Thursday, May 21, 2009

Is There Nowhere To Hide?

I seriously asked myself this question today as I looked for an investment "safe haven". When Bond king Bill Gross tells you to avoid treasuries and questions the USA's AAA credit rating you need to ask yourself: Is any investment safe anymore?

My Take:

I don't think Bill could have been more blunt: STAY AWAY FROM TREASURIES. Folks, this isn't an equity strategist that's just saying this as he tries to get you into equities.

This is the King of Bonds telling you not to buy bonds!!!!!

I am in one of Bill Gross's bond funds and I think he is one of the smartest guys on Wall St. Be very afraid if this guy is willing to goo out on a limb and say such a thing.

His view appears to be shared by the world's central bankers according to Reuters(Thank You Karl Denninger):

"[11:41 US GOVTS: Real Money Using Coupon Passes To Exit; FM Blast] Boston, May 21.

There apparently is a new wrinkle to the intermediation trade between buying from Treasury to sell to the Fed with real money, including central banks, now in on the act. Indeed, several Street sources relay central banks were aggressive offers into this morning's coupon pass, with one letting go of a large block of old 5-years. Other offers too are coming in from embedded Asian real money longs -- in the higher coupons -- also looking to sell size without unduly upsetting the market, and especially considering the illiquidity in off- the-run bids from the Street.

Whether influenced or not by the much higher tenders coming in on the Fed Passes ($45 bln tendered for $7.4 bln bought in today's pass for a 16.2% hit rate), fast money has been tattooing the bid and especially so in the belly with the 10-year most leaned on. Note as well, earlier this week the Bank of England (BoE) gilt pass too saw a need to offer paper at or below the market's bid side in order to get sales off.

Obviously, this is not a very supportive situation for the treasury market, if previous sponsors are heading for the exits in a fairly sizeable manner. With this, and $101 bln in supply next week (and another $70 bln in 3s, 10s and 30s to be announced the week after)look for more downside action. Q-E III anyone?"

Quick Take:

As you can see, the foreign buyers of our debt are bailing on treasuries and selling out to the Treasury at above market prices. How in the hell does Ben think he can sell Treasuries going forward at a time when the FCB's of the world appear to be selling and running for the hills?

1932 all over again?

I have discussed 1932 in previous posts. Lets me put this bond collapse chart up again:

My Take:

Panics occur when no investment seems safe. As you can see above, bonds initially peaked after the roaring stock market began in the early 1920's. When stocks began to crash, bonds soared as investors flew into the safety of bonds.

This worked great until 1932 when both bonds and stocks collapsed. Why did this happen? Because there was no confidence that anything was solvent. The government tried to spend its way out of The Great Depression just we are doing today. Bonds all of the sudden didn't look so safe anymore as a result so investor's got the hell out.

Stocks had no earnings in 1932 so there was no confidence in this investment either. We are looking at the same situation today. S&P earnings are down 90%. We have seen buyers for stocks for now, but this rally seems very long in the tooth after today's selloff.

Folks, the parallels of 1932 versus today are almost identical.

So where did the money go in 1932 when nothing appeared safe? RIGHT UNDER THE MATTRESS! I am beginning to think that the same thing might happen again today. Nothing to me looks very safe! In fact, I think I will go out and buy an extra thick Sealy so I have a little more room for some greenbacks.

Bottom Line:

According to the Reuters article we have another $101 billion in bond sales next week followed by another $70 billion the following week.

Where is the money going to come from to fund these treasury purchases? The Fed may find themselves sitting in the bond market and buying treasuries via QE all by their lonesome!

Folks, I may be a bear/Gloom and doomer, but I am usually hesitant to press the panic button. I gotta say it: The end is near.

The situation here is extremely dire. I don't see any plausible exit strategy for the Fed that doesn't result in an economic collapse/depression.

My advice?

Have a couple months of living expenses available in hard cash at home. Buy some gold and silver coins and find a safe place to stash them.

If you are in treasuries you may want to hedge your position by shorting treasuries. You can do this by buying ticker TBT. You can also short bonds by buying PUTS on TLT.

Place some cash into some CD's and money market funds(under FDIC limits) and pray that the government has the money to make you whole if we go "kaboom".

Scale into some short positions on the S&P via ETF: (SDS) or buy long dated PUTS on the SPY.

My Trading Account:

I promised to disclose my positions in the comments section today so here we go. Keep in mind 90% of my portfolio is in cash and bonds(for now). Also, I am not a professional trader nor do I have any desire to be one because I probably would have no hair left.

Let me also preface this by saying that I am not advising anyone to use this as trading advice!

Anyways here ya go:

I currently am short Treasuries via TBT, short the the S&P via SPY and SDS, short tech via the QQQQ's, long gold via GLD. I am also currently short commercial real estate via SRS. I also hold a pretty big position in BEARX.

In terms of performance: Flat on the SPY and SDS bets, down big(40%) on the QQQQ's(very small position). Up big on TBT(+25%) and GLD(+50). Crushed on SRS(in at $85 OUCH!). Never saw the bailout coming. Down on FAZ. Got in at only $10 so not too worried about it. Up 30% in BEARX(bought in 2005).

In terms of the weightings in my account: S&P short bets: 25%. BEARX: 25%. TBT: 10% SRS: 10% GLD:10% QQQQ's: 3% FAZ: 5% Balance is in cash.


Anonymous said...


If it makes you feel better on your SRS holding, the recently completed Fremont Tech Center in the Bay Area has slashed sale prices starting from $825K to $625K. Out of 10 buildings, only two are filled. There are six empty buildings. The remaining two buildings are only half filled.

There are empty commercial buildings all over the Silicon Valley area.

Jeff said...


Thanks for the update. Interesting.

We all get clobbered in this game. I still think eventually this will rise from here although I doubt it will ever get back to $85 given the slippage.

It will be a nice tax write off if nothing less:)

I will take another run at commercial via IYR PUTS next go around. SRS is a crappy derivative ETF.

GL with your trades.

ryan said...

The derivative ETFs were not made for holding. The time decay on those things destroys their value too fast for really anything longer than a day trade or a very short swing trade.

Actually, because of this they make excellent stocks to short/long for $.50-1.00 (1k of shares) for a quick play. Other than that, I've seen too many people get burnt to allow myself to hold these things overnight.

Jeff said...



I agree. Some work better then others. sds has bery little slippage from my experience. Srs is the absolute worst. Live and learn!

Jeff said...

Let me add that I like sds because I can hold long term versus being in dated puts.

I will take a little slippage in return for the opportunity to ride out the volatility.

However srs can be a loser even if u are right if u hold it too long due to the slippage.

Its iyr puts for me on commercial in the future


Jeff said...

small post up around 7.

flipdippy said...

When the S&P was on its way down in Feb/March, it felt really good, like my shorts were wise bets and I was in front of the news and in control.

This bear rally based on nothing while news and reality deteriorated rapidly made me miffed at Obama and whole lot of other politicians.

But now, it looks like oil, gold, the bond market, the dollar, the baltic dry shipping index, the dow transportation index are all confirming something very, very, very, bad is lurking around the corner.

I'm fairly certain all investors or non-investors are going to be walloped.

I feel really weird in the pit of my stomach.

Jeff said...


Me too.

I will have something small up. Got back late today