Doug Casey: How to Play Interest Rates

People who short interest rates - in other words, people who bet they are going much higher in the coming years - are going to make a fortune. I think interest rates will go back to the levels we saw in the early 1980s, possibly higher.

Now, there are basically three ways you can capitalize on that.

1. The riskiest way is to short interest rates on a futures exchange. That’s not the easiest way to go, for a number of reasons, but it’s the most direct.

2. An easier way is to buy a reverse ETF, which is like an ordinary stock that gives leverage to interest rates.

3. The third thing, and this is something that almost everyone can and should do, since most people own homes, is to take out the largest mortgage you can against it on a fixed, low interest rate. As interest rates go up, the value of your mortgage goes down.

- Doug Casey

The reverse ETF to buy here is the ProShares UltraShort 20+ Year Treasury ETF (TBT).

Disclosure: Top Gun is long TBT.

Comments

[mangiamillie:]

Dennis Gartman also recommends TBT. Good enough for me.

Jun 25 08:15 AM

[stock guy:]

Buyer beware. TBT is extremely risky. It is a 2x short ETF. Buyers of this ETF pay interest at 2x the 20 year treasury rate. Currently that has been between 7% and 9% per year. This is not a buy and hold investment. It is built for very big quick in and out trades. Small investors should probably stay away from TBT.

Jun 25 11:31 AM

[canyon:]

> currently that has been between 7% and 9% per year.

Please define "currently".
I'd revise that to currently 2%-4%.
If we move to 7%-9%, then an investment in TBT, even if the move takes two years, will pay back quite well!

Jun 25 12:12 PM

[TAS:]

What you see with these doubles is not what you get, in many instances.

Jun 26 10:49 AM

[Mad Hedge F...:]

this is a great way. For those who missed the 70% move in the TBT this year, the double short Treasury bond ETF, another window is setting up for you to get in. After running up from $35 to a meteoric $60, we have backed off to $50. Similarly, the bond futures, which plunged from 142 to 112, have bounced back up to 118.5. I think the prospect of a retest of this year’s stock market lows triggered a lot of flight to safety buying of government paper in the last few weeks. If we don’t get that retest, which I think is unlikely, then it’s back to the races for the TBT. Things certainly aren’t getting any better on the fiscal front. According to the Congressional Budget Office, the national debt is now growing so fast, that it will reach 100% of GDP by 2023, seven years earlier than was predicted only 18 months ago. Some 90% of the increase came from burgeoning Medicare and Medicaid spending. It seems that hardly a week goes by without Congress passing another humongously expensive package that has wonderful long term benefits for the economy and society, but has to be paid for with hard cash dollars up front. Watch the TBT.

Jun 26 01:25 PM