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Van Hoisington Q2 Letter: "Fully Committed To Treasurys" But Clouds Are Gathering

Tyler Durden's picture




 

While the operator of printers of mass destruction drones on about QE3, 4, 5 and so forth, confirming that if not inflation, we will surely get hyperinflation or bust, a long-term Treasury bull, Van Hoisington, once again chimes in with his big picture macro view. As usual, it all boils down to the inflation/deflation debate. His take: "While the massive budget deficits and the buildup of federal debt, if not addressed, may someday result in a substantial increase in interest rates, that day is not at hand. The U.S. economy is too fragile to sustain higher interest rates except for interim, transitory periods that have been recurring in recent years. As it stands, deflation is our largest concern, therefore we remain fully committed to the long end of the Treasury bond market." Too bad the Chairsatan just said each and every episode of deflation will be met with round after round of monetary devaluation. And last, we still can't find the chapter in the history books that indicates a sovereign state (either in Roman times, or modern, and especially since the invention of the printing press) imploded due to hyperdeflation. That long end of the bond market is sold to you Van.

As for his other two main observations, we agree 100%. These can be summarized that rates will rise when “investors lose confidence in the dollar stream of future surpluses,” the present value of which must equal future liabilities and that Fed policy “has aggravated, rather than ameliorated our basic problems” by adding debt, while failing to improve economic conditions." Absolutely correct on the latter, as to the former, when all the momos with machine readable headline E-Trade accounts have blown up and thinking people resume trading, that will be the immediate next step.

Full letter (link):

HIM2011Q2NP

 

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Wed, 07/13/2011 - 13:16 | 1452440 akak
akak's picture

And last, we still can't find the chapter in the history books that indicates a sovereign state (either in Roman times, or modern, and especially since the invention of the printing press) imploded due to hyperdeflation. That long end of the bond market is sold to you Van.

Thank you Tyler, finally, for making a point that I have made myself so many times here already. Yes, while historically more currency collapses and hyperinflations than can be counted have occurred due to governmental overspending and accelerating indebtedness, there is not ONE example in all of history of a so-called "hyperdeflation" (the very idea of which is an absurdity and an intellectual insult).  Moreover, there is not one example of deflation occurring under a fiat currency regime --- yet hundreds if not thousands of examples of currency depreciations and collapses occurring under the same.  In fact, currency depreciation is part and parcel of a fiat currency regime, and not ONE single appreciating fiat currency is to be found in the historical record.

Anyone still suggesting that we even hypothetically face a "threat" from "deflation", at this point, is either a clueless and historically ignorant idiot, or else (and far more likely) is just a shill and malicious propagandist for the financial and political powers that be, doing their part to lay a trap for the naive and unastute average saver or investor by confusing them and talking them into taking exactly the OPPOSITE measures that they should be taking to protect their savings and investment wealth from the continued fall, and possible collapse, of the US dollar and every other fiat currency.

Wed, 07/13/2011 - 14:25 | 1452893 jswede
jswede's picture

"Moreover, there is not one example of deflation occurring under a fiat currency regime"

really?  the views are so simplistic around here these days.

all the arguments made for higher rates right now were being made 1Q 2010 when QE1 was running its course.  Lacy and Van made much the same arguments then as now, and made 82% annualized return from April thru August 2010.

("printing of money" - lol.  even if they were printing money (they are not, they are using excess reserves to QE), the amount is trivial as compared to the loss in asset prices since the collapse.  $2trillion?  3?  4?  US Household net worth is down near $8trillion since 2007, even after recovering $8tril since 2009.)

recent history is telling you what will happen to rates in the next months - VERY RECENT history.  but no one wants to hear it.  this place is comical these days.

Wed, 07/13/2011 - 14:29 | 1452909 akak
akak's picture

So, you claim that my claim (actually, the historical fact) that there has never been a deflation under a fiat currency regime is false --- and then go on to, um, fail to address that matter entirely.

I stand by the historical record --- what is YOUR evidence to the contrary?

Wed, 07/13/2011 - 14:33 | 1452929 jswede
jswede's picture

our difference in opinion lies in our definition of "period", as in 'duration', or 'timing'.

I don't doubt there's a high probability we will see hyperinflation.  it's not going to happen anytime soon.  and in the meantime, Hoisington's forecast is spot on.  but even they acknowledge 'the clouds are gathering'.  but this is measured in years, in parts of decades...  not weeks or months.

