While the operator of printers of mass destruction drones on about QE3, 4, 5 and so forth, confirming that if not inflation, we will surely get hyperinflation or bust, a long-term Treasury bull, Van Hoisington, once again chimes in with his big picture macro view. As usual, it all boils down to the inflation/deflation debate. His take: "While the massive budget deficits and the buildup of federal debt, if not addressed, may someday result in a substantial increase in interest rates, that day is not at hand. The U.S. economy is too fragile to sustain higher interest rates except for interim, transitory periods that have been recurring in recent years. As it stands, deflation is our largest concern, therefore we remain fully committed to the long end of the Treasury bond market." Too bad the Chairsatan just said each and every episode of deflation will be met with round after round of monetary devaluation. And last, we still can't find the chapter in the history books that indicates a sovereign state (either in Roman times, or modern, and especially since the invention of the printing press) imploded due to hyperdeflation. That long end of the bond market is sold to you Van.
As for his other two main observations, we agree 100%. These can be summarized that rates will rise when “investors lose confidence in the dollar stream of future surpluses,” the present value of which must equal future liabilities and that Fed policy “has aggravated, rather than ameliorated our basic problems” by adding debt, while failing to improve economic conditions." Absolutely correct on the latter, as to the former, when all the momos with machine readable headline E-Trade accounts have blown up and thinking people resume trading, that will be the immediate next step.
Full letter (link):HIM2011Q2NP