If you are a US investor you can kind of ignore this post because both your income and expenses are inherently tied to the dollar. The pitch is aimed at non-US investors who have a large part of their holdings (50%+) in US/dollar assets.
This is a bit of an odd pitch but I think short US TLT is a no-brainer if you live outside the US and have significant US assets.
This isn’t a bet against the US economy or US assets in general, it’s a bet against the medium-term international purchasing power of the dollar as well long term treasury rates.
My thesis is based on the following:
* DXY has been between 80 and 105 for the last 20 years, it is now at 98. It is currently towards the high of the range, and I believe that a substantial move lower is more likely than a substantial move upwards.
* Net-inflows into USD investments have been extraordinarily high for the last three years. This doesn’t need to reverse for my thesis to be correct, if it just goes back to neutral (which it usually does) the USD *must* take a hit and TLT is likely to take a hit as well.
* Treasury market action to reduce LT rates is inherently unsustainable. It will work until it doesn’t. The treasury **has** to be a net seller of TLT as long there is a fiscal deficit. This new policy of attempting to reduce LT rates by buying back bonds is like a fisherman trying to increase fish prices by buying fish. He may be able to move the market in the short term but eventually he will have to sell fish.
* US trade deficit and fiscal deficit are now structural and will not move in the medium term
All of these, combined with the fact that my portfolio is very much *long* USD otherwise, make me think that short TLT is a no-brainer.