“I send you the attached letter to use as you like. 

"Separately, I would like to revisit today's Fed announcement and the subsequent bond market reaction.  I would have thought an announcement regarding asset purchases would be a cause for investors to buy long term dated government bonds, not solely the continuation of ZIRP. You and David have covered many of the fundamental demand drivers of bonds as well as the technical picture.  Have you both discussed what the unwinding might look like, and the degree of the financial damage?  For me it makes sense to think it will be more like the NASDAQ of 2000 than the housing market of 2007.  The former was unwound in three years because you only had to hit a button to end the misery.  The latter continues to be a complicated and fractious transaction that had the twin detriment of wrecking lives on a grand scale.

“Thanks for your reply.

“Finally, any plans on stopping in Chicago between Los Angeles and New York?”

Eoin Treacy's view Thank you for this interesting letter which rhymes with our view of the upside potential among the globally oriented consumer related companies which we have dubbed Autonomies. I don't have plans to visit Chicago on this year's trip to the USA but plan to return in 2014 and Chicago will definitely be on my schedule then.

Yesterday's Fed announcement did not include a commitment to additional purchases as far as I know. However, the Fed has an interest in keeping yields low and may well be preparing the ground for QE3. The perception that the US Treasury market is infallible has gained credence following a more than 30-year bull market. This perception belies the risk of paying historic highs for ever lower yields. One would need to believe that the USA is heading the way of Japan to justify such purchases beyond the motive of short-term momentum.

At Fullermoney, we do not believe that Japan offers the best roadmap for the USA's sovereign debt markets, not least because the Fed has a clear inflationary bias and has demonstrated a much more proactive attitude to reinvigorating the velocity of money. Nevertheless, while we might have a high degree of confidence about the long-term risks evident in this market, there is no evidence, yet, that the denouement is upon us.

Major bull markets don't tend to end because demand evaporates, although that does happen later. They generally climax when supply overwhelms demand. Governments are increasing their debt burden in the face of low growth. The Treasury market has been supported because governments have been buying their own paper and investors have traded on this momentum. The volatility in other asset classes has fostered the view that Treasuries are a safe haven.

The current trajectory of US government debt, both funded and unfunded, means there is a requirement for considerable additional debt well into the future. Unless action taken to correct this problem, one has to ask how long investors are likely to accept the deteriorating condition of the country's balance sheet. The USA's problems are not insurmountable but they won't fix themselves.

Both the Nasdaq and housing markets offer examples of major crashes. This log scale chart depicts just how much Treasury yields accelerated lower in the last few years. If history is any guide a 30-year bull market will not end with a whimper and the subsequent bear will not end quickly.