I find it hard to argue against these 2 investment advisers
Discussion
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."
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."
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.
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 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.This has bearing on the servicing of the debt
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.
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.
What are you trying to ask? If the BoE buys Government debt, that means it is lending money, to the Government. The BoE is entirely owned by Government. Are you are really asking why does the Government just print money instead of borrowing it? These countries have tried, it doesn't work out well;4.1 Angola
4.2 Argentina
4.3 Armenia
4.4 Austria
4.5 Azerbaijan
4.6 Belarus
4.7 Bolivia
4.8 Bosnia and Herzegovina
4.9 Brazil
4.10 Bulgaria
4.11 Chile
4.12 China
4.13 Estonia
4.14 France
4.15 Free City of Danzig
4.16 Georgia
4.17 Germany (Weimar Republic)
4.18 Greece
4.19 Hungary, 1923–24
4.20 Hungary, 1945–46
4.21 Kazakhstan
4.22 Kyrgyzstan
4.23 Serbian Krajina
4.24 North Korea
4.25 Nicaragua
4.26 Peru
4.27 Philippines
4.28 Poland, 1923–1924
4.29 Poland, 1989–1990
4.30 Republika Srpska
4.31 Soviet Union / Russian Federation
4.32 Taiwan
4.33 Tajikistan
4.34 Turkmenistan
4.35 Ukraine
4.36 Uzbekistan
4.37 Yugoslavia
4.38 Zaire (now the Democratic Republic of the Congo)
4.39 Zimbabwe
Fittster said:
On the other hand the US, Japan and the UK have done it with no impact on inflation and without upsetting the bond markets, which suggests that printing money = hyperinflation is a way to simplistic.
Oh dear god not again. If you can't see the difference between Krugman explaining you don't get inflation from QE in a balance sheet recession, which is both obvious and evident (I'm taking a guess here that's what the link above says because thats what it always says) and full monetization of the debt as proposed above then any conversation between us is entirely pointless. Hyperinflation is not just 'a lot of inflation', it is not created by the same forces Krugman talks about when talking about modern day UK or Japan, it is a loss of faith in the currency as a unit of exchange. IMO Krugman, on QE and inflation, is correct. Extending what he says to justify total monetization is completely invalid not to mention the most desperate appeal to authority. A nobel prize winner huh? Wow. His line is central banks don't create inflation, I seriously doubt he thinks central banks can't destroy faith in the currency, not when they have done so, so many times before.I'm fairly sure we have had this conversation before and as you're still trotting out the same stuff I suggest we call it quits now so I'm out. Adios
Edited by anonymous-user on Monday 26th January 13:16
FredClogs said:
The last 7 years of QE (all over the globe) has failed to lead to inflation because the money from QE has been largely kept within a small cabal of private financiers and banking operations, we've not had general inflation but if you look at central London property prices, classic Fezza's and Porches and various other assorted rich man's play things they've inflated well above the standard price of the goods in our baskets (bread and water and the like).
What they should have done in 2007 to save the banks was pay off our mortgages and credit cards - but they didn't - because it's just all a big game and the dealer always wins.
QE is the central bank printing money to buy government bonds. Banks are simply the conduit between the central bank and the owners of that debt who you can look up easily. Since 2007 bank holdings of government bonds have actually increased. Claiming 'private financiers and banking operations' have somehow 'kept' this money betrays a complete failure of understanding as to what QE is. In order to get their filthy mits on that lovely QE cash they must SELL Government bonds to the BoE. I will agree it has lead to the inflation you describe but not through the channels you feverishly imagine. What they should have done in 2007 to save the banks was pay off our mortgages and credit cards - but they didn't - because it's just all a big game and the dealer always wins.
Edited by anonymous-user on Monday 26th January 14:36
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