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Van Hoisington - Q3 2010


omagh
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Van Hoisington's latest quarterly report is available...

www.hoisingtonmgt.com/pdf/HIM2010Q3NP.pdf

- QE1 unsuccessful; QE2 is risky

- Treasury bond bubble - believes that bonds are still undervalued on a real yield basis

 

"... For QE2 to work, a renewed borrowing and lending cycle must take place, resulting in a further leveraging of the already highly overleveraged U.S. economy. Such additional leverage would not be beneficial since increasing indebtedness from these levels ultimately leads to economic deterioration, systemic risk, and in the normative case, deflation, as documented by Rinehart and Rogoff in their book, This Time Is Different. Therefore, at best

QE2 can be nothing more than a short-term panacea exacerbating the serious structural problems already

facing the United States.  ..."

 

-O

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Excellent letter!  Very smart people.  The one thing I've learned is that anything is possible...no matter how smart you are, or how right or wrong you've been in the past. 

 

They are assuming that the low in bond yields is yet to come.  That there has never been a "bubble" in treasuries since you can just hold them to maturity and the stream of cash is guaranteed.  There is a first time for everything! 

 

I think the real concern isn't whether treasuries are in a bubble or not, but the real return of treasuries long-term relative to alternatives.  In that respect, I'm in the camp that says treasuries are in a bubble by that specific definition.  Cheers!

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