Wed, 07/13/2011 - 14:39 | 1452941 akak
akak's picture

I don't see how the definition of "period", or any question of timing or duration, affects the fundamental facts of the deflation debate here at all.

Despite many widespread but misinformed Keynesian notions, the decline in home prices, or of ANY asset price or valuation, does NOT constitute deflation, unless one is willing to make the ridiculous claim that asset valuations constitute money.  But then again, with Keynesians, no wild or ignorant economic assumption, no matter how absurd, should be discounted.

Wed, 07/13/2011 - 14:59 | 1453034 jswede
jswede's picture

to be clear:  I'm talking about making money.  Now.  In the next quarter, year, few years.  Nothing else.

this inflation is speculation on margin in commodities, nothing more.  loss of confidence is the real risk, but that's down the line as I said.

good talk

Wed, 07/13/2011 - 15:36 | 1453204 jswede
jswede's picture

to be clear:  I'm talking about making money.  Now.  In the next quarter, year, few years.  Nothing else.

this inflation is speculation on margin in commodities, nothing more.  loss of confidence is the real risk, but that's down the line as I said.

good talk

Wed, 07/13/2011 - 16:55 | 1453554 Ghordius
Ghordius's picture

Akak,

deflation is embarrassing now,

inflation is embarrassing tomorrow.

Wed, 07/13/2011 - 15:24 | 1453148 fonestar
fonestar's picture

More from the deflationist looney-bin.  That's right, "printing money" and not "QE".  Use the proper terms because when you start using enemy terminology you are disempowering your own language and thought.  You can try and piss on our legs and tell us it's raining but nobody is buying that bullshit anymore and certainly not around these here parts~!

Wed, 07/13/2011 - 12:40 | 1452447 TaxSlave
TaxSlave's picture

Anybody who banks on the government's ability to milk me forever to pay them deserves what is coming next.

It's not my debt.  And I'm not paying it.

Go ahead, give them your money and wait for them to come after me with a whip and a pistol.  I'll just produce less.  Good luck with that.  Delusional bastards.

Wed, 07/13/2011 - 15:18 | 1452692 Hard1
Hard1's picture

Are you paying any kind of tax?...then it's your debt and you are paying it TaxSlave

Wed, 07/13/2011 - 12:41 | 1452455 RunningMan
RunningMan's picture

Let me get this straight. The argument is that rates won't rise because the economy won't be able to handle it? Really? That's the investment thesis?

Wed, 07/13/2011 - 12:45 | 1452473 SoNH80
SoNH80's picture

"rates will rise when 'investors lose confidence in the dollar stream of future surpluses,'"

Future surpluses, accrued when Dwight D. Eisenhower is thawed and elected President in 2052???  Wow.  This little statement really is a gem.  "Future surpluses," ha ha ha ha ha ha!  I keep waiting for THAT unicorn, a balanced budget, to fly into view.  Wow.....

Wed, 07/13/2011 - 13:04 | 1452568 TheTmfreak
TheTmfreak's picture

Meanwhile interest payments will rise. The only way we see a balanced budget, might be.. and i do mean might, by inflating the currency to pay off the debt, therefore no longer having to pay interest payments. But even then, I'm sure there would be much worse things to worry about than government debt...

 

 

Wed, 07/13/2011 - 12:52 | 1452512 JW n FL
JW n FL's picture

We NEED Tax Breaks!! for the Rich!

We NEED Forced Austerity for everyone except the Top 1%!

We NEED Cuts across the Board!! that effects everyone but the Top 1%!

We NEED ALL of these things so that "We the Sheepish Consumers Masses" can be squeezed enough to cause action!

 

Anything that makes the Rich, Richer and the Poor, Poorer! is Great! for the Country because it will more quickly bring about change that "We the People" truly can believe in!

Wed, 07/13/2011 - 13:11 | 1452600 TaxSlave
TaxSlave's picture

I'm gonna cut off your welfare check.

 

Wed, 07/13/2011 - 13:18 | 1452616 Monday1929
Monday1929's picture

That is the meme that banker shill Peter Atwater is trying to get out there- that the "top !% decide where the market goes", that if we push the elites too hard (by slapping their wrists?), they will take their ball and go home.

They know Systemic collapse is near (here?), they just want to get the right story in peoples minds, to avoid being strung up.

Wed, 07/13/2011 - 13:19 | 1452619 SeverinSlade
SeverinSlade's picture

This just shows though that gold and silver aren't ready for blast off [YET].  They're going to scare everyone with deflation again, knocking down markets across the board.  Gold and silver will hold up much better than equities and commodities, but they won't be immune.

