Bond Outlook December 14th

Despite reading and agreeing with much of the GaveKal book as reported last week, we remain what they call “perma-bears” on the US economy and the USD. The reversal of the slide in the USD of recent months, and the strong performance of the US stock markets makes us bears feel like hibernating, a temptation we must, however, resist in the light of long-term trends. Remember, the whole debate is whether low profits but high cash inflows into China (and not just China) will continue to facilitate the high profits but high dollar outflows of the USA.