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Rising Recession Odds Bring Out The Bond Bulls
I'll say one thing for Hoisington's quarterly letters: They're efficient.
The firm, which is synonymous in the financial media with its semi-famous chief economist, Lacy Hunt, covers a lot of ground using remarkably few words. The Q1 installment, released on Tuesday, was no exception.
In just five pages, Hoisington recapped 275 years of financial cycle literature (or related works), starting with Hume's "Of Public Credit" and running all the way up through a 2022 BIS paper and a February 2023
Perhaps the most entertaining conversation the past year or so was the back and forth between Mr. Hunt and Mr. Bassman. About a year ago, on a Wealthion video, Mr. Hunt warned Mr. Bassman to “not step in it” in regards to a certain description on a Hoisington chart. Several months later, after being vindicated, Mr. Bassman made reference to Team Transitory (without naming Mr. Hunt) and the “step in it” comment, basically mocking them. It was rather amusing if you knew the context.
Hoping the consensus is indeed wrong and that we then we get another spike up in long-term yields. That’s all I want. 5% for the next 20 years would make me happy (I think).
I’m with you, brother. 5% seems just about right.
“consensus lust for recession”
Now that’s funny.
Uncomfortably so.
Show me the Volumes and I’ll predict the trend (by following the wave)
“Accordingly, with low or declining economic activity, the inflation rate will continue to recede. Further progress will be made in terms of moving consumer inflation into the Fed’s target zone in 2024. Therefore, with the historical pattern of the financial, GDP and price/ labor cycles proceeding on its well documented path, this year’s decline in long-term Treasury bond yields is expected to continue.” https://hoisington.com/pdf/HIM2023Q1NP.pdf
I believe Hoisington’s conclusion, quoted above, implicitly forecasts more yield curve inversion. More (longer +/- deeper) inversion should further stress bank and shadow/non-bank models. With stress to lenders comes credit disruption, with credit disruption comes wider spreads, so bond bullishness might be limited to investment grade. Just my thoughts, and I’m no bond expert.