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Hoisington Q3 Letter


nwoodman
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http://www.hoisingtonmgt.com/pdf/HIM2011Q3NP.pdf

 

Interesting final paragraph

 

"In view of the United States extreme over-indebtedness, we believe that 2% is a an attainable level for the long treasury bond yield. In the previous historic cases yields tended to remain close to their record lows for an extended period of time, coinciding with a long period of deleveraging. Presently the U.S. is in its fifth year of deleveraging, and patient investors in the long end of the treasury market have been financially rewarded. We continue to hold long positions in thirty- year treasury debt, but remain increasingly wary of the potential for further adverse meddling by Federal Reserve authorities."

 

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  • 2 weeks later...

I found this disturbing:

 

"We have assembled, with support from Capital Economics in London, foreign debt to GDP ratios that are comparable to the U.S. debt to GDP ratio. The debt figures in these ratios include both private and government debt; thus, they are measures of aggregate indebtedness. These statistics indicate that the euro currency countries as a group, the United Kingdom, Japan and, interestingly Canada, are all more deeply indebted than the United States. This should not give the U.S. solace, nor detract from our severe problems. However, the greater debt in these areas may serve to provide backhanded support for the dollar. More critical is that all

major countries are destined to experience slower growth because of excessive indebtedness.

 

The latest readings indicate that debt to GDP ratios are about: 450% for the Euro zone and the United Kingdom; 470% for Japan, and 410% for Canada. Thus, the Euro Zone, UK, Japan,and Canada ratios are 100%, 100%, 120%, and 60% higher, respectively, than the U.S. debt to GDP ratio of 350%."

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Look at the province and muni's balance sheet in Canada and that statement should not surprise you. Federal government plowed the deficit problem to the provinces who then plowed it to the muni's. I have been waiting for 5 years some comments about the cumulative deficit in Canada that has been growing big times. Nobody seems to care, commodities are high, and we as Canadians look like geniuses with our "well" capitalized banks and our low federal deficits.

 

BeerBaron

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Look at the province and muni's balance sheet in Canada and that statement should not surprise you. Federal government plowed the deficit problem to the provinces who then plowed it to the muni's. I have been waiting for 5 years some comments about the cumulative deficit in Canada that has been growing big times. Nobody seems to care, commodities are high, and we as Canadians look like geniuses with our "well" capitalized banks and our low federal deficits.

 

BeerBaron

 

 

I read Van Hoisington's report a couple of weeks ago, and couldn't quite figure out how he came to his total debt numbers.  The federal and provincial government debt amounts to about 6x% of GDP and the figures are regularly published at the following site:

 

http://fin.gc.ca/frt-trf/2011/frt-trf-11-eng.asp

 

Given that those are pretty solid estimates for fed/prov debt, that would imply that municipal and private debt must exceed 300% of GDP for Van Hoisington's numbers to be correct.  I have a great deal of difficulty believing that there's so much private debt out there (ie, it would have to be more than $100,000 per person).

 

I think Van Hoisington's broad conclusions are bang-on, but for Canada his numbers look to me as if they are badly incorrect.

 

 

SJ

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