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pipllman

Hoisington Management Q2 2015 Review

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I bang on about this every quarter

IMO it is one of the most lucidly reasoned assessments of the US economy. That, in conjunction with the 'what happens in the US comes to the UK' theory to which many subscribe, it is well worth the time it takes to read each quarter.

http://www.hoisingtonmgt.com/pdf/HIM2015Q2np.pdf

From the conclusion

"In summary, economic theory and history do not suggest the secular low in inflation, or that its alter ego, Treasury bond yields, is at hand. The excessive debt burden, slow money growth, declining money velocity, the Wicksell effect and the high real rate of interest indicate that the fundamental elements are exerting downward, rather than upward, pressure on inflation. Inflation will not trough as long as the US economy continues to become even more indebted..."

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"In summary, economic theory and history do not suggest the secular low in inflation, or that its alter ego, Treasury bond yields, is at hand. The excessive debt burden, slow money growth, declining money velocity, the Wicksell effect and the high real rate of interest indicate that the fundamental elements are exerting downward, rather than upward, pressure on inflation. Inflation will not trough as long as the US economy continues to become even more indebted..."

I sold a £100K of gilts recently, it felt like their time had come.

I understand the need for governments to keep interest rates low but I noticed that the MPC decisions lagged market rates, not the other way round. When they went down, the MPC followed quickly. When they went up, the MPC waited 2-3 months. That let me to believe that the MPC base rate really doesn't control much. QE on the other hand, distorts everything but that appears to be ending.

When the market decides that interest rates are going up, they will go up. The trigger could be anything, even something as simple as the general realisation that money is just a promise, it's nothing real. It could be the layers of leverage that keeps the city boys in champagne. I think we are entering the era of broken promises.

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