Montreal, Canada

"It's almost Armageddon if the Chinese and Japanese don't buy our debt."

    -- Julian Robertson, Jr., CNBC interview, September 2008.

Ten years ago a multi-manager hedge fund I advised for a British institution owned the Jaguar Fund – managed by legendary manager, Julian Robertson, Jr. No other position in that fund was more profitable from 1996 to 2000. Tiger, the asset managers behind Jaguar, began with just $8 million dollars under management in 1980 and peaked north of $22 billion in the late 1990s.

Until 2000 when he closed shop, Robertson, 76, was the ultimate macro hedge fund manager – probably equal or better than George Soros. The Tiger Funds slugged out more than 20% per annum from 1980 until 2000. In late 1999, Robertson closed his funds following steep losses shorting technology stocks – just months ahead of the peak for the NASDAQ.

Julian Robertson now manages his own money and helps to seed promising hedge funds. He has a sharp understanding of the global economy, the primary trends driving capital markets and believes this recession will be long and painful (http://www.businessinsider.com/julian-robertson-inflation-could-hit-15-20-2009-9).

Robertson's chief concern now is the level of U.S. deficits and its reliance on China to continue funding America's budget gap. He remains under-weighted in stocks.

"I prefer to run scared through here. I think that if the Chinese stop buying our debt, it is virtually the end of the financial world as we know it. The conventional thinking is that they will continue buying. But I don't think it's logical to assume somebody will continue to buy paper which declines in value. Our dollar is declining in value, and it's been pretty shocking over the last four or five months," he lamented in an October 16 interview with the Financial Times.

Asked about his current strategy now, Robertson confessed he doesn't particularly like stocks (he owns Apple, Visa and Mastercard) but prefers to short long-term Treasury bonds: "There are insurance policies that are worth considering. My favorites are Curve Caps, basically a "put" on long-term bonds five years out from now. If we do have inflation, long-term yields will have to go way up, which means the bonds will go way down, and the Curve Cap will be a terrific investment."

Betting against a disaster – if the Chinese and perhaps the Japanese bail on U.S. Treasury bonds – has never been easier. Two reverse bond ETFs now trade in the United States.

The Ultra Short 20+ Year Pro Shares Fund (NYSE-TBT) shorts long-term Treasury bonds. Though a volatile trade, it might yield enormous profits if long-term rates climb sharply higher over the next few years.

Robertson's macro view highly conflicts with PIMCO's interest rate forecast.

PIMCO's Bill Gross recently loaded up on long-term Treasury and mortgage agency debt in September anticipating a double-dip economic recession in 2010 – contrary to what Robertson is expecting. But if the Chinese balk at funding bulging U.S. deficits the Panic of 2008 will turn out in retrospect to be a picnic.