Shorting the world’s most overvalued asset has got to be the big trade for 2010. I’m talking about 30 year US Treasury bonds.

The relentless whirring of the printing presses is so loud that they keep me awake at night, even though, according to Mapquest, I live 2,804.08 miles away. What will be unique with this meltdown is that it will be the first collapse in history of a bond market in a non-inflationary environment.

It is not soaring consumer prices that will execute the coup de grace on the long bond. It will be the sheer volume of issuance. The Feds have to sell nearly $2.5 trillion of debt to cover a massive budget deficit and refund maturing paper, easily the largest cash call in history.

Pile on top of that billions more in offerings from states and municipalities bleeding white. By end 2010 total government debt will rocket to a staggering 350% of GDP. Throw in private debt requirements, like the rolling over of a trillion dollars worth of commercial real estate financing and your garden variety corporate offerings. The rush to borrow has started overseas too, with $75 billion in Eurobonds floated by sovereigns and corporations in the first two weeks of the year alone. It’s clear that the bond markets of all descriptions are going to become very crowded places, driving rates irresistibly higher.

At some point, the world runs out of buyers, and the long bond yields will begin their inexorable climb from the current 4.6% to 5.5%, 6%, and higher. Even Moody’s is talking about a ratings downgrade for the US debt, not that we should give that disgraced institution any credibility whatsoever. The unfortunate camel whose back is on the verge of breaking is about to have sticks come raining down upon him.

I am a worshipper of the TBT, a 200% leveraged bet that long bonds are taking the Lexington Avenue Express downtown. It has clawed its way back up from $43 to $51, and $60 looks like a chip shot for the first half. Longer term, this ETF could hit $200, when long rates top 13%, as they did when I bought my first coop on Manhattan’s Upper East Side in 1981. However, it may take several years for us to get there.

If interest rates double from the current levels, a virtual certainty, so does America’s debt service, from the current 11% to 22% of the budget. That’s when the sushi really hits the fan. Don’t expect the dollar to hold up very well either when the tsunami of red ink hits. And while you’re at it, short some JGB’s. Japan is much farther down the debt road than the US, with far bleaker economic prospects.

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