Which we agree with:
"The road to hyperinflation is via hyperdeflation. That is why it’s proving so difficult for hedge funds to make money. How does the rational mind that anticipates hyperinflation own 10-year government Treasuries yielding less than 2%? It can’t. That’s why people are struggling. To lay the seeds of hyperinflation, you need really, really bad things to happen."That was why we made the - ultimately correct - long Treasury bonds call starting two years ago. We are now neutral on Treasuries.
As I've pointed out before, there is a huge divergence between Treasury yields, which are still low, and the equity markets, which have rallied significantly off of the October lows. One theory is that Treasury yields are "artificially" depressed, either by Fed intervention or by the flight-to-safety bid, and that there are significant risks to owning Treasuries if the equity market is in fact correct this time. Technical "analysts" point to a "double top" in the Treasury bond.
And it is true that the earnings yield on the S&P 500 has the biggest spread ever over Treasury yields.
Is what we are experiencing a false recovery like the one we saw last year? Or, is there significant pent-up demand for consumer durables like automobiles?