30-Year Treasury to Hit 3% on Deflation Bid -Gary Shilling, TYX, USB Charts

Economist Gary Shilling of A. Gary Shilling & Co. was on Bloomberg TV yesterday talking about deflation, Treasuries and the Euro (EUR/USD). Watch the full embedded Bloomberg interview below. If they yank it, the media file is at Bloomberg.com. Shilling hasn't really changed his views, but he did say he lightened up on Euro shorts when the trade went against him recently. He's still anticipating a turn though (has small short position). Here's a summary of what Shilling said.
  • Euro will hit parity with US Dollar, problems will deepen in Europe
  • 30 Year Treasury Bonds will yield 3%, 10 Year Treasury Notes closer to 2%
  • Real return for Treasuries will be higher with 2-3% deflation (example)
  • Sees a double dip recession, slower growth (2% Real GDP growth annually over next decade)
  • Decade of deleveraging by financial sector and US consumer will bring deflation, slow growth
  • Government replacing private sector deleveraging, how much can they do...

Source: Bloomberg Television

Interesting. What do you think folks, will the the 30-Year Treasury bond breakout and yield double dip from here? What if there's QE2? Also, if the deflationary vortex does indeed hit the markets, how will it affect EPS, the S&P multiple and equity / credit spreads? Check out the charts.

$USB (30-Year US Treasury Bond Price) - StockCharts.com
Where are the bond vigilantes ese?

The 30-Year Treasury bond yield is also at a critical point on the chart, where floor support meets the downtrend line. $TYX closed at 39.63 (3.96%) so Shilling sees another 96 basis points chopped off of yield. 38.2-38.8 (3.82-3.88%) looks like the ultimate floor. Hedge the vigilantes.

$TYX (30-Year T-Bond Yield) - Stockcharts.com

Another interesting view:
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