hedge fund managers are crowded short Treasurys. They just despise them. David Rosenberg and I are the only people on the planet who are bullish. Rosie isn’t even all that bullish – he’s not calling for yields to get cut in half like I am – he’s just not apocalyptically bearish.
Comes now an asset manager with a typical article saying “Don’t Fight the Fed – Short U.S. Long Bonds“. This time I have to respond. The crux of his argument is that,
central bankers will be doing everything within their power to spark ‘manageable’ price inflation because of all the debt they’ve issued. We’ve all heard the old Wall Street saw ‘Don’t fight the Fed.’ This makes it particularly important to realize that the Fed wants inflation. Some would argue that they need inflation. This certainly applies to all central banks and sovereign debt around the globe.
This is certainly the consensus opinion, but it is totally wrong. People who hold this view are missing three key things: (i) they are in a crowded trade with barely any opposition, (ii) inflation would be a disaster for the Treasury, and (iii) deflation would suit Treasury’s purposes much better.