HOISINGTON: NO WAY TO AVOID RECESSION IN 2012
The great bond fund manager, Van Hoisington, is joining the growing list of those calling for recession in 2o12. In a recent interview with Barrons he says 2012 is a year of global recession that the USA will not be immune to it:
“Our expectation is that we are going to enter another recession next year, when we haven’t really fully recovered from the previous one. We think we are in what Niall Ferguson, a Harvard historian, recently termed a slight depression. This isn’t a normal business cycle. So long as there is downward pressure on prices, bond yields will either continue to go down or bottom out around the real rate, assuming that the inflation rate stops at zero. We aren’t there yet, obviously, but are headed in that direction. That’s why we’ve had a bull market and why it will continue until such time as inflationary expectations start to rise.
…No matter where you look, there is a global recession starting. That means our exports and consumption aren’t there. There won’t be any increase in government spending. So we don’t see how in the world you don’t have a recession.”
Most interesting to me is the fact that he recognizes these wouldn’t be two separate events, but rather one long event:
“The important thing to keep in mind is that this isn’t your typical business cycle. You can’t say, “That was a recession, now we had a recovery, and we’re going into another recession.” This is all one development. In terms of real personal income less transfer payments, one of the four coincident indicators the National Bureau of Economic Research uses to determine recessions, has recovered off its recessionary low in ’09, but is still a half-trillion dollars below where it was in ’08. So here we go into a new recession down a half-trillion dollars in real personal income. And industrial production is still off 5% from its peak, and no higher than in ’07. Full-time employment is at the same level as January 2000, while we have had an 18 million-person increase in the labor force and a 28 million-person increase in the population.”
Read the full piece at Barrons.
Source: Barrons
I happened to read this over the weekend as well. The bond market seems to be indicating that there will be some tough times ahead (although there will be plenty of trading sessions like today strewn in, simply to insure that everyone playing in the Wall St casino loses money).
Oh.
Hoisington makes a good point with regard to IP as well. The removal of bonus depreciation and Sec 179 increased expensing should weaken manufacturing next year (because those tax incentives pull business demand forward). Coupled with slowing foreign demand seems like one of the stronger pillars will be decidedly weaker going forward.
Check this guy out. Don’t know him, but he is parked on the sidelines in $/bonds (I did not have the time to watch the video – the transcript spooked me out enough already):
http://globaleconomicanalysis.blogspot.com/2011/12/30-billion-fund-manager-makes-case-for.html
And he tends to a little $30B fund only…
It just might not be insane to have a HUGE percentage of your stuff in cash right now… (SO glad I exited my gold positions – my tummy feels SO much better)
Many people, including Mish, and the anchors misinterpret his statements. He discussed where he keeps his cash that is not required to back positions (his fund still trades futures, options etc., even mentions it in the interview). But it is also true that his fund is light on risk taking currently, so his level of unencumbered cash is much higher than usual.