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Sunday, September 27, 2009

Tiger Hedge Fund Manager Julian Robertson Predicts Armageddon - High Inflation

Tiger Hedge Fund Manager Julian Robertson Predicts Armageddon if Chinese and Japanese Don't Buy Our Debt.

CNBC's Erin Burnett (Erin Burnett Fan Club) interviewed legendary Tiger Hedge Fund manager Julian Robertson last week on Thurs 9/24/09. Robertson said the recession is temporarily over but we will see "Armageddon" if Chinese and Japanese don't buy our debt.
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Summary:

Earlier in the year Bill Gross said inflation could go to 6% or 7%. Robertson was on then and said "that would be conservative."

Robertson says we can grow and save our way out of it and that is the only way we will get out of being terribly dependent on the Chinese and Japanese.

Thinks inflation is a much higher risk than that of deflation.

Thinks interest rates will go to 15 or 20 percent if Chinese and Japanese won't lend us money.

Said US is selling mostly short term debt now because we can't sell our long-term debt to anyone but the Fed.

Said "history shows those who borrow short term usually get burned."

Said "spend, spend, spend... borrow, borrow, borrow" won't solve the problem unless we find a way to pay for the spending once we stop. Says if US savings rate goes from about 12% now to 25%, then this could help pay for the spending but it would be bad for the economy.

CDs have been a "safe haven" for those wishing to preserve assets and get a small inflation adjusted return. See "CD Rates at Largest US Banks" for the most recent table co


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US Treasury rates are so low, that they are paying less than long term inflation. See:



1 comment:

  1. Julian Robertson expressed substantial concerns about the ongoing US debt funding threat, using words such as "Armageddon" to describe what will happen when and if China and Japan stop buying US debt. More disturbingly, as was pointed out on Zero Hedge first, and was subsequently picked up by the WSJ, the Fed has accounted for half of all Treasury purchases in Q2 ($164 billion of total of $339 billion).

    Below we present data for what could be construed as a Treasury funding crisis borne out of lack of demand for longer maturities, once the QE portion of UST purchases expires. This crisis could hit as soon as October.

    http://www.zerohedge.com/article/visualizing-upcoming-treasury-funding-crisis

    Summary: foreign purchasers are congregating exclusively around the front end of the Treasury curve, meaning that the primary net purchaser of dated bonds has been the Federal Reserve. As everyone knows by now, the Fed only has $10 billion left out of the $300 billion total allotted for Treasury QE. That should expire next week. The question then becomes will we see another major steepening leg in the UST curve as yields on long-dated paper finally catch up to the real supply-demand curve absent the Fed's manipulation of the equilibrium point. Or will we see an outright funding crisis as foreigners pull out entirely of all treasury purchases, not just Long-term USTs.

    The time of unravelling may be upon us sooner than most think.

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