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.
Last week in my letter "Thoughts from the Frontline," I promised a more in-depth view into the housing market provided by the well respected Professor Nouriel Roubini. I also commented on how complexity theory plays into the markets with a culmination of individual events each contributing to a larger "finger of instability" that poses a recessionary threat. One such contributing variable is the U.S. housing market. This week's "Outside the Box" contains an excerpt from Mr. Roubini's blog. (This entry as well as his latest posts can be found at http://www.rgemonitor.com/blog/roubini)
Nouriel is a Professor of Economics at the Stern School of Business at New York University (see http://pages.stern.nyu.edu/~nroubini/ for his Stern homepage). His applied academic research includes seminal work in international macroeconomics, global macro policies, financial crises in emerging markets and their resolution, and the reform of the international financial architecture.
Mr. Roubini continues to take a non-consensus view on the markets which is why I believe that you will find his opinions to be truly "Outside the Box."
With so many variables to weigh in on, there has been a lot of speculation going around about how Fed Chairman, Ben Bernanke, is going to fare in his rookie season. The headlines of the financial press have been filled with reports of inflation and the dollar, but what of the U.S. housing market that once demanded so much investor attention?
This week's letter is from Paul Kasriel of The Northern Trust Company. Kasriel is Senior Vice President and Director of Economic Research, responsible for producing the Corporation's economic and interest rate forecasts. He advises the Bank's Assets-Liabilities Committee as well as the Corporation's Investment Policy Committee.
Paul looks at the U.S. housing market in light of the Fed's recent actions and their effects on mortgage rates. He is in the "soft landing" camp for the recent slowdown in real estate but warns of what could happen to the market if a bubble were to burst. Now, let's take a look at this week's "Outside the Box."
Bonds will be our subject for today. But this is not your ordinary outlook for bonds. Despite the current consensus amongst the street, HMIC's Van Hoisington and Dr. Lacy Hunt have chosen to take a contrarian's approach to the future of the bond market, because of their concerns for the US economy, which they present in detail.
Hoisington Investment Management Company focuses on long-term investment strategies based on Economic Analysis. The firm is a registered investment advisor specializing in fixed income portfolios with over $3.5 billion under management for large institutional clients. Van R. Hoisington is the President and Chief Investment Officer and has produced an outstanding fifteen-year performance record. Dr. Lacy Hunt, an internationally known economist, joined the firm in 1996 adding depth and expertise with his in-depth research and analysis.
Today's article is from their First Quarter Review and Outlook which I am delighted to present to you with their consent. While constructing their assessment for bonds, Van and Lacy walk through each building block, the Fed's actions, consumer spending and the housing market, along the way to assembling a truly "outside the box" outlook for the economy and fixed income securities.
This week's letter is from Paul Kasriel of The Northern Trust Company. Kasriel is Senior Vice President and Director of Economic Research, responsible for producing the Corporation's economic and interest rate forecasts. Not long ago Paul had a contest to try and come up with a new name for his Positive Economic Commentary and The Econtrarian: Your Alternative to the Econsensus won out.
In this edition he turns his focus on the housing market. Many are forecasting continued strength in the housing markets and they point out that previous slow downs have not been disastrous. Although they might go back and look at the Houston, Texas market in the early-to-mid 1980's during the oil industry collapse.
Is the housing market a bubble about to burst or merely in a late winter slow down? Kasriel takes a macro look at some of the numbers behind housing and why things might be different this time and that is why it was picked for this week's Outside the Box.
This week's letter comes to us from Dr. A. Gary Shilling, president of A. Gary Shilling & Co., Inc. Gary is a long time friend and one of my favorite economic analysts. He also contributed a Chapter to my latest book, Just One Thing, which can be purchased at www.amazon.com/justonething.
In Friday's Thoughts from the Frontline, I mentioned that Gary is less optimistic on the housing market than I am. Gary's January letter looks at 10 nonconsensus investment themes and he spent nearly half the letter on housing and makes a case for why the housing bubble may be headed for trouble. This is a topic that has received a lot of attention over the last couple of years and poses one of the largest threats to the US economy.
This letter may seem longer than most, but that is due to the numerous charts Gary uses to back up his argument. You will find this very interesting food for thought in this week's Outside the Box.
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."
This week's letter comes to us from Dr. A. Gary Shilling, president of A. Gary Shilling & Co., Inc. Gary is a long time friend and one of my favorite economic analysts.
Gary takes a look at what he has termed the consumer-dependent economy. The consumer has increasingly become a larger factor in driving our economy with the help of debt and loose monetary policy. Savings, GDP, housing, debt, and bankruptcy trends are pieced together to create a bleak picture of the baby boom retirement years. You will find this very interesting food for thought in this week's Outside the Box.
Once again we look at one of my favorite analysts and behavioral finance thinker, James Montier of Dresdner Kleinwort Wasserstein in London. James wrote a fascinating book several years ago called "Behavioural Finance: A User's Guide" and puts out ongoing research like the one we will enjoy today. Long time readers will recognize the name because I have discussed many of his ideas in my weekly letter "Thoughts From the Frontline," my book "Bull's Eye Investing" and in "Outside the Box."
This report by James explores whether there is a bubble in the US housing market. He has pulled together data from numerous sources and gives his conclusion that there is a definite bubble. In fact he does not understand how others like myself could argue otherwise and that is why it was picked for this weeks Outside the Box.