Ultrashort Lehman 20+ Year Treasury Is Rocking

Just realized I never added this position to my new portfolio - with much chagrin. It's sitting there in the old Marketocracy.com account but nowhere to be found in our new tracking as I've been focused on equities instead. I just added 10 shares, so it is at least sitting on the books, but I'm banging head against the wall for not adding it over the past 3 weeks. It is finally making it's long awaited run - approaching a key resistance area here.

A full description on why I bought this and why it's going to be a great hold over the long run can be here. [Nov 21: Bookkeeping: Initiating Ultrashort Lehman 20+ Year Treasury]

Let me just say, the higher this instrument goes - the worse it is for our country. Due to a lack of alternatives, we've been the only country in the world that can get away with being the center of a financial tsunami and people run INTO our currency & debt. Now the first stages of running away from our debt begin... and our borrowing costs (interest) begin to go up. When the day comes when the dollar follows, it could get very ugly. But that's a fire to worry about another day.

The great irony is once the world returns to growth or at least stabilization, the great flight "away" from safety could torpedo both our bonds and currency. Look at what is happening to the U.K. currency the past week - scary. Multi trillions financed at 2.5% is a different story than financed at 5-6%. Or worse if people really start to face reality regarding our (non) ability to pay back our debts.

I'm giving you the Cliff Notes - if you want the full scoop read the November post.

Long Ultrashort Lehman ETF in fund; no personal position

Comments

[Wriiight:]

You say: "the higher this instrument goes - the worse it is for our country."

If the treasury coupons are just steepening (the lower maturities stay low) than it isn't catastrophic, the US will still have cheap financing for a while longer. Also, the long term rates are crazy low, and I don't see why having long term treasury yeilds up to 6 or so is a disaster. On the other hand it also makes non-government long term bonds less likely to come back from the crisis.

At the very least be happy that you aren't yourself pushing the bond yields up, the volume on the real thing is way to high for the ETF to have any real effect on the market.

Jan 23 02:19 PM

[dakyne:]

Your trade was right, but your timing was awful. You were too early and will now have to sit on that trade until rates come up high enough for you to show a profit for the trade. Not the best position to be in, but not the worse, as the trend is your friend. I got "lucky", getting in at 36, near its all-time low, and again at 39. Should have loaded up a couple days ago when it dipped below 39 again. I'll watch it closely, and if it dips back to 40, I'll load up the truck.

Jan 23 07:38 PM

[jepittman:]

First I'll say I own a small position in tbt near these levels. However I do not believe it will be the home run many think it will be anytime soon.

I believe that in the near term this investment is 'fighting the fed'. To help put a floor under the economy the Federal Reserve wants the housing industry (among other things) to recover. It needs low mortgage interest rates to allow refinancings and new home loans to be more affordable. Higher treasury bond yields do not help. To prevent this they have indicated they will buy longer dated treasury bonds thus monetizing the debt they buy. Ultimately, as the economy recovers from the recession (it WILL recover despite what we are regularly exposed to here at SA) the fed can tolerate a gradual increase in long bond rates that could continue for some time. Then IMO tbt will have an extended rise as treasury bond yields increase. Also IMO a good S&P ETF will outperform it near term.

Jan 23 11:34 PM

[Sean Privitera:]

I agree that this is a good investment, and made a few bucks on it a couple weeks ago. My only comment is that if you only bought ten shares, if you have an account like ameritrade it'll take a $2 increase per share, which is a 5% increase in the stock, just to get to even. Thats the only reason i'm not invested in this right now. It will definitely go up but I don't know if it will do it immediately. One good sign is that the other day when the market dropped, TBT went up, not down like it usually does (flow of capital to treasuries on down days). This is a good sign for this to start to make larger rises.

Jan 24 02:13 PM

[John Polomny:]

You dont have to hit this one on the exact low because the 27 year bull market in bonds is over. This is the trade of the decade like stocks in 1982 and gold in 1999. The government is blowing out the budget and we are not even talking about the $70 trillion in unfunded Social Security and Medicare entitlements that are due the baby boomers. You establish a position in this one and then buy on the dips for the next decade. You will do fine.

Jan 26 05:54 PM