Lacy Hunt: Why interest rates won’t rise

Economist Lacy Hunt thinks long-term Treasury bonds are a buy.

That's definitely not the conventional wisdom. He's nearly alone in his view, but it has been correct year after year. The conventional wisdom has been wrong.

Maybe it's time more people listened to what he says.

Hunt, the chief economist at Hoisington Management in Austin, Texas, makes a strong case that his view will be right for quite a few years in the future. To demonstrate, he shows a graph from his trusted book of charts.

'Look,” he says, 'go back to 1990 when (long) bonds were yielding 9 percent and inflation was 6 percent. You had a 3 percent real return. Now follow the line. Yields have fallen with inflation. Now bonds are around 3 percent and there is no inflation. So it's the same 3 percent real return.”

Today, while everyone else has been anticipating that the Federal Reserve will start raising interest rates, he sees the downward trend going on.

'Let's say we go to 1 percent deflation over the next few years,” he said. 'Well, the long Treasury will go to 1.5 percent, but your real return will be 2.5 percent. That's pretty attractive as a real return.”

The latest reason interest rates will continue sinking is China. 'The Chinese decision to go down the currency devaluation path confirms that monetary policy is not working,” Hunt said.

Hunt is quick to point out that what is happening isn't about a single action by China. It's about the unintended consequences of having too much debt everywhere.

'You need someone to lead,” he said. 'It's a critical concept.” In fact, no country in the world is in a position to lead and put us on a path to growth.

When I asked Dr. Hunt if he was frustrated that his interpretation of economic data was at the far edge of public discussion of our economy, he nodded. Then he noted that he was a fiduciary, not a missionary. His job at Hoisington was to manage money, not change minds.

If you visit the Morningstar website and check the performance of its retail fund, Wasatch-Hoisington U.S. Treasury (ticker: WHOSX, no-load, expense ratio 0.70 percent, minimum purchase $2,500), you'll see that the fund has been in the top 1 percent of its category over the last 10- and 15-year periods.

That's quite fiduciary.