Make sure you get rid of every last FRN and BTFD (it'll be the last one).

Wed, 07/13/2011 - 13:22 | 1452625 viahj
viahj's picture

"The U.S. economy is too fragile to sustain higher interest rates except for interim, transitory periods that have been recurring in recent years."

 

ok, so a economy built upon credit based consumerism isn't going to survive 29.99% credit card rates?   well, blow me over with a feather

Wed, 07/13/2011 - 13:44 | 1452731 the grateful un...
the grateful unemployed's picture

thought by now we would have consumer credit GSE to resolve the problem. well a lot of poeople thought Obama would do a lot of things. i thought he might appoint a non-Wall street connected person to UST to give it a more main street focus (like H Clinton for instance). the man is completely clueless.

Wed, 07/13/2011 - 13:23 | 1452632 CrashisOptimistic
CrashisOptimistic's picture

It's like they are pathologically BLIND.  Not liars.  Blind.  

Oil is $100/barrel.  What the hell do they think can possibly work with $100 oil?

Ever?  What can possibly work like this?

Wed, 07/13/2011 - 13:38 | 1452704 the grateful un...
the grateful unemployed's picture

if oil prices fall the deflationary spiral resumes. Obama wants to keep oil prices high, home prices high, gold prices high. Anything else is to risk deflationary suicide.

Wed, 07/13/2011 - 14:14 | 1452847 akak
akak's picture

Repeat after me: There is NO such thing as a deflation under a fiat currency regime.  Period.

Wed, 07/13/2011 - 18:39 | 1453963 the grateful un...
the grateful unemployed's picture

what would $25 oil do to profits at Chevron, Exxon, etc? What would $25 oil and $2 gasoline do to tax revenues. How much military hardware are the Saudis buying from us with $25 oil? How much more production and consumption is added to the economy with $25 oil? (very little)

Wed, 07/13/2011 - 19:36 | 1454152 akak
akak's picture

And your point would be ......?

Get back to me when oil is actually trading at $25, and not at the current $95.

Thu, 07/14/2011 - 12:16 | 1456390 the grateful un...
the grateful unemployed's picture

the online connection probably won't be up

Wed, 07/13/2011 - 13:31 | 1452680 the grateful un...
the grateful unemployed's picture

all very good stuff (once you get out of Manhattan) and too many juicy quotes to mention. this one hits me, plus the liabilities of the Federal Reserve
(which are just another form of federal debt
) Its not entirely obvious that this political calculus will always be true. There are forces in government ready to consider firewalling the Feds balance sheet from the UST/taxpayers. In all these people could literally erase all the bullshit that has gone on since 2008, by forcing the Fed into bankruptcy, and of course throwing a few deliquent mortgage holders out of their homes, though ownership of the paper could hold that process up for years.

A deflationary crash would rewrite the political landscape, just as it did in the 30's. While the state may remain, the guts of thing would entirely different.

Wed, 07/13/2011 - 14:34 | 1452927 Benign
Benign's picture

I love it when economists declare "the tax multiplier is minus 2 or minus 3, so raising marginal tax rates will not be helpful."  

Why is it, then, that secular real GDP growth over long periods correlates *positively* with highest marginal tax rate?

The mainstream economists--even Fisherian ones--miss the forest for the trees.  

The social contract is broken.  Greed has been glorified.  You first after me.

Wed, 07/13/2011 - 17:36 | 1453735 Dr. Acula
Dr. Acula's picture

Deflation, i.e. a decrease in the money supply?

Not a chance.

http://mises.org/content/nofed/chart.aspx?series=TMS

 

Thu, 07/14/2011 - 01:00 | 1455079 oldman
oldman's picture

What seems incredible is the claim that changing the tax code by eliminating deductions and exemptions would save "$400 to $500 billion" per year(page three under 'Permanent Fiscal Solutions Versus Quick Fixes).

This is an extraordinary claim which, if true, dwarfs the vague political promises of between two and four trillion in reductions(never to see the light of day) over a 'ten year period'. lol

I don't know this writer or much of anything else, but if those savings were able to be spent on infrastructure, 30% might come right back in the form of taxes to the Treasury. Now, there must be something wrong with this thought except 'political will'(unless it is the will of the pols) because any person on the street would naturally say yes to this. Main street is starving and not THAT stupid.

I'm amazed or out of touch that this has not been mentioned in public.

Help me out if anyone is still there.

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