Juggling Dynamite

The latest Hoisington Quarterly Review and Outlook throws some shade on sunny stimulus-fueled growth forecasts and explains why they remain bullish of treasuries:

Provided there are no major changes by Congress to the Federal Reserve Act, we believe it is prudent to expect that long dated U.S. Treasury rates will eventually gravitate to lower levels as inflation continues to recede.

…In sum, considering economic destruction placed on individuals and small businesses by the virus and its resultant shutdowns, the fact that fiscal expenditures have a negative multiplier on macroeconomic conditions, the debilitating impact on growth of excessive debt and the restriction of the zero bound on monetary stimulus, a secular inflation cycle is not at hand. Since inflation is the primary determinate of the yield on long dated U.S. government debt, it remains our judgement that the bull run in 30-year U.S. Treasurys is continuing.

A lucid market overview in this 38-minute presentation.  It’s hard for words alone to capture the lunacy now afoot, long-term charts offer some perspective.

Here is a direct video link.

Daily walks are a highlight in the COVID lockdown and, like many, I’ve been taking the opportunity to step offline and out for some air.

Yesterday, two different neighbours at different points stopped to ask me about the stock market from the other side of the street.  One walking her dog yelled,  “Are you buying Air Canada shares? Everyone I know seems to be.”  Another waved ”  A bunch of my friends are trading shares on their iPads these days. What do you think?”

A third pointed out homes that had recently sold tens of thousands over their asking price in a matter of days, “Great for us”, he said, “who knows how the young folks will get started.”

The net was a disturbing sense of deja vu reminiscent of similar unsolicited interactions in 2000 and 2007.  Then, as now, regular folks were focused on stock trading.  I still recall our children’s piano teacher urging his favourite mining picks on us in the spring of 2008.

At least then, Canadian home prices had been flat for about 15 years (following a market bust in 1989), and households were not highly levered.

Unfortunately, there’s no such comfort now.