Follow The Bottom Violation
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Feb
12
Massive U.S. Debt, No Consumer Spending, Government Near Bankruptcy. How Could Treasuries Go Higher?
People say they’re more excited about dying than reading my next article. Hey, don’t kill the messenger. The United States consumer has maxed-out his credit cards, student loans, and HELOCs. He’s not borrowing anymore money.
He’s foreclosing, begging his friends for money, trying to sell his Sea-Doo, his motorcycle, his double-wide, his children, and his Corvette. He’s spending way too much time with his drug dealer, and his wife hates him — mainly because she’s broke too.
Meanwhile, Ben Bernanke and Barack Obama continue to cultivate their new passionate relationship — taxing, spending, printing, and easing as fast as their little engines will perform. But they still haven’t got the message: nobody wants to borrow. And more importantly: nobody wants to lend. Still, that tidal wave of cash has more potential energy than a uranium atom convention, and Satan himself knows I don’t want to be anywhere near when that little sweetheart of a catastrophe violates its restraints.
Below is a fun little chart for your perusal. It shows bond yields at all time lows — relative to all yields going back to 1928. And you can’t stay at zero forever. At some point, the rubberband just isn’t going to stretch anymore. Isaac Newton said so. And Einstein said, “Hear, hear.”
Keep lying to yourselves. What do I care? I’m short Treasuries, and long gold, oil, guns, ammunition, potable water, canned goods, pigs, chickens, and toilet paper.
And don’t ask for my address when things get bad. I ain’t tellin’.
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Disclosures: Paco is long TBT, UCO, and gold. He also holds U.S. dollars by necessity, pending the advent of private gold-backed currencies.
You can buy his novel Discipline wherever books are sold.
16 Comments so far
Partners
Well … you need to take Paco at his word … he won't give you his address
I asked a neighbor two days ago who used to be president of a local bank what banks would he deposit money into? His response … none of our local banks … over $250,000 … because of their exposure to real estate loans.
I asked my attorney yesterday which banks he would deposite money into
and his response was the same.
Whoa Nellie … That sure has heck got my attention.
Paco – Any idea on good UST shorts besides TBT? Out of money puts are ok if the time horizon is long enough. Julian Roberson shorted UST and Kyle Bass shorted Japan bonds. I am looking for something that does not require margin calls.
Regarding ArkansasAngie's quest for a bank, go here:
http://moveyourmoney.info/ < has a “find a bank” link
Thanks, Bill
Bill, the trouble with using any derivatives with EFTs is that the spreads are absurd, and you lose so much juice in the transaction. Also, shorting the long ETFs is almost impossible because most brokerages won't allow it. The other options are shorting furtures contracts, and/or using options on futures, but you have to rollover the contracts, which means commission and slippage fairly frequently…
Paco
http://www.bottomviolation.com
This is an excerpt from a column I just read:
“… it got started in 1971 when Nixon severed the dollar/gold link, and especially since 1987 when Alan Greenspan took over the Federal Reserve, and doubly-especially since 1997 when this same moron named Alan Greenspan lost his freaking mind and really started creating excess credit in the banks, and triply especially since 2008 when that raving lunatic bastard, Ben Bernanke, took over at the damned Federal Reserve and really, really, really started to create money by the trillions of dollars, using some of it to actually buy up worthless, dog-crap assets and the rest to buy government bonds so that the commie rats in the White House and Congress could continue to deficit-spend us into bankruptcy, a budget deficit which now approaches 12% of GDP, but which they had to do since they could not stop partying once they got started, or the whole rotten financial structure, made out of cards, erected on a bed of sand, on borrowed money, at huge degrees of leverage, collapses, the currency collapses, finally ending up with bread going up in price so much that nobody can afford to eat, and everybody tragically starves to death in a huge, horrible inflation in prices caused by the incredible inflation in the money supply, except the people who have gold, silver and oil. The end.”
http://www.lewrockwell.com/daughty/mogambo31.1….
Does TBT (X2) deliver accurately relative to the underlying index over the long run? How about TBF (X1)?
Neither is perfectly efficient, but they're close enough. With TBT, you may not get exactly 2X, but you'll get more than 1X, which is good enough for me.
Paco, yes, better than 1X on TBT should be tremendous over the next few years.
Do the long ETFs such as GLD have the same inefficiency as a short or ultrashort ETF?
What is your opinion about a short ETF on the S&P for example? Is the volatility of the underlying index (S&P) so much greater than that of the long treasuries that the daily "friction" tends to ruin the return?.
I think all the 1X ETFs are problematic because of the inefficiencies. Again, with the double- or triple-leveraged ETFs, you lose some bang to inefficiency, but you're still better off than if you use 1X. I've read a lot about it, and there's a lot of conflicting evidence, but I've been long TBT for over a year, and I'm more than happy with the results. I think I'd rather just buy physical metals than mess around with a 1X ETF.
Paco
http://www.BottomViolation.com
[...] for now, they're slowing things down. And Europe is limping along like an unfed, wet mongrel. The U.S. consumer is sitting on his couch crying because he wants to watch WWF on PPV, but his credit card company [...]
Your blog is full of useful information that is a great help on this topic.
Thanks! It's nice to know I'm having some effect!
An Interesting discussion. I have had some great success with leverages ETF's. Certainly you need to take greater care when employing any leveraged product, but the results can be an eye opener!
My recent post 10 Killer Reasons To Invest In ETF Funds
Consumer spending is starting to pick up, unemployement levels starting to drop. The economy and certainly the stock market are improving by the day. Investing in ETF securities are a great way to ride this new bull market. It's early days yet, so now is a great time to jump in and invest in some rock solid etf funds.
It looks like things are leveling out (keeping finger crossed) If we can get money flowing again in the forms of loans I think that will spur the economy along.
Keep a close eye on consumer spending this month, think we might see some pleasent surprises. I have picked up some nice ETF Securities lately, particulary in the technology sector, which are growing dramatically.
My recent post My Top 5 ETF Securities Right Now
TBT has sure been a rough ride, but sure starting to look compelling down at these levels. SCC may be an option as well to short the consumer.
My recent post Lithium ETF LIT Begins Trading