My Deflation Viewpoint Remains Firm
Reasons for my bearish forecast:
Jim Chanos on CNBC today said he is bearish on China. When their economy slows down that will hurt commodity producing countries in the EM and hurt Europe more than U.S.
Richard Duncan in Bloomberg 12-9-10 “China has the greatest economic bubble in history,” …”There’s a real risk it’s going to collapse in a Great Depression-style scenario.”
My opinion is that China monetary policy of very high negative “real” rates has created an unsustainable, unnatural boom, unprecedented in history, with too much risk that it will end.
Barry Eichengreen, a UC Berkeley Economist, predicts a European debt write down. He said “The mechanics of debt restructuring are straightforward. Governments can offer a menu of new bonds worth some fraction of the value of their existing obligations.”
Macroeconomics and U.S. Treasuries:
SocGen forecast issued Dec., 2010 for 1Q2011 for 10 year Treasury at 2%, however, they think it will be back to 3% in a year.
Aug 27, 2010: On Thursday, PIMCO’s Mohamed El–Erian said that bonds are not in a bubble. The 10 Treasury was yielding 2.65% on 8-25-2010.
Van Hoisington and Lacy Hunt on 12-9-2010 said employment / population ratio lowest since 1984, and is a better measure of unemployment than others. They said Treasury bond correlates 70% of the time with inflation, which is now 1%, 30 year Treasury is 4%, so real yield = 3%, average has been 2%, so rates will go down from the current rate of 3.3%.
“The world is entering a recession that may last up to eight years as the U.S. heads toward a “lost decade” similar to Japan’s slowdown in the 1990s, said Eisuke Sakakibara, formerly Japan’s top currency official.” Bloomberg Dec. 8, 2010.
David Rosenberg said all advisors surveyed by Bloomberg are bullish. No one is bearish! My opinion: This is a contrarian indicator that implies one should do the opposite.