I find it hard to argue against these 2 investment advisers

[anonymous-user]

Van Hoisington and Lacy Hunt hit the nail very fairly and very squarely on the head, again imo. Beautifully clear thinking, well presented.

Worth a read every quarter imo

http://www.hoisingtonmgt.com/pdf/HIM2014Q4NP.pdf

"The proximate cause for the current economic maladies and continuing downshift of economic activity has been the overaccumulation of debt. In many cases debt funded the purchase of consumable and nonproductive assets, which failed to create a future stream of revenue to repay the debt. This circumstance means that existing and future income has to cover, not only current outlays, but also past expenditures in the form of interest and repayment of debt. Efforts to spur spending through relaxed credit standards, i.e. lower interest rates, minimal down payments, etc., to boost current consumption, merely adds to the total indebtedness. According to Deleveraging? What Deleveraging? (Geneva Report on the World Economy, Report 16) total debt to GDP ratios are 35% higher today than at the initiation of the 2008 crisis."

Followed by a lovely assessment of 'currency wars'

"Recognizing the economic malaise, various economies, including that of the U.S., have instituted policies to take an increasing “market share” from the world’s competitive, slow growing marketplace...

...Historical experience in the period from 1926 to the start of World War II (WWII) indicates this process of competitive devaluations impairs global activity, spurs disinflationary or deflationary trends and engenders instability in world financial markets."

Is there a lesson from history?

"It is interesting to ponder the ultimate outcome of this process, which ended with World War II. The extreme over-indebtedness, which precipitated the process, had not been reversed. Thus, without WWII, this so-called “race to the bottom” could have continued on for years."

"The existence of over-indebtedness, and its resulting restraint on growth and inflation, has forced governments today, as in the past, to attempt to escape these poor economic conditions by spurring their exports or taking market share from other economies. As shown above, it is a fruitless exercise with harmful side effects."

The conclusion concerns US Treasury yields - which is the main market in which Hoisington advises:

"Conditions will be sufficiently lackluster that the Federal Reserve will have little choice in their overused bag of tricks but to stand pat and watch their previous mistakes filter through to worsening economic conditions. Interest rates will of course be volatile during the year as expectations shift, yet the low inflationary environment will bring about new lows in yields in 2015 in the intermediate- and long-term maturities of U.S. Treasury securities."

[Claudia Skies]

It is glib to blame overindebtedness on a global scale. Because the question simply becomes - to whom is that debt owed?

[anonymous-user]

Partly

But, if the debt is recognised and taxpayers money is being used to repay it (and the interest associated), the practical reality (no matter to whom the money is owed), is that money servicing debt isn't available to invest in productive assets.

Eventually the tax payer will tire of that and it could cause the population to become restless... ... ... and that could cause a government to do something severe to attempt to calm its electorate.

Edited by anonymous-user on Sunday 25th January 13:08

[NicD]

I have great sympathy with this analysis but there seems no mention of the interest rates paid.

This has bearing on the servicing of the debt

[anonymous-user]

NicD said:

I have great sympathy with this analysis but there seems no mention of the interest rates paid.

This has bearing on the servicing of the debt

Indeed it does.

But using the fact that debt is more affordable now to borrow more money now can easily lead to problems later on. Particularly if the lenders offer debt on more relaxed terms as a result of the (temporary) easier affordability.

[NicD]

I know, more fool me, I paid off debt instead of borrowing and buying houses
I expected rates back up in 2012

and missed out on much capital growth.

So I am the fool.

[xjsdriver]

JPJPJP said:

Partly

But, if the debt is recognised and taxpayers money is being used to repay it (and the interest associated), the practical reality (no matter to whom the money is owed), is that money servicing debt isn't available to invest in productive assets.

Eventually the tax payer will tire of that and it could cause the population to become restless... ... ... and that could cause a government to do something severe to attempt to calm its electorate.

Edited by JPJPJP on Sunday 25th January 13:08

............like start another pointless, yet cripplingly expensive war in some Godforsaken arse-end of the planet. Imagine how much better the resources (both in financial and manpower terms) could have been spent elsewhere.....

[anonymous-user]

Not a fool

You just called it wrong

That you didn't change your mind once you knew you were wrong... that is heading towards foolish

Will rates remain low enough from now to enable you find a way of taking advantage?

