March 30, 2010 ? Treasury Bonds Are Not for Me

Featured Trades: (TBT), (TBF)

1) Treasury Bonds Are Not for Me. Last week's downward revision to Q4 GDP from 5.9% to 5.6% brings me to reiterate my advice to take profits in your long positions in the TBT, the leveraged short Treasury bond ETF. In the last year, the TBT has achieved seven 10% moves up in the $45-$50 range, and I expect this sideways grind to continue. A sale into a price spike on a positive nonfarm payroll number on Friday might be an ideal exit point. Better to take the bird in the hand than the ten in the bush. We're going to get more downward revisions to the headline GDP figures. Car sales have pulled themselves off the mat from 9.5 million annualized sales to 12 million, but it will take years to revisit past peaks of 16-20 million units. New home sales are crawling along a bottom at 500,000 units/ months, and probably will not recover in our lifetimes the 2.2 million annual units seen at the last peak. Interest rates are still at zero, and inflation a distant memory. We live in a low return world. As John Mauldin has pointed out, the velocity of money is collapsing, suggesting that a rate spike is still years off. In 2007, I received three credit card applications in the mail every day. Now I get a similar number of offers from foreclosure specialists. Remember also, that this leveraged short ETF has an effective cost of carry of negative 10%, which means you'll lose about five points a year just letting a position sit an grow hair on it. Mind you, I still think the 30 year Treasury bond is still the world's most overpriced asset. However, Armageddon will have to wait a little longer.