U.S. Treasuries a Buy or a Short?

Courtesy of Mish.

I had a nice conversation the other day with Lacy Hunt at Hoisington Investments. We agree on many aspects of the global economy and I have a few excerpts of Hoisington’s latest forecast below.

First, let me state that if you are looking for someone who has called the US treasury market correct this past decade, look no further than Hunt.

While I have been US treasury bullish (on-and-off ) for years (more on than off), and I can also claim to have never advocated shorting them (in contrast to inflationistas running rampant nearly everywhere), Lacy has correctly been a steadfast unwavering treasury bull throughout.

Will Hoisington catch the turn?

That I cannot answer. However, one look at Japan suggests the actual turn may be a lot further away than people think.

For a viewpoint remarkably different than you will find anywhere else, please consider a few snips from the Hoisington Quarterly Review and Outlook, for the Second Quarter 2012 (not yet publicly posted but may be at any time).

Abysmal Times Confirm the Research

In the eleven quarters of this expansion, the growth of real per capita GDP was the lowest for all of the comparable post-WWII business cycle expansions. Real per capita disposable personal income has risen by a scant 0.1% annual rate, remarkably weak when compared with the 2.9% post-war average.

It is often said that economic conditions would have been much worse if the government had not run massive budget deficits and the Fed had not implemented extraordinary policies.

This whole premise is wrong.

In all likelihood the governmental measures made conditions worse, and the poor results reflect the counterproductive nature of fiscal and monetary policies. None of these numerous actions produced anything more than transitory improvement in economic conditions, followed by a quick retreat to a faltering pattern while leaving the economy saddled with even greater indebtedness. The diminutive gain in this expansion is clearly consistent with the view that government actions have hurt, rather than helped, economic performance.

Economic conditions have been worse in euro-currency zone countries, the UK, and Japan. All three of these major economies have also resorted to massive deficit financing and highly unprecedented monetary policies, and all have substantially higher debt to GDP levels than the United States. …



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