to average 1.3% in the last seven years, and now stands at 0.3%. Should declining wealth, rising unemployment and poor economic conditions cause consumers to begin to save and lift the rate back to the 1.3% average of the past seven years, real consumer spending would experience a multi-year contraction."
If they are right, and the evidence of their research is compelling, then we are in for a much tougher time than the recent stock market rallies suggest. The stock market is not always a leading indicator. This week's letter suggests that businesses that depend on the US consumer for growth may be in trouble.
Quarterly Review and Outlook - Third Quarter 2006
October 9, 2006
This week's "Outside the Box" is by my friends and the always out of the box thinkers at Hoisington Investment Management. In their 3rd quarter market commentary, Van Hoisington and Dr. Lacy Hunt weigh in on a myriad of topics ranging from the data affecting interest rates to housing to the outlook for the dollar. They go on to discuss a correlation between the yield curve and the Leading Economic Index (LEI) that has produced a very accurate track record of predicting recessionary environments.
Based in Austin, Texas, Hoisington Investment Management Company is led 2 economists, Van Hoisington and Dr. Lacy Hunt. They specialize in management of fixed income portfolios for large institutional clients by setting long-term investment strategies based on economic analysis.
While the markets seem stuck in the waters of uncertainty, it is more important than ever to continually focus on prudent principles and independent thought to yield intelligent investments.
Quarterly Review and Outlook: Second Quarter 2006
July 24, 2006
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 second quarter 2006 Quarterly Review and Outlook looks at the current economic situation in the US after a 1st half sell-off, inversion of the yield curve and a recession threatening. With the markets "teeter tottering" between excitement and fear, Hoisington's article proves to be both insightful and timely, which is why I picked it for this week's "Outside the Box."
Quarterly Review and Outlook
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."
Quarterly Review and Outlook 2005
July 18, 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 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 second quarter 2005 Quarterly Review and Outlook looks at the secular forces that are keeping inflation and long term interest down and why that might continue for an extended period of time. They argue that interest rates only look high from a 1945-1990 reference point and that in fact they may now be closer to the long term historical average and that is why I picked it for this week's "Outside the Box."
2004 Quarterly Review and Outlook
January 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 offer a view on bonds which, as Van noted in a conversation with me this week, disagrees with my 2005 forecast of last week. It is important to read well-reasoned opinions which disagree with your own, which is one of my foremost thoughts when selecting each week's article for Outside the Box.
And there are reasons to pay attention to their views on bonds. 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 fourth quarter 2004 Quarterly Review and Outlook is an economic forecast of the coming year which looks at the consumer's financial condition and offers a contrarians view to long-bond yields. Let's explore where the economy might head in this weeks "Outside the Box."
Quarterly Review and Outlook - Q3 2004
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."