[NicD]

JPJPJP said:

Not a fool

You just called it wrong

That you didn't change your mind once you knew you were wrong... that is heading towards foolish

Will rates remain low enough from now to enable you find a way of taking advantage?

mea culpa

but I am selling one unit i have had for a long time and going to enjoy the proceeds.

[otherman]

Claudia Skies said:

It is glib to blame overindebtedness on a global scale. Because the question simply becomes - to whom is that debt owed?

Government borrowing is raised through selling gilts, and most of those are bought by pension funds, investment houses, insurance companies, all people who need a long term return. So most of the debt is internal to the country...it's mostly your money one way or another.

[otherman]

JPJPJP said:

Partly

But, if the debt is recognised and taxpayers money is being used to repay it (and the interest associated), the practical reality (no matter to whom the money is owed), is that money servicing debt isn't available to invest in productive assets.

Eventually the tax payer will tire of that and it could cause the population to become restless... ... ... and that could cause a government to do something severe to attempt to calm its electorate.

Edited by JPJPJP on Sunday 25th January 13:08

Absolutely. The borrowing should be used to pay for growth projects, like transport infrastructure, that in the long run should generate the extra tax revenue to pay for itself. Once borrowing started being used for day to day running of the ecomony, the trip down the slippery slope had started. As JPJPJP says, governments have to remain electable - ie serve the will of the people - and eventually drastic intervention will be the only route.

[otherman]

coyft said:

Why can't the ECB, FED and Bank of England and all other Central Banks buy all the debt at zero interest rate? After all money is purely a man made creation, it doesn't represent anything real and is available in unlimited quantity.

If you were the lender, why would you accept that?

[economicpygmy]

JPJPJP said:

Not a fool

You just called it wrong

That you didn't change your mind once you knew you were wrong... that is heading towards foolish

Will rates remain low enough from now to enable you find a way of taking advantage?

Easy to believe a change is just around the corner, or in the next 6 months...next year...etc.

[NicD]

economicpygmy said:

JPJPJP said:

Not a fool

You just called it wrong

That you didn't change your mind once you knew you were wrong... that is heading towards foolish

Will rates remain low enough from now to enable you find a way of taking advantage?

Easy to believe a change is just around the corner, or in the next 6 months...next year...etc.

You get in early or not at all. You may be lucky, but by the time everyone is talking about it, its generally too late.

[anonymous-user]

hard to define early when you don't know when it will end...

but yes, the old shoeshine boy story is a sensible rule: when the shoeshine boy is calling stock picks, it is probably time to short the market

[Martin4x4]

Economists know the solution but the media have made it so politically toxic nobody will discuss it.

[NicD]

A little flippant but ...
All the evidence I have read points to economists only knowing the solution once it has been implemented.

Not a lot of use.

[anonymous-user]

And the solution to the broader population often isn't the best (in a reasonable timeframe) for quite large (and quite vocal) chunks of the population

Hence it can be very difficult to make happen without some massive catalyst (like a war)

[LucreLout]

Martin4x4 said:

Economists know the solution but the media have made it so politically toxic nobody will discuss it.

They do indeed. Cuts to taxation, public spending, and instead shift that cashflow into infrastructure investment.

The problem is that too much if the debt is tied up between the public sector and the baby boomers. Defaulting against them is politically toxic.

Without actual cuts to the public sector of close to 30%, there can be no real recovery. We'll just flip flop between low growth and shallow recessions.

[economicpygmy]

NicD said:

You get in early or not at all. You may be lucky, but by the time everyone is talking about it, its generally too late.

JPJPJP said:

but yes, the old shoeshine boy story is a sensible rule: when the shoeshine boy is calling stock picks, it is probably time to short the market

LucreLout said:

Martin4x4 said:

Economists know the solution but the media have made it so politically toxic nobody will discuss it.

They do indeed. Cuts to taxation, public spending, and instead shift that cashflow into infrastructure investment.

The problem is that too much if the debt is tied up between the public sector and the baby boomers. Defaulting against them is politically toxic.

Without actual cuts to the public sector of close to 30%, there can be no real recovery. We'll just flip flop between low growth and shallow recessions.

- Ah yes, Osborne with a hard-hat visiting 'industry' on the notion of building a mixed economy. That soon went down the bog when they realised you cant just crank that up in a few months. Building houses is a good one too; most of the materials are from the UK and there's lots of demand, but that's politically toxic.

No cuts, the hangover of QE, and little investment; I would be surprised if 2015 isnt a very interesting year...