Financial Advice for Retirement, Social Security, IRAs and Estate Planning

Insights from Three Who Got it Right

Published on: Oct 25 2010

There aren’t many investment analysts who were right far more than wrong over the past five years. Oneof them isBill Gross of PIMCO. Another pair are Lacy Hunt and Van Hoisington of Hoisington. You probably don’t know as much about the Hoisington pair as about Gross, but their record in bond investing is comparable to Gross’s. They’re kept a lower profile and focused on helping institutional investors, such as pension funds.

I mention these three because of their recent commentaries for investors.

Gross notes that we are in an extended period of below average returns and below average economic growth. He sees the Federal Reserve and congressional policies as continuing low interest rates and high deficits. Washington is hoping this will lead to above-average economic growth, most of which will be due to inflation. But Gross says it won’t be clear for a few years whether this reflation policy will work. In the meantime we’re stuck with an economy much like the present. The most likely consequence of these policies, he says, will be a declining dollar and lower standard of living.

Hoisington and Lacy maintain that more Quantitative Easing will fail and shouldn’t be tried. They have no doubt that more deflation or disinflation is in the cards because:

“1) the U.S. conomic system is overleveraged and academic research confirms that this circumstance leads to deflation; 2) monetary policy is, and will continue to be, ineffectual as efforts to spur growth are thwarted by declining asset prices, loan destruction, and adverse regulatory influences; 3) the federal government’s spending spree will necessarily cause taxes and borrowings to rise, further stunting any economic growth. ”

Hoisington and Lacy have been invested primarily in long-term treasury bonds for several years and continue to recommend them.

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