I have no strong opinion on longer-term rates. Rosenberg says that he looked at correlation between deficits/inflation and rates and inflation is the main thing and deficits arent a big deal. What he is missing is the same thing the folks that look at post WW2 US recessions and think this time around there will be a V shaped recovery: this time could be different for a number of reasons We are in the beginning of a global sovereign debt crisis, furthermore deficits are huge compared to previous ones meanwhile there is the shadow debt from SS and Medicare that the market might wake up one day and decide to throw up, even the official outstanding debt is already large. As I said I dont have an strong opinion one way or the other, which is why I stay out of this trade
Peter Boone and Simon Johnson lastest http://baselinescenario.com/2010/04/11/greece-saved-for-now-is-portugal-is-next/#more-7137 "The danger for private debt holders is clear: Sovereign loans invariably treated better in a restructuring than private debt. So the European aid in some sense squeezes private debt holders." The blogger Felix Salmon disputed that, in my view he is clearly wrong. The EU situation makes it very different, the 'union' mindset will likely prevail and EU debt will almost certainly be paid off before private debt or they get a better deal. To not do that is to not return the favor from the union and there would be political consequences that the greeks will likely try to avoid
Long bonds are not the way to play the "rates lower for longer" trade. The best way is through the carry trade - start a bank. Other than that, a synthetic carry trade will work - buy eurodollars, buy NLY, buy a bank that is unburdened by crap assets. Other than that, a synthetic on a synthetic carry trade - buy calls on eurodollars.
Rosenberg has a breakdown of the correlation between fed policy, inflation and deficits. Says deficits sort of dont matter. The problem is that at some point they WILL matter, the US congress simply will not deal with large fiscal imbalances(like the $50T of hidden debts) unless there is a crisis(ala Oct 2008 when they passed TARP knowing they would lose votes). So at some point the folks looking at that correlation will be wrong as the market will wake up one day and will forget about disinflation or deflation and worry about sovereign risks, this could be starting now or could start 10years from now. I dont know when it will, but I do that there are other ways of making money from disinflation that dont involve trying to pick the right sovereign debt in the start of a global sovereign debt crisis(specially when the pick is a country with large fiscal mess) I also know that there is only an small chance that the fed raises rates during a disinflation, so I will play that theme there
Why not simply gold? I believe the relationship between negative intrest rates and gold is prety clear troughout recent history, is it not?
One could argue that this global sovereign debt crisis will put an end to the decline in global real interest rates that started in the 1980's. So even IF there are disinflationary/deflationary pressures in a certain country, that does not necessarily mean that the gov debt is a good buy because that is being offset by the higher premiums that the market is demanding. That seems to be the case in the US, at least so far, inflation measures have been disinflating yet the yield on long-term debt has been increasing. If the stock market takes a dive that could change but thats a lot of IFs, specially considering that there are superior ways to play that same theme(I dont think gold is one of them given that decline in real rates in the 80's and 90's didnt do much for the price of gold)
I'm not sure how can one be wildly bullish on longer-term USTs like Rosenberg is, maybe they are a good buy maybe they are not, its not the easiest call to make What is a sovereign debt crisis?It would be a period where deficits and outstanding debt data(namely default risk) takes over other factors in determining the price for government debt, so the correlation figures that Rosenberg quotes wouldn't be as meaningful as they were in the past(furthermore they were collected during the global decline in real rates that could be easily be over). So either he believes the world isn't in the beginning of a GSD crisis or he thinks the US fiscal situation is good
Chanos on Rose http://www.charlierose.com/view/interview/10960 He makes a great point when he addresses the Jim Rogers of the world who seem to think the government of China will take care of everything and defuse the bubble
I think Rogers' decennia long bullishness on China has little to do with his faith in the government's economic intervenence policies I would say. Anyway, from the interview: "If I knew the time the crash would start I'd be a rich guy." Funny.