Waiting for the Inverse Treasury ETF's Glorious Day

We have all heard that there is a great deal of U.S. debt owned by China and other Asian countries, but here is the breakdown of over $3 trillion that is on loan to the world. Obviously Ben and the team need to keep a lot of people happy and are continually juggling the needs of America with the concerns of the world.

For now, rates will stay artificially low to keep all happy. There will be a time though that we see a change in the pricing, once the Fed stops purchasing non-stop. That day will be a glorious move for the Inverse 20-year Treasury ETF (TBT). Of course first we need to see our economy improving, so I don’t think that you will miss the move. Keep TBT on your watch list.

Click to enlarge:

Comments

[henarl:]

By buying TBT and selling a one or two month covered call with a srike at or near the purchase price and repeating the process if the call expires worthless, or if you're exercised out, one can use TBT as a profitable short term trading position while waiting for the bottom to fall out of treasuries.

Apr 26 12:49 PM

[carey_jim:]

If inflation starts up TBT will start up too but if deflation continues TBT will drop like a rock.

In the latter case, annuities will be star performers unless the underlying insurance companies go bankrupt.

No one knows for certain which flation will occur or which companies will fail, among other things.

If any investment anywhere becomes a sure thing then the next sure thing is that fascism, socialism or another totalitarian system has arrived and the laws of economics have been temporarily put on ice.

History shows that investment opportunities are not plentiful under totalitarian regimes.

May uncertainty and freedom reign.

Apr 26 01:01 PM

[searcher:]

It's an ill wind that doesn't fill somebody's sail. All '-isms' promise to fill all sails. They're filled right up to the time they run ashore or into a reef.

Apr 26 01:59 PM

[Prudent Man...:]

The next "Black Swan" will be a Treasury Auction and no one comes.

These comments are right on.

Apr 26 02:29 PM

[hausenpepper:]

Don't forget PST also, PST is the 10 year inverse short. The FED has specifically targeted 10 year rates since the 10 year is what most mortgages are pegged to. Once that artificial reduction in rates goes away, that should pop.

Apr 26 02:46 PM

[hausenpepper:]

On a sidenote, there has been much talk about how these leveraged ETF's deteriorate over time. If your worried about ETF tracking and willing to abandon the leverage, you can actually SHORT the TLT where the deterioration over time helps rather than potentially hurts you.

Apr 26 02:56 PM

[Jasper M:]

carey_jim: I think you may be wrong about the deflation case -

We are already deep enough down that road where defaults are not only a risk, they are manifest. (i include currency debasement as a form of default) And that means an inevitable rise in rates, yes on Treasuries too. rates up, price down, inverse up.

Apr 26 04:03 PM

[Old Rick:]

This Black Swan happened recently in the UK with a failed auction. See:www.bloomberg.com/apps... "Brown terribly fragile after bond auction flops". They got 1.63 billion Bids for 1.75 billion for sale. Not quite a "no one showed up" scenario, but not good.


On Apr 26 02:29 PM Prudent Man CFA wrote:

> The next "Black Swan" will be a Treasury Auction and no one comes.
>
>
> These comments are right on.

Apr 26 04:30 PM

[secmaven:]

The Fed will always show up. It has an unlimited checkbook. But at that point the dollar is likely to behave like Wil E Coyote did a short time after he ran off the cliff. Buy gold or gold stocks with metal in the ground.

Apr 26 05:59 PM

[Rob Viglione:]

There is no free lunch. The Fed can continue to buy Treasuries until the cows come home, but by doing so they are printing money and will cause inflationary pressure.

Whether or not we actually experience inflation in the near term will depend on continued credit destruction. Long-term, however, the Fed's inability to use its increasingly junk portfolio to soak up excess money supply virtually guarantees inflation.

The long bond (TLT) is the best short given enhanced sensitivity to inflation.

Apr 26 07:06 PM

[Allan Frain:]

It is a good bet that the current bubble is in Treasuries.

Apr 26 07:32 PM

[xmaitlandx:]

shouldn't your article read '...over $3 trillion that is on loan FROM the world..'

Apr 26 07:49 PM

[jumpingjoe:]

henarl: If you expect the bottom to fall out and you've sold calls how do you participate in the expected large move if you've limited your profits to the strike price?
On Apr 26 12:49 PM henarl wrote:

> By buying TBT and selling a one or two month covered call with a
> srike at or near the purchase price and repeating the process if
> the call expires worthless, or if you're exercised out, one can use
> TBT as a profitable short term trading position while waiting for
> the bottom to fall out of treasuries.

Apr 26 07:53 PM

[WhenBanksGo...:]

Interesting views and I think just about all of us are waiting for the changeover point from deflation to inflation.

Here is Australia its interesting because we have maintained a slightly higher interest rate allowing us to borrow using our governments guarantees. Yet somehow I think I'd prefer controlled printing of money in the mix as well. In an economy as small as Australia's we have gone from running a 20 Billion surplus for this budget to a 50 Billion deficit funded by borrowing.

www.whenBanksGoBad.com

Apr 26 09:05 PM

[Glen Bradford:]

Andrew and PrudentMan,

Thanks for the picture. I knew China was a big player here, but I honestly didn't know Japan was about to catch the shaft --- again.

I agree with TBT. seekingalpha.com/artic...

Did you forget to disclose ownership?

Anyway, I'm big on Black Swan. Here's a handy list of definitions
www.fooledbyrandomness...

Further, check out this article that outlines the tipping point.
seekingalpha.com/artic...

On Apr 26 02:29 PM Prudent Man CFA wrote:

> The next "Black Swan" will be a Treasury Auction and no one comes.
>
>
> These comments are right on.

Apr 26 10:50 PM

[Kobe:]

The only problem with this article is that EVERYONE and their mother has the same exact opinion on TBT... If it is too obvious, then...

Apr 27 05:04 AM

[debt donkey:]

yeah but everyone and their mother is in bonds too. I heard a woman in my little village cafe sounding off about how all her money was in gilts.

Apr 27 07:24 AM

[xmaitlandx:]

If you are a leverage addict, why settle for the watered-down 2x leverage?
TYO and TMV offer the 3x leverage fix you soon won't be able to imagine trading without.....

Apr 27 02:02 PM

[Clive Corcoran:]

Thanks for the chart - shows very clearly a big part of the global imbalances between consumption and savings.

Regarding future potential gains on TBT the following may be useful
morph366.blogspot.com/...

Apr 29 11:14 AM

[plobrutto:]

What's that 6.43% from the Caribbean?

Jul 09 03:11 PM