I decided I needed to hunt bubbles. I knew housing was in a bubble but I didn't make any money off of it. When I realized what I could have made, I realized I needed to keep my eyes open for the next one.
There is a large bubble right now, in treasuries. The yields are low due to risk off, panic, deflation, and low because the Fed is unnaturally intervening. And low because they are at the tail end of a 30 year continuous bull market Shorting treasuries is not risk free, it may take some time for them to rise - but I believe with near certainty that they will, from here. Yields can double from here and still be at roughly 30 year lows.
Short treasuries, with patience. It might take 3 or 4 years, but I believe nice gains are in store with very little risk. There are many options for doing this, all of them appear to be sub-optimal, but I found a few that should work with few negatives.
The other upside is that shorting treasuries essentially and fundamentally hedges you against higher interest rates, which is a natural hedge, for anyone. With rates at historic lows, now seems a good time to lock it in.
Going against the Fed is probably the worst thing you can do. You never go counterparty to Big Money.
I just shorted Treasuries via the TLT when it was 122 and just covered this morning at 116.75, when it hit the 10 day MA. I made a small profit, but there's no way I'm going to hold onto a position like that for 3-4 years. You have no clue where TLT will be trading at that point, and you could go broke shorting it.
Trading is about getting the DIRECTION and the TIMING down right. There will be a time to short treasuries, but now is not the time, at least in my opinion.
I bought an inverse, rather than shorting. I don't think it likely, or possible, for the 30 yr to go much lower. I can wait, my position doesn't have any time decay, and I'm in no hurry.
If you bought an inverse and you think you have no time decay, then please read the prospectus. Inverses are comprised of various instruments (including put options) and DO have time decay. If you read the prospectus you will see they are for replicating the movements on a DAILY basis. If you hold overnight for regular periods of time you are in for a shock.
yes, most do -- that is what I alluded to in my original comment about all methods having their downsides. Most are not suitable for long term holding and you would end up with assymetric exposure (more downside than upside, over time, for a given move over time) due to compounding effect. I'm aware of that, you're absolutely correct. I have read their prospectus also.
I decided to buy an ETN which does not have this specific problem. But I am of course paying a fee for the trade, so I guess you could call that a decay. And, since it is an ETN, I am taking on credit risk from the issuer -- which is the more salient downside.
Like I said in OP, all the methods of doing this have downsides. But I am comfortable with what I am doing, I believe the upside/downside risk is well in my favor.
Of course read the prospectus. As always, everyone should do their own research, and seek to find instruments they feel comfortable with, and they believe are suitable for whatever it is they are trying to do.
I'm pretty sure inverse ETFs/ETNs use swaps or futures. If this one is done through futures, you need to worry about contract roll, which introduces loss.
Which particular ETN are you referring to? I'd be interested in reading the prospectus.
yes, there is a rolling cost but it's fairly small, at least relative to the mgmt fee. All up it costs around 0.87 a year. Not cheap and more than I would normally pay, but it does what I want. I didn't want to be seen to make any specific recommendations, so please no one take it that way. This is what I chose. Below is the Long, there is also a 10 yr.
FYI the rolling cost on UNG and USO is the main reason why its unprofitable and doesn't track the price of NG or CL very well at all. Many traders frontrun the roll, causing it to lose money every month.
There is a large bubble right now, in treasuries. The yields are low due to risk off, panic, deflation, and low because the Fed is unnaturally intervening. And low because they are at the tail end of a 30 year continuous bull market Shorting treasuries is not risk free, it may take some time for them to rise - but I believe with near certainty that they will, from here. Yields can double from here and still be at roughly 30 year lows.
Short treasuries, with patience. It might take 3 or 4 years, but I believe nice gains are in store with very little risk. There are many options for doing this, all of them appear to be sub-optimal, but I found a few that should work with few negatives.
The other upside is that shorting treasuries essentially and fundamentally hedges you against higher interest rates, which is a natural hedge, for anyone. With rates at historic lows, now seems a good time to lock it in.