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Hoisington Investment Management E.V.P. Lacy Hunt argues the economy is headed for another recession and the best way for investors to make money is t...
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-- let's continue on that question.
Got some and he says the recession is coming in 2012.
And the best way to make money to invest in treasures -- a total opposite -- outlets totally opposite.
Lacy -- is an executive vice president -- -- and investment management the firm oversees six billion dollars in assets -- company's bond fund is up more than 30%.
Over the last year good to see a lazy so I don't know if you're -- -- wanna be thought treasuries -- be a thirty year treasury be about 4% by the end of the year.
You say he's nuts right.
Well the this is what we're looking yet.
Periods of extreme over indebtedness such as we're in today produce economic weakness.
Periods of of of high deficit spending proved to be counterproductive they don't.
Increase -- economies options they make you weaker they reduce and economies options.
In Japan which is repeatedly tried the high debt high deficit spending course.
Their GDP today is unchanged from where was twenty years ago.
And what we've seen is that this overall weakness.
Produces very very low yields.
In the 1860s.
And 1970s in the United States we took on a lot of debt to build railroads.
This produces produce an extended period of weakness.
We had a decade.
-- long treasuries yielded less than 2%.
After the buildup of debt in the 1920s.
And in 1941 on the -- of Pearl Harbor we were 2%.
Over the last 140.
Years the treasury bonds this is a long treasuries.
Has there -- little bit more than 4% the inflation rate has been to which means we've had an after inflation yield of about 2%.
-- We'll go to zero inflation.
And over the next several years the long bond -- will move to about 2%.
Are not necessarily.
At the end of next year but over the course of the next several years.
The very important explanation.
Are right so here we are we still have this massive debt.
Our national deficit also troubling.
Not to mention what's going on in Europe and I think part of the reason -- -- US yields come in so much is because the US remains despite our problems.
Still the best of the worst.
So even if we get another debt downgrade leasing -- think that we have the same reaction in US treasury yields as we had after the S&P downgrade this summer whereas.
You know the rest of the world again isn't so much trouble with their own debt deficits that they're still gonna flock to the US.
Keeping up pressure on our yields.
That will be the yeah I believe that will be the case that was -- that was in the situation in Japan and numerous instances.
Over the last past number of years but but the rest of the world is an important concern for us.
Since the recession ended in the middle part of 2009.
Exports have grown at 10% per annum.
Whereas.
Consumer spending has only grown at 15 the place.
Exports are extremely critical to us and Europe is in recession.
Japan is in recession.
Brazil is -- to a halt.
Manufacturing activity is declining now and India and China.
And and this suggests that our exports will fall -- and work we're going to lose our most dynamic sector.
At a time when even though we had a gain in GDP this year.
Our consumers after tax after inflation income -- declined and wealth has declined and so while I'm afraid we are in for difficult sledding in 2012.
-- -- what happens if in 2012 you have a sweep of the senate you have the -- -- Republican.
You have a relatively conservative present new president.
Come men and they get really serious about cutting the government that might that not.
Put pressure on your theory and in fact -- people's money in treasuries.
And waiting to management we are prepared to change -- the facts change.
So so you're just -- -- to your is that right.
For the for the time being what we have this we have an excessive degree of over indebtedness not only in the private sector but in the government sector.
And we cannot react to create a fundamental change in the death trajectory the debt your directory until it takes place.
We've got to say by the way lacy has been absolutely spot on and -- forecast of what treasuries would do in 2011 so.
He's a man that you should listen to seriously Lacy Hunt thank you so much for being here appreciate it.
Great pleasure to be would you David -- and thank you please go.
