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Hoisington Investment Management analyzes the impact of oil shocks on economies with weak demand and strained balance sheets. The current oil shock is hitting an economy already burdened by distressed labor markets, with employment growth slowing sharply and QCEW revisions showing almost no job gains between Q3 2024 and Q3 2025. Financial stress is mounting with rising consumer and corporate loan delinquencies, increasing bankruptcies, and over-leverage in real estate. Unlike previous oil shocks, the U.S. is now largely energy self-sufficient, which could buffer some impact. However, the combination of sluggish employment, fragile balance sheets, and heightened financial vulnerabilities leaves the economy unusually susceptible to contractionary effects. The Federal Reserve faces a dilemma but is unlikely to tighten policy against temporary supply-driven inflation given weak demand and fragile finances. Long-term Treasury yields are expected to rise despite the economic distress, as inflation signals typically appear faster than deteriorating real economic measures in oil shock scenarios.
The current oil shock is striking an economy already weakened by distressed labor markets, rising financial stress, and fragile balance sheets, creating conditions for a supply-side recession where inflation rises while output falls, requiring restrained monetary policy to avoid worsening the downturn.
Oil shocks hitting economies with weak demand and strained balance sheets are especially damaging. Distressed conditions shape the Fed's response - with weak demand and fragile finances, the Fed is unlikely to tighten policy against temporary supply-driven inflation. Long-term Treasury yields are likely to be volatile, but are expected to rise even though the oil shock has further aggravated the already distressed US economy.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Apr 13 2026 | 2026 Q1 | - | Credit Stress, energy, Fed policy, inflation, oil, Recession, Treasury Bonds | - | Oil shock hits already distressed U.S. economy with weak employment growth, rising financial stress, and fragile balance sheets. Unlike past episodes, U.S. energy self-sufficiency provides some buffer. Fed unlikely to tighten against supply-driven inflation given economic fragility. Treasury yields expected to rise as inflation signals emerge faster than real economic deterioration. |
| Jan 18 2026 | 2025 Q4 | - | AI, China, inflation, Labor, liquidity, Recession, tariffs, Treasury | - | Hoisington argues eight disinflationary forces including weakening labor markets, restrictive monetary conditions, and AI-driven capacity expansion will persist into 2026, making inflation concerns unwarranted. With unemployment rising, real income growth slowing, and dollar liquidity declining for four consecutive years, they expect continued disinflation and declining long-term Treasury yields. |
| Oct 9 2025 | 2025 Q3 | - | AI, Capacity Utilization, Deflation, monetary policy, tariffs, Treasury Bonds | - | Hoisington sees converging deflationary forces from declining global capacity utilization, AI automation reducing traditional factor demand, restrictive Fed policy draining dollar liquidity, and tariff-induced trade disruptions. These dynamics create persistent economic headwinds and overcapacity that support long-duration Treasury bonds despite investor pessimism about fixed income prospects. |
| Jul 24 2025 | 2025 Q2 | - | economic contraction, Fed policy, Global Trade, inflation, liquidity, tariffs, Trade Policy, Treasury Bonds | - | Tariff wars create temporary inflation but ultimately contract economic activity through retaliatory demand destruction. The Fed must aggressively accommodate to prevent a Kindleberger Spiral as foreign capital flows decline. Despite near-term inflation pressures, the coming global economic contraction makes long-term Treasury bonds attractive for patient investors. |
| Apr 18 2024 | 2025 Q1 | - | Debt, demographics, fiscal policy, monetary policy, Recession, tariffs, Treasury Bonds | - | Five economic forces converge to depress U.S. growth: recessionary tariff effects, restrictive Fed policy with negative real money growth, fiscal drag from spending multiplier reversals, debt overhang at 123.6% of GDP exceeding WWII peaks, and demographic headwinds from reduced immigration. High recession risk and uncertain recovery support bullish Treasury bond positioning. |
