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Van Hoisington Q3 Letter: GDP In Q4 And 2012 Will Be Negative

Tyler Durden's picture




 

For the Van Hoisington fans out there, his latest quarterly letter is short and sweet, and as often happens, rather realistic. The long bond afficionado cuts to the chase: he says the economy “is worse off today than it was prior to the onset of the previous recession" and predicts that "negative economic growth will probably be registered in the U.S. during the fourth quarter of 2011, and in subsequent quarters in 2012." Incidentally this matches our call, and we expect that when Q4 GDP is re-revised some time in April it will have been found to be a decline. As for the reasons: "Though partially caused by monetary and fiscal actions and excessive indebtedness, this contraction has been further aggravated by three current cyclical  developments: a) declining productivity, b) elevated inventory investment, and c) contracting real wage income."

Some other observations:

  • The case for impending recession "rests not only on cyclical precursors evident in productivity, real wages and inventory investment, but also on the dysfunctionality of monetary and fiscal policy"
  • QE2 backfired as food and fuel inflation "decimated real incomes for the average family"
  • Operation Twist may help but could have counterproductive consequences including bank profit erosion, similar to what occurred in Japan
  • Tax increases are retarding growth as federal reductions have been offset by increases at the state and local level, driving effective tax rate on households to 17.9% last month from 17.5% in mid-2009

Hard to find a fault with any of these...

As for his views on bonds:

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.

Full report (pdf)

 

 

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Wed, 10/12/2011 - 22:12 | 1768124 legal eagle
legal eagle's picture

Fed meddling? No, can't be, we believe in free markets, self determination, due process and the rule of law. Fuck it, who am I kidding?

Wed, 10/12/2011 - 22:24 | 1768151 Concentrated po...
Concentrated power has always been the enemy of liberty.'s picture

how does someone with the ability to analyze everything that the author touches on camp in 30 year bonds at 3%? Does nominal vs real yield prove to be a more difficult subject than the many mentioned? More fools for the taking I guess.

Wed, 10/12/2011 - 23:24 | 1768301 mailll
mailll's picture

How is it that interest rates on US Treasuries went to historic lows after the Fed ended their bond purchases back  in June and after Foreigners decided on selling their Treasuries instead of buying them?  I'm still trying to figure this one out.  It makes no sense. This defies the laws of economic physics. Can anyone locate this secret underground tunnel (printed money by the Fed being tunneled to the US Treasuries perhaps)?  And I am still trying to figure out how Obama is trying to cut spending by introducing a half a trillion in new spending on a job creation bill.  Nothing makes sense anymore.  But then again, I am a product of the public school system.

Wed, 10/12/2011 - 23:38 | 1768334 jekyll island
jekyll island's picture

The Fed gives money to intermediaries (real banks) and they buy and hold the treasuries on their balance sheet.  The Fed is probably buying the majority of treasuries at auction.  

Thu, 10/13/2011 - 14:21 | 1770404 pslater
pslater's picture

I would be very cautious betting against Mr. Hoisington's conclusions.  He has been spot on (albeit a little early at times) for the last couple of years.  His conclusion this we are in a post asset bubble deflationary world are completely supported by events occurring all around us.  We may not get to a 2% 30 yr Treasury but we saw about 2.6% just a couple of weeks ago.  IF he's right, you'll wind up with a 30% - 40% total return should todays 3.1% 30 yr. bond go to +/- 2%.

Until there is acknowledgement and meaningful policies addressing this situation, the deflation argumnent overlaid with the likilhood of systemic/currency collapse will persist.

Wed, 10/12/2011 - 22:13 | 1768128 centerline
centerline's picture

That article was like jello... it really doesn't qualify as food.

Wed, 10/12/2011 - 22:17 | 1768135 Aguadulce
Aguadulce's picture

When will the revision-being-the-acttual cycle end. Jeez just put out the damn numbers and let's figure this mess out.

Wed, 10/12/2011 - 22:24 | 1768140 baby_BLYTHE
baby_BLYTHE's picture

As I said on ZH before no QE in 2011, IMO. It will come and in rather large fashion ($1 trillion+) early 2012 to prevent the collapse of the government to keep good on the November 2012 election date. Much volitality until Christmas and thereafter. Only thing I want to invest in is what I can feel when dropped on my foot.

Wed, 10/12/2011 - 22:35 | 1768191 centerline
centerline's picture

It will also be by the direction of the politicians, with the Fed warning all along of the pontential consequences.

Financial Crisis = sovereign crisis = political crisis = currency crisis, war, etc.

 

 

Wed, 10/12/2011 - 22:41 | 1768212 Aguadulce
Aguadulce's picture

Are you talking about PMs or a glock 9?

