This is one of my comments to an excellent article on another guy that is short TLT. Adding to his 3 reasons I give some reasons more of why I am short TLT:
Excellent article Simon, very clear view, same reasons exactly of why I am short. Some other reasons are due to : 1) more than 15 trillion in us debt 2) more then 7 trillions of usd printed in the last 4 years. Both 1) an 2) show no signs of slowing. This is substantially more than what has been printed in europe in relative terms. And 3) inflation is relatively low because people are afraid to spend, once that passes, with a little bit of job creation and improving economy, and they start spending the trillions saved, prices could simply explode. 4) We can already see that commodity prices are going up and that is the first thing to go up when there is inflation, it can and must easily spread to higher level goods since companies cannot have rising costs without increasing sales price unless their margins fall, and they don’t allow that generally.
For those additional reasons I am also short tlt, the equivalent of 300 shares, via options, here is my portfolio: http://www.kuchita.com/view/sumo.php and you can see on my blog (http://investing.kuchita.com) a link to my gurufocus articles with the reasons of why I am short.
I also like the fact that if the stock market falls I can buy more stocks so I would certainly welcome that scenario since I still have lots of cash to deploy. On the other hand if it doesn’t then it’s almost sure that the tlt will fall and I win there, so basically I would be happy with both outcomes in the mid term since I can hold the tlt short indefinitely and I am sure that on the long term it will fall.
There is the short/mid term risk that the fed keeps on buying bonds but I do not think they will keep doing that for more than a year, already some fed officials are talking about the inflationary risk of doing that far outweighing the benefits. Actually that would be like adding more dynamite to the inflation bomb, so if they keep on doing it I will probably even short more, specially if tlt reaches over 120 again.
How do you manage the dividend on tlt (to avoid paying it if possible) or the interest costs on shorting tlt? That’s one of the things that bothers me more actually.