| Jan 23 2025 | 2024 Q4 | - | Bonds, Capacity, global, inflation, Manufacturing, Recession, Unemployment | - | Global factory capacity utilization has collapsed to recessionary levels while unemployment rises, creating powerful deflationary forces. U.S. capacity utilization at 76.9% sits well below recession thresholds, while foreign economies show similar weakness. Combined with declining world dollar liquidity and China's goods deflation, these fundamentals point to significantly lower Treasury bond yields in 2025. |
| Sep 30 2024 | 2024 Q3 | - | global, inflation, liquidity, monetary policy, rates, Treasury Bonds | - | Global monetary conditions have reached record restrictive levels across major economies, driving continued disinflation and economic weakness. Detrended real money supply contractions exceed Great Financial Crisis levels, creating excess capacity and falling inflation. This supports further Fed rate cuts and declining long-term Treasury yields as monetary restraint works through the economy. |
| Jul 25 2024 | 2024 Q2 | - | Economic Growth, fiscal policy, inflation, monetary policy, Recession, Treasury Bonds | - | Hoisington sees extreme monetary and fiscal imbalances driving economic weakness ahead. Detrended real M2 has collapsed from 5.6% to -2.6%, while negative net national saving and 123.7% debt-to-GDP ratio constrain growth. Multiple recession indicators are already flashing red. The firm expects lower inflation, reduced economic activity, and declining Treasury yields. |
| Apr 27 2024 | 2024 Q1 | - | Debt, Deflation, Fed, inflation, liquidity, monetary policy, rates, Treasury | - | Hoisington argues that negative Net National Saving and excessive debt create powerful deflationary forces that will cause inflation to undershoot the Fed's 2% target. Their modernized World Dollar Liquidity measure shows record contraction, indicating intensifying Fed restraint globally. They expect declining inflation and higher unemployment to drive long-term Treasury yields lower. |
| Jan 17 2024 | 2023 Q4 | - | credit, demographics, inflation, Money Supply, rates, Recession | - | Negative net national saving outside recession for first time since 1929 constrains growth through reduced capital formation. Record money supply contraction drove dramatic disinflation while credit conditions tighten with extreme consumer rates and rising bankruptcies. Multiple recessionary indicators emerging. Structural demographic headwinds and declining neutral rate support continued Treasury bond rally. |
| Oct 25 2023 | 2023 Q3 | - | Banking, credit, inflation, monetary policy, Recession, Treasury | - | Hoisington argues an impending recession is inevitable due to the standard monetary cycle where inflation acceleration requires monetary deceleration leading to recession. With real Fed funds at 2007 highs, inverted yield curve for twelve months, and unprecedented bank credit contraction during GDP growth, macro dynamics favor Treasury bonds as yields decline. |
| Jul 21 2023 | 2023 Q2 | - | credit, Debt, monetary policy, Recession, Treasury | - | Hoisington sees classic credit crunch developing as real money supply contracts, bank credit turns negative, and real rates surge 7 percentage points. Combined with record productivity declines and government debt above growth-constraining 90% threshold, these conditions point toward material economic slowdown and continued decline in long-term Treasury yields. |
| Apr 19 2023 | 2023 Q1 | - | Credit Stress, Financial Cycles, inflation, monetary policy, rates, Recession | - | Hoisington argues the Fed's pandemic monetary acceleration created unsustainable financial conditions that must now unwind. With real bank credit declining, deposit liabilities falling, and $10 trillion in debt rollover ahead, they expect rising recession risk and continued decline in long-term Treasury yields as financial cycles lead economic contraction. |
| Jan 20 2023 | 2022 Q4 | - | - | - | |
| Oct 26 2022 | 2022 Q3 | - | - | - | |
| Jun 30 2022 | 2022 Q2 | ODL | - | - | |
| Mar 31 2022 | 2022 Q1 | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q1 |
OilOil shocks hitting economies with weak demand and strained balance sheets are especially damaging. The current oil shock is striking an economy already burdened by distressed labor and financial markets. Unlike earlier oil shocks, the U.S. is now largely energy self-sufficient, which could buffer the impact. |
Energy Supply Shock Inflation Recession |
Credit StressFinancial stress is rising with both consumer and corporate loan delinquencies up, bankruptcies increasing, and over-leverage in real estate creating vulnerabilities. Business Development Corporations face liquidity and portfolio risk from distressed borrowers, and private fixed-income funds struggle with losses on high-yield holdings. |