Thu, 10/13/2011 - 01:15 | 1768251 baby_BLYTHE
baby_BLYTHE's picture

In addition to 80% of my money in PMs, I am also owner of a Glock 17 9mmx19 ;-)

Wed, 10/12/2011 - 22:58 | 1768257 legal eagle
legal eagle's picture

Hot roommates vibrator

Wed, 10/12/2011 - 23:20 | 1768281 Vic Vinegar
Vic Vinegar's picture

Great response legal eagle.  You get a green from me.

Imagine if Blythe did have a hot roommate with a vibrator?  Just as roomie is about to take the fast train to PleasureTown, she has to deal with Blythe's shrieking about the gold standard, Peter Schiff, goys and the evils of credit.  I don't know about you, but I couldn't get off in that environment.  

Thu, 10/13/2011 - 00:28 | 1768418 baby_BLYTHE
baby_BLYTHE's picture

Dude, VIC... I mas merely stating a personal economic forecast based upon what i have learned on economic blogs (mainly ZH) over the past few years. Our posting history is saved on here, I fully intend to be put on record whether I am correct or not. The market is a casino anyways, not even the likes of Soros or Buffett have had an easy time as of late.

Thu, 10/13/2011 - 00:40 | 1768451 Vic Vinegar
Vic Vinegar's picture

I don't follow...what does this have to do with whether or not you have a hot roommate?

Thu, 10/13/2011 - 10:20 | 1769316 legal eagle
legal eagle's picture

Thanks for the chuckle. Lighten up BB, to make it up to you we can get together to compare 9 inchers

Wed, 10/12/2011 - 22:22 | 1768141 bob_dabolina
bob_dabolina's picture

I can't agree with declining productivity. I think increased productivity is a problem mainly through technology. Humans are being replaced by computers/robots and that's a long-term problem.

Wed, 10/12/2011 - 22:57 | 1768256 bnbdnb
bnbdnb's picture

Love being a programmer...

Thu, 10/13/2011 - 00:00 | 1768382 UP Forester
UP Forester's picture

You program sex-bots?  ;)

Wed, 10/12/2011 - 23:48 | 1768357 jekyll island
jekyll island's picture

Bob, I agree about increased productivity.  Robots and automation will probably be our best hope of competing with China in global economy.  Robots work for less than the Chinese and don't call in sick.  The new economy after the crash will be very eventful.  I wish the gubmit would support something like this that would help the US global competetiveness, but you know Obummer's handlers in the Unions don't want their jobs replaced by automation.  So the fucker green stamps $500M to  green energy Solyndra which made solar panels for $8 and sold them for $6.  Probably more of that in his "jobs" plan, but you know how will get jobbed with that.  I think I might have to move to Belize. 

 

 

Wed, 10/12/2011 - 22:21 | 1768143 zorba THE GREEK
zorba THE GREEK's picture

From the chart, it appears the effective tax rate on working families has

been going up steadily since the 2nd Q 2009. Even as the U.S. government

tries to give household some tax relief, the financially strapped states are adding

tax burdens at a greater pace. It looks like the Federal Government needs to find

a plan to help states along with families.

Thu, 10/13/2011 - 07:28 | 1768790 j0nx
j0nx's picture

Bullshit. The FEDS are passing the burden on to states and localities for that very reason: So the local pols will be the ones taking the hit come re-election time.

Wed, 10/12/2011 - 22:21 | 1768144 Cheesy Bastard
Cheesy Bastard's picture

Plus, it might snow.

Wed, 10/12/2011 - 22:24 | 1768146 RoRoTrader
RoRoTrader's picture

So what?

Van Hose just Reinforces the Mervyn King stance......sacrifice pensioners and savers......more money printing followed by printing and then more printing.

Kind of simple.........there is no one or power in place to object. That is clearly implied by King's statement the other day.

On that note; the banks will NOT be usurped without a very dirty fight.

Wed, 10/12/2011 - 22:27 | 1768162 Moon Pie
Moon Pie's picture

Other than that, things look pretty rosy. 

Execpt for Iran, Afghanistan, Syria, Egypt, Greece, Iraq, the real Euro Zone, China, a new looming flood of foreclosures (once the deal is cut - and it will get cut), a grossly inept and corrupt administration, immunity for bankatistas and the Fed now openly running the country.

I actually feel better now. 

Wed, 10/12/2011 - 22:30 | 1768173 legal eagle
legal eagle's picture

You missed Yemen

Thu, 10/13/2011 - 00:02 | 1768387 UP Forester
UP Forester's picture

And the next M- or X-class CME that'll wipe out silicon-based organisms, like all the traders left on the exchanges....

Wed, 10/12/2011 - 22:30 | 1768174 kito
kito's picture

No 4th quarter negative gdp growth, no more qes. Just waiting for the storm to blow through europe before it lands on these here shores.....

Wed, 10/12/2011 - 22:39 | 1768204 centerline
centerline's picture

It's a hot potato game built to confuse the public and keep everything from completely freezing over.  Yo-yo effect aimed at buying time, waiting for China to implode.

