02/05/10 Stockholm, Sweden – No, the headline is not a paid promotion for The Daily Reckoning’s new and current Trade of the Decade… but it sure sounds like one. Author of “The Black Swan,” Nassim Nicholas Taleb, reflecting upon the fiscal and monetary policies in the US, sees it as a “no brainer” that “every single human being should have that trade.”
According to BusinessWeek:
“Taleb said investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office, without being more specific.
“The Fed and U.S. agencies have lent, spent or guaranteed $9.66 trillion to lift the economy from the worst recession since the Great Depression, according to data compiled by Bloomberg. President Barack Obama has increased the U.S. marketable debt to a record $7.27 trillion as he tries to sustain the recovery from last year’s recession. Obama projects the U.S. budget deficit will rise to a record $1.6 trillion in the 2011 fiscal year.”
In an article earlier this year, and decade, Bill Bonner also cited promise in expecting a profit from a Treasury decline, part of our new Trade of the Decade:
“[US Treasury] yields have been going down (meaning, the price of debt is going up) since 1983. And now, despite a supply that seems to be going off the charts, demand for Treasury bonds, notes and bills has never been stronger. What’s more…if our analysis of the US economy is correct…the supply of Treasury debt is going to continue to rocket upward for many years. Deficits of $1 trillion to $2 trillion per year are going to become commonplace.
“How long will it be before the market in Treasury debt crashes? How long will it be before hyperinflation…or a debt default…sends investors running for cover? We don’t know…but it seems a likely bet that it will happen sometime in the next 10 years.
“So, on our sell side…we’ll put US Treasury debt […] our Trade of the Decade: Sell US Treasury debt/Buy Japanese stocks.”
Of course, it’s still as early as can be in this decade-long strategy, but the trade is on. You can read the complete article covering Taleb’s views on shorting US Treasuries in BusinessWeek.
Rocky Vega
Rocky Vega is publisher of Agora Financial International, where he advances the growth of Agora Financial publishing enterprises outside of the US. Previously, he was publisher of The Daily Reckoning, and founding publisher of both UrbanTurf and RFID Update -- which he ran from Brazil, Chile, and Puerto Rico -- as well as associate publisher of FierceFinance. Rocky has an honors MS from the Stockholm School of Economics and an honors BA from Harvard University, where he served on the board of directors for Let’s Go Publications, Harvard Student Agencies, and The Harvard Advocate.
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“Taleb said investors should bet on a rise in long-term U.S. Treasury yields.” Bet is the optimum word here. Wall Street has become the New Las Vegas. The whole economy is now a crap shoot. All I can say is no more bail outs.
Mr. Bonner…. I took my tax info to my CPA today and he told me an interesting story about our 1 trillion plus deficits. He had just attended a tax seminar where they stated that if politicians do nothing, the budget will be balanced by 2012. How? Let the Bush tax cuts expire and 2 things will happen. First, 1 trillion extra tax will be collected annually when the higher income tax rate reverts back. Secondly, another 1 trillion will be collected annually when the AMT exemptions expire increasing the people affected from 5 million people to 25 million people. If true, this means a balanced budget in time for the 2012 presidential elections. Are we in for a “do nothing” government again?
Jan Glenn… Casa Ensueno, Nicaragua
One thing to remember about Dr. Taleb…almost everything he says or writes is tongue-in-cheek, to the extent he states in his latest book “Fooled by Randomness” that he abhors giving recommendations, and sometimes plays mind-games with those who ask them of him! Point being, he strikes me very much as a “figure it out yourself” kind of fellow, willing to comment on the figuring environment we find ourselves in, but loathe to do someone else’s due diligence.
Having said all that, I think he (and Mr. Bonner) are right…you simply could not conceive of a way to entice me into buying US debt at this juncture.
How we can short US treasuries?
You can short treasuries using either of these: TBT or TMV.
These are both leveraged, so be sure you have cash to average down should bonds rally in the short term!
I would not be shorting treasuries just yet, not when the government will soon force 401k’s and IRA’s into annuities and therefore treasuries.
They have not cleaned us out completely just yet
AndyC