Delinquencies Bankruptcies BDC Private Credit Real Estate | |
InflationOil shocks raise production and distribution costs, fueling inflation while reducing output and employment. The Federal Reserve faces a dilemma when supply shocks occur, as raising rates to curb inflation suppresses demand and deepens recession, while cutting rates risks fueling more inflation. |
Supply Shock Cost Push Monetary Policy Fed | |
RatesThe Fed's choice to hold the policy rate steady in March is backed by economic logic, with forecasts showing rates staying about the same through 2026. Long-term Treasury yields are likely to be volatile as news of recession and inflation play off each other amid markets' reactions to Iran-related news. |
Fed Policy Treasury Yields Monetary Policy Interest Rates | |
| 2025 Q4 |
CopperCopper surged 17% over the quarter driven by supply risks and production disruptions at large-scale mines. The fund maintains significant overweight positioning in copper through holdings like Freeport McMoRan, Capstone Copper, and Teck Resources. Supply shortfall concerns are highlighted by record low inventories and lack of new greenfield capacity. |
Mining Supply Infrastructure Commodities |
GoldGold gained 12% in the quarter reaching record highs, with extraordinary 64% gains for 2025. Portfolio holdings Newmont and Northern Star delivered strong performance. Monetary policy uncertainty and geopolitical tensions provide positive backdrop, with favorable sentiment expected ahead of new Federal Reserve Chair announcement. |
Monetary Policy Geopolitical Safe Haven Central Banks | |
European BankingEuropean banking sector produced outperformance led by Bank of Ireland, Lloyds Banking Group, and CaixaBank. Sector benefits from interest rate stabilization and yield curve steepening supporting net interest margins. Market transitioning from rate normalization toward improving organic loan growth with disciplined capital management. |
Interest Rates Credit Growth Dividends Buybacks | |
Rail InfrastructureUnion Pacific's proposed merger with Norfolk Southern would create first transcontinental rail network in US, potentially unlocking rail's potential for long-distance freight. The fund initiated position in Union Pacific believing this provides credible pathway to renewed volume growth in otherwise mature industry. |
Transportation Infrastructure Consolidation Logistics | |
Healthcare TechnologyInitiated position in Siemens Healthineers, global leader in medical imaging and advanced therapies. Company well-positioned for aging demographics, personalized care trends, and chronic disease prevalence. Investment supported by dominant market position, transition to value partnerships, and planned spinoff benefits. |
Demographics Medical Devices Imaging Spinoffs | |
| 2025 Q3 |
AIAI is described as an evolutionary innovation with uniquely broad deflationary impact, reducing demand for labor, natural resources, and capital unlike previous revolutionary innovations. AI is automating cognitive tasks across service sectors, reducing hiring needs and wage growth while shifting income from households to corporations. |
Automation Deflation Labor Productivity Technology |
Trade PolicyHigh tariffs and retaliation reduce liquidity through profit squeezes, falling demand, and declining international capital flows. The process creates shocks to factors of production and sharp declines in liquidity, similar to patterns seen in the 1920s and 1930s. |
Tariffs Retaliation Liquidity Trade | |
RatesFederal Reserve maintains modestly restrictive stance despite rate cuts, with Real World Dollar Liquidity at post-COVID lows. Policy restraint accelerates overcapacity in legacy industries and creates persistent headwinds for economic growth despite expected additional rate reductions. |
Federal Reserve Monetary Policy Liquidity Restrictive | |
| 2025 Q2 |
Trade PolicyTariffs create first-round inflationary effects but lead to demand destruction and economic contraction when other nations retaliate. The micro-demand curves shift inward, causing total revenues to fall for export industries. This triggers a race to the bottom with compounding negative effects on global economic activity. |
Tariffs Retaliation Demand destruction Export industries International trade |
LiquidityDeclining international trade reduces net foreign investment flows into US securities. Foreign holdings of US Treasuries, equities, and corporate debt totaling over $31 trillion could face reduced inflows. The Fed must provide liquidity to offset capital flow contractions and prevent a Kindleberger Spiral. |
Net foreign investment Capital flows Foreign holdings Fed liquidity Reserve currency | |
