Dr. Lacy Hunt of Hoisington Management was recently interviewed at the 2016 Mauldin Strategic Investment Conference.
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Dr. Hunt points out that “the traditional business cycle model said that recession are brought on by rising interest rates and rising inflation. However, when economies are extremely over indebted, the economies can turn down under the weight of the debt.” Dr. Hunt goes on to point our that “We have seen four recession in Japan in the last seven years with interest rates at zero and inflation negative… Debt becomes very problematic when it doesn’t generate and income stream to repay principle and interest, even more problematic when the debt causes asset prices to rise when corporate profits are falling.”
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