The Market Is Telling Us Something

I just don't get the message. First of all, up three days in a row. Great! Maybe it's time to short, but several gurus, including the immensely respected Todd Harrison, are neutral, so I am too. Strange picture on the treasuries market. I thought that failure to deliver (what on the stock market is called naked shorting) several trillion dollars worth is just a temporary blip, but it's been going on for at least three weeks now.

There is only one explanation possible: a huge unsatisfied demand for treasuries. Which means panic. The financial world is buying the safest investment vehicle. At the same time, the dollar fell significantly against practically all currencies and gold went up sharply. The gold price is just another side of panic: the "safest" way to hold your money in valuables. The dollar's fall is not that clear (looks like I sold UUP just in time).

If the dollar went up as well, the message would be clear: deflation and depression. As it stands, it's not clear. Let's wait and see. Maybe it's time to short treasuries, they just can't get much higher, by definition. They are at 1930s level already.

Full disclosure: At the time of publication author had no positions in UUP and no positions in other stocks mentioned. Positions can change any time.

Comments

[mcadoo3312:]

Do you have proof on your failure to deliver comments?

2008 Nov 26 11:32 AM

[John Lounsbury:]

Shorting treasuries is definitely a good idea. The only question is timing. Perhaps the panic will continue for several more months and treasuries will continue to rise. However, negative yield (or even 0 yield) is not likely, so how much higher can they go? The downside potential for treasuries at this point is so much larger than the upside. Therefore, don't jump in with both feet but go short treasuries (using, say, TLT) in steps - a litle now and more in Q1/2009 and heavily before year-end 2009.

Disclosure: I have not yet taken any short positions (in treasuries) but will be doing so before year-end 2008.

2008 Nov 26 12:39 PM

[contraxism:]

There may be considerable upside yet to play out in US Treasuries. The unwinding of US carry-trade is reason enough alone to hold treasuries. At the very least I would wait for the unwinding process of the CDSs market to play out. As long as derivatives are at risk to counter-party defaults, the unwinding of leverage will put upward pressure on the USD. Forget about the yield until the unwinding of borrowed USD subsides. What if the next government cracks down on speculators of derivatives and commodities? There is too much uncertainty to forecast much more than a day.

2008 Nov 26 01:59 PM

[Alex Filonov:]

Articles mentioning failure to deliver on treasuries market:

seekingalpha.com/artic...
www.euromoney.com/Arti...
www.investmentnews.com...
www.nakedcapitalism.co...

Want more? Google "treasuries market fail to deliver"

2008 Nov 26 03:29 PM

[Jeff:]

Is there an ETF I can use to short Treasurys, like UND for the dollar?

2008 Nov 27 12:01 AM

[contraxism:]

Print the ETF guide from this site and look under fixed income

www.etfguide.com/etfti...


On Nov 27 12:01 AM Jeff Herman wrote:

> Is there an ETF I can use to short Treasurys, like UND for the dollar?

2008 Nov 27 09:44 AM