Via Scotiabank’s Guy Haselmann,
I’ve been a bond bull since February, frequently predicting that the 30 year would fall below 3% by the end of the year. Last week, I said it would fall below 3% by Thanksgiving; a call I still standby. For the reasons that I mentioned on a morning call, I will give the shortened version of a case why the long bond may even be headed toward 2.5% in 2015.
As the country managing the world’s reserve currency, the US needs to run a chronic current account deficit to supply the world with dollars. Yet, in running a chronic perpetual deficit it undermines confidence in it. This is what is known as the Triffin Dilemma.
Many believe QE3’s printing of $1 trillion per year (of a fiat currency) would be the tipping point that would debase the dollar. Bitcoin become popular and Gold soared. The world was flush in dollars. EM corporates issued in dollars, expanding the outstanding float of such securities 7x versus 2006 levels. The debasement never happened and now that the QE is ending, the world will have fewer dollars. In turn, the dollar is under pressure and Bitcoin has collapsed (75%).
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