RatesThe Federal Reserve needs to move quickly to accommodative policy to offset contractionary tariff effects. If the Fed doesn't lower rates, reduced capital flows could trigger a Kindleberger Spiral. The environment is attractive for long-term Treasury bond investors despite near-term inflation pressures. |
Fed policy Accommodative Treasury bonds Interest rates Monetary policy | |
| 2025 Q1 |
Trade PolicyTariffs will have recessionary effects that dominate inflationary ones, potentially leading to significant reduction in world trade and capital flows. Historical evidence from the 1920s-30s shows tariffs contribute to deflation and severely suppress world economic activity through beggar-thy-neighbor practices and retaliatory actions. |
Tariffs Trade Retaliation Deflation Protectionism |
LiquidityThe Fed maintains a highly restrictive monetary situation with detrended real M2 in its ninth fall into negative territory since 1914. Real money growth has been contracting similar to the 1930s experience, requiring significant Fed policy reversal for economic acceleration in 2026. |
Money Supply M2 Monetary Policy Liquidity Fed | |
Credit StressGross government debt reached 123.6% of GDP in 2024, exceeding the World War II peak and creating diminishing returns where new debt produces only 80 cents of GDP per dollar. Interest expense will worsen indefinitely without material policy changes, with 30% of payments going to foreign holders. |
Government Debt Interest Expense Fiscal Deficit Debt Service | |
| 2024 Q4 |
InflationGlobal capacity utilization has fallen significantly with U.S. CAPU at 76.9%, 3.2 percentage points below average and 6 points below recession entry levels. Foreign CAPU at 74.8% is also well below historical averages. This capacity glut, combined with rising unemployment and declining world dollar liquidity, indicates prospects for slower price increases are more significant than any year since the late 1990s. |
Deflation Capacity Unemployment Liquidity |
RatesDespite recent divergence where long bond yields rose while inflation moved downward, historically there has been high correlation between thirty-year Treasury bond yields and inflation rates for 71% of years since 1954. The fundamental determinants of inflation suggest a surprising drop in thirty-year Treasury bond yields in 2025. |
Treasury Bonds Yields Correlation | |
| 2024 Q3 |
LiquidityWorld dollar liquidity has declined dramatically from 2020-22 peaks, mirroring historical patterns where money growth contractions lead to disinflation and economic slowdowns. The aggregate detrended money supply across major economies has reached record restrictive levels. |
Money Supply Central Banks Monetary Policy Disinflation Deflation |
InflationHeadline and core inflation rates will continue to recede due to excess capacity and monetary restraint from the past two years still working through the economy. The historical pattern shows inflation follows money growth with a lag. |
Disinflation Core Inflation Price Levels Monetary Restraint Economic Cycles | |
RatesThe Federal Reserve has latitude to lower policy rates further given the disinflationary environment. Long-term Treasury bond yields will follow the downward path in inflation, with pressure for yields to fall increasing due to slow global money growth. |
Federal Reserve Policy Rates Treasury Bonds Yield Curve Interest Rates | |
| 2024 Q2 |
InflationThe letter extensively discusses the monetary surge in 2020-21 that led to near double-digit inflation rates, confirming that accelerating inflation is essentially a monetary phenomenon. The analysis shows how extreme monetary policies caused rapid inflation trauma that harmed households who could not protect themselves from rising prices. |
Monetary Policy Disinflation Price Surge |
RatesThe document analyzes how monetary restraint has consistently reduced inflation, economic activity, and both short- and long-term bond yields prior to nine of the ten recessions since the early 1950s. Current monetary conditions point to lower Treasury bond yields ahead. |
Treasury Yields Bond Yields Monetary Restraint | |
| 2024 Q1 |
InflationThe firm expects inflation to undershoot the Fed's 2% target due to deflationary forces from excessive debt and negative Net National Saving. They believe the Fed will maintain resolve to hit its inflation target, with declining inflation environment continuing to bring down inflationary expectations and long-term Treasury yields. |
Deflation Fed Rates Monetary Policy Treasury |
