Monday, June 4, 2012

67 Days Later (Musical Tribute)

March 29, 2012
Treasuries Could Plummet 18% (Or More) Over The Next 2 Months

Based on the latest fund flow data from Lipper Research, many investors remain enamored with long-term bonds.... But not every investor is clueless.

In fact, I’m convinced we’re on the cusp of a massive exodus out of U.S. Treasury bonds.

If we use these two corrections as a historical guide, the current selloff could last another 67 days and lead to an additional 17.6% decline in prices.

In hindsight, it is the yield that fell (from 2.93% to 2.17%). That's 15.2% less interest over the life of the bond. Those shorting the bond therefore felt a world of pain (bond prices move inversely to bond yields).

If you’re reluctant to embrace the improving economic picture in the United States because of the threats posed by ongoing financial issues in Europe and an apparent slowdown in China, chew on this: The U.S. GDP isn’t overly reliant on either.

The HORDE WAVE is coming to eat you! Om nom nom nom!

If we sell short the iShares Barclays 20+ Year Treasury Bond Fund we’re responsible for covering the monthly dividend payments. And the more time that passes, the more the payments will eat into our potential profits.

This is not investment advice. I'm not willing to predict what treasury yields will be 67 days from now, nor can I tell you to 3 decimal places what future returns will be. Not my style! ;)

Source Data:
FRB: Selected Interest Rates
US Treasury: Yield Curve


Stagflationary Mark said...

I've been patiently waiting about 2 months to post my thoughts on this article. I thought he was wrong, but I never would have guessed he was this wrong.

Europe didn't do him any favors, nor did timing the 67 days to hit one trading day after the awful employment report. Oops!

And why did I "hoard" this article? Hey, I'm permabearish. I'll hoard just about anything that I see value in. Was there value in this article? I can't speak for others, but at the very least I was entertained. It didn't even cost me a penny, lol. Sigh.

mab said...

This was an awful call. Not quite as bad as Cramer's "Winners of the New World", but awfully awful nonetheless. Fortunately for the author, the financial "services" industry give mulligans. Lots of mulligans.

WV = "peaple". Would you still be permabearish if you knew soylent green was "peaple"? To me it sounds healthy if nothing else.

Stagflationary Mark said...


The financial "services" industry would not only give you a mulligan, but they would "bailout" the entire lake looking for your ball, lol. Sigh.