Chillin' out till it needs to be funded
Firstly, those shorting US treasuries may just get wrong footed by mere topping up of QE2 balances whenever need arises by Bernanke’s fed. Secondly, eerging Markets are going to dip lower now that people continue to expect a finite GDP growth in the Developed markets.
On the third continent ( Europe, and you cannot convince me otherwise) the peripherals will self destruct, pay 3 years loans in 10 years and I can even see candidates for redenominating currency while Germany’s big brother role will last a couple of years unchallenged by bankrupt French and English governments. That said, it is but obvious that despite global challenges everywhere else whhich has already upped commodities tab by 20-30%, the emrging markets , all 20 of them have been slayed by a single swipe of the inflation demon.
Slayed and with no first aid kit to settle up in life al EM economies will sooner ofr later adjust to a correspondingly higher inflation guillotine like 2009-10 in USA. If the USA can now live with 3% inflation and the Dollar flows that are never going to reduce from here, which many want to continue flooding (like Pimco) the world
In fact, I would allow India to raise another 150 bps and china another 300 bps respectively if it were simply mathematically related as well as only a finite amount of Yuan has even shipped to Hongkong, let alone convertibiltiy. At the top of the inflation cycle, some EMs would have failed in governance and Economic motive would have boomeranged on them, to which extent it is safer to live with higher interest rates and bleed the global demand for Emergi
ng market debt at the rates of LIBOR + 300 BP also , which is the only regulated inflow which can cool us down now to balance the import costs translating into higher shelf prices. Theat is also only possible as long as Exports keep outrunning imports ( in growth ) by a finite double digit margin which at least India and China are managing
BTW, did we mention that at least Fidelity is backing our view of staying long on US treasuries..