Niall Ferguson

Bloomberg has a very interesting interview with Niall Ferguson. Niall says that the U.S. economy is in deflation and that the stock market and commodity price run-ups are due to the decline in the dollar. The danger to the U.S. economy is that real interest rates rise as the government debt to GDP ratio rises over 100% by 2011.

This argument makes a lot of sense to me. Two trades come to mind. First, short Treasuries. The public has poured their money into bonds, which signals a top. The U.S. government's tax revenues have not had any help from the stimulus plan. If the dollar keeps falling, yields have to go up. Maybe bonds are on the wrong side of the trade. Also, the Fed is just withdrawing its support for Treasuries.

The other trade would be to get rid of my oil short. But if the dollar strengthens, that's the only thing I have. TBT, the 20+ yr. Treasury bond has the most daily volume. Let's see if it's shortable. So, TBT is not shortable, so it's a 25% (quarter bond position) in IEF, the 7-10 yr. Treasury etf short at $91.62.