LiquidityThe firm introduces modernized measures of monetary base and world dollar liquidity that show Fed restraint is intensifying. Their new World Dollar Liquidity measure has dropped by a record 9% in twelve months ending February 2024, indicating tightening global monetary conditions. |
Monetary Base Fed Global Reserves Central Bank | |
RatesThe firm expects long-term Treasury bond yields to decline as the deflationary environment continues. They believe the Fed's restrictive monetary policy stance will lead to lower inflation and higher unemployment than anticipated, supporting their view on declining rates. |
Treasury Fed Inflation Monetary Policy Yields | |
| 2023 Q4 |
InflationInflation fell dramatically in 2023, with headline CPI dropping 570 basis points and core CPI falling 270 basis points from 2022 peaks. The Fed ignored money supply contraction as the primary driver of disinflation. Money supply measures show record declines that preceded the inflation drop. |
CPI Disinflation Money Supply Fed Policy |
Credit StressReal federal funds rate reached new peaks in December despite no nominal rate changes. Consumer loan rates hit extremes with credit cards at 21.47% and auto loans at 8.67%. Bankruptcy filings rose 11.8% overall and 33.5% for businesses, while foreclosures increased 12.8%. |
Real Rates Consumer Credit Bankruptcies Foreclosures | |
RatesThe neutral rate (R*) has declined 60% over decades due to demographic headwinds and negative net national saving. Current R* estimated at 0.65-1.25% range. Long Treasury bond rally expected to continue through 2024 and beyond given structural factors. |
Neutral Rate Demographics Treasury Bonds Monetary Policy | |
| 2023 Q3 |
InflationInflation accelerated from 2% trend to over 9% in 2022 due to monetary and fiscal stimulus. CPI fell 540 basis points from June 2022 peak to August 2023. Historical analysis shows inflation typically falls to 1.3% average during recessions, making Fed's 2% target easily attainable. |
CPI Monetary Policy Recession Fed Target |
RatesReal Federal funds rate rose to highest level since 2007 in September. Yield curve between two and ten-year Treasury yields has remained inverted for over twelve months, which has preceded each of the last eight recessions over seventy years without exception. |
Federal Funds Yield Curve Treasury Inversion Recession Indicator | |
Credit StressReal bank credit contracted on year-over-year basis while GDP was rising, which is unprecedented. Bank lending standards have risen sharply, typically associated with recessions. Commercial banking sector has been in recession for more than a year based on bank credit measures. |
Bank Credit Lending Standards Commercial Banking Credit Contraction | |
| 2023 Q2 |
Credit StressReal bank credit has turned negative on 12-, 24- and 36-month basis for the first time when real GDP is rising, creating an unprecedented credit crunch. Money supply contraction and rising real interest rates are creating classic credit crunch conditions. |
Credit Banking Monetary Policy |
RatesReal Federal funds rate increased 7 percentage points in fifteen months from negative 5.2% to positive 1.8%, representing significant monetary tightening. This increase was larger than prior to the Great Financial Crisis recession. |
Interest Rates Federal Reserve Monetary Policy | |
InflationContinued tightening of financial cycle conditions with lower inflation expected. The money mountain created in 2020-21 that supported spending and inflation has been eliminated through monetary contraction. |
Inflation Monetary Policy Economic Cycle | |
| 2023 Q1 |
RatesThe firm expects long-term Treasury bond yields to continue declining based on their analysis of financial cycles and monetary policy effects. They argue that excessive monetary looseness leads to financial instability and eventual economic contraction, which historically drives rates lower. |
Interest Rates Treasury Bonds Monetary Policy Financial Cycles Yield Curve |
InflationThe firm views the current inflation crisis as a direct result of the Fed's unprecedented monetary acceleration during the pandemic. They expect inflation to continue receding as economic activity slows and the effects of excessive monetary policy reverse. |
Consumer Prices Cost of Living Fed Policy Monetary Acceleration Price Stability | |
Credit StressThe firm highlights significant stress in the banking system with real bank credit declining and visible bank failures. They note that $10 trillion of U.S. debt must be rolled over in 2023 and 2024, creating additional pressure on the financial system. |
Bank Credit Bank Failures Debt Rollover Financial System Credit Availability |
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