Wed, 10/12/2011 - 22:39 | 1768206 lunaticfringe
lunaticfringe's picture

Negative GDP means a huge stock market ramp. My charts suggest 15k. Gold, that barbarous relic, prob sinks to 500 or 600 hundred.

I have never seen anything as sick and twisted as this banker driven rally. The market has nothing to do with reality. Seriously, is anybody trying to trade this POS?

Wed, 10/12/2011 - 22:49 | 1768235 zorba THE GREEK
zorba THE GREEK's picture

Gold going to 500 or 600 is very unlikely. I doubt asians are going to lose interest in g

Wed, 10/12/2011 - 22:49 | 1768237 YesWeKahn
YesWeKahn's picture

"is anybody trying to trade this POS?" You mean the stock market? Yes. but keep in mind that the FED is wathcing.

Wed, 10/12/2011 - 23:46 | 1768353 Blorf
Blorf's picture

It's a short covering vapor-rally.  When it gets to the top, it will get stumbly with no short sellers to cover when it falls, like the silver and gold markets did at their tops.  Short with impunity if it double tops at 1220ish.  Hop on the FAZ bandwagon.

Wed, 10/12/2011 - 22:45 | 1768222 kito
kito's picture

a little data to support tylers view about upcoming gdp growth:

 

http://globaleconomicanalysis.blogspot.com/2011/10/unprecedented-drop-in-port-traffic.html

 

may or may not mean anything

Wed, 10/12/2011 - 23:01 | 1768263 bnbdnb
bnbdnb's picture

Ahh this just means our toys are getting smaller, and smaller, and smaller...

Wed, 10/12/2011 - 23:13 | 1768282 zorba THE GREEK
zorba THE GREEK's picture

This story of too much debt in the world ends one way, very badly.

Also how TPTB deal with it, is one way. They will delay it for as long as they can

because it has gone too far and is too deep (Federal/state/personal) to unwind

without extreme chaos and severe pain. There will be massive monetization.

The U.S. Fed will wait for Europe to start the printing presses and they will soon

follow with a ramp up of the current QE.  China, The U.K.,and Japan have started

and will also have to ramp up their programs. Of course, the consequence will be

rampant inflation through currency debasement. The central banks of the world

will buy all the troubled assets and bail out banks and countries until it just doesn't

work anymore, and then TSHTF.

Wed, 10/12/2011 - 23:55 | 1768372 kito
kito's picture

goldman sachs, please please shed your bank charter status so the shorts CAN SHRED YOU, BREAD YOU, AND SERVE YOU DEEP FRIED!!!! BURN YOU SQUID!!!

Thu, 10/13/2011 - 00:53 | 1768481 gwar5
gwar5's picture

This is interesting.... Brad Meltzer's program "Decoded" on the History Channel recently did an episode on whether there is really any gold in Ft. Knox and what the implications are if there is not. Youtube below. 

Funny, in one of the segments they interviewed a former Wall Street "Financial Engineer," a Princeton grad, one of those who made derivative products and unleashed them. Thing is, he is now a doomer living in the mountains in Maine (I think) off the grid with guns. He didn't even want his face shown because he didn't want to be identified as someone who had stocks of food or any thing else of value -- future protection from potential raids by panicked locals. He's firmly convinced all those financial Frankenstein creations are going to collapse and set us back 50 years. Says it will probably happen suddenly, or, best case scenario over a few years time so people can adjust. He did not shed light on the gold in Ft. Knox, but understood what it meant if it was not there.  He thinks things will be bad enough even if the gold is there.

With that, it's now officially OK to doom on, doomers.

 

http://www.youtube.com/watch?v=IXXMSduH6YE&feature=share

http://www.youtube.com/watch?v=R55IuZArAcY&feature=related

http://www.youtube.com/watch?v=krhgH8D6rdI&feature=related

 

 

Thu, 10/13/2011 - 01:20 | 1768524 gwar5
gwar5's picture

Note: Jim Rickards' book about the currency wars and everything that is going on is starting to sell like hotcakes at Amazon and it has not even hit bookstores yet.

Thought: Tyler Durden is a player with skills and should maybe write a book to encapusulate and distill his insights and prognostications. Hotcakes Bitches!

Thu, 10/13/2011 - 07:23 | 1768784 MFL8240
MFL8240's picture

Without the confetti machine the growth was negative since 2008.  The sham show by Geithner, Bernanke, Obama, and Biden about a recovery was a fuckin disgrace, when does the media say something about these liars?

Thu, 10/13/2011 - 07:32 | 1768794 j0nx
j0nx's picture

KD has run numerous tickers illustrating how since 2008 we have only made a positive GDP print due to government 'stimulus'. It has in fact been in depressionairy areas for at least 2 years now if you take away the government cheese. Nobody wants to hear the truth out there in the real world though. It's all la la la la la I can't hear you with their fingers in their ears.

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