Why I am short US Treasuries

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.

About jrv

I was born in Spain and lived in Belgium, Chile, France, USA, Argentina among other places. Currently I am trying to settle down in a wild place. I am "retired", even though now I dedicate more hours "working" for my investments than I ever worked in the real labor market where I used to work in IT and Banking. I am a family man, I have a lovely wife, several sons and one step daughter. I have humble tastes, I like to stay home and read about companies and investments. I started investing at 25 before the internet bubble exploded. I did not know much about investing and liked technical analysis so my results were pretty bad. Fortunately I did not have much to lose. Some years later in 2006 bored of doing only real state investments and with quite a lot of money saved I opened an account in a cheap and excellent online broker and started again. This time I did not want to commit the same mistake, so I decided to follow a model. I heard that Warren Buffett was the best at making money via stocks so I started by reading a lot about him, all of his shareholders letters and several of the books that he recommended. I learned a lot, started applying his investing principles and reading a lot of 10K's. Digested news from lots of different sources. Basically I started buying very good and cheap companies and holding them for ever if possible and if nothing changed fundamentally. When the housing crisis started I was more than 75% cash. At that time I identified good companies at incredibly cheap prices so I invested most of my savings in stocks. In less than I year I doubled. By the second semester of 2009 I turned my software company into an investment vehicle and dedicated myself full time to it. My wife and I decided to change our lifestyle and moved from Belgium to the beach in a wild country. The goal was to keep fixed costs low in order to be able to live with a minimum 6-8% yearly return but specially to move away from the inhuman life of civilization and to have finally some peace and sunny weather to concentrate better on investing. Now I can think and study about companies 60 hours a week and I am doing great. I can finally do what I want full time and can proudly say that I have never been so happy, specially also with my just born 4th son, my other great kids and my sweet wife who supports me fully while I study most of the day and patiently wait for the opportunity to make a swing ! You can learn a bit more about my portfolio by viewing it at www.kuchita.com/view/sumo.php or you may learn more about me and my family by following the link "Author's site" from the menu above.
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2 Responses to Why I am short US Treasuries

  1. trading.nie says:

    Hoi! Your portfolio (thanks for sharing btw) shows a short position for the TLT Jan’13 90 puts, which appears to contradict the views expressed in this article. I was just about to enter a long trade for the same 90 puts when I noticed…

  2. jrv says:

    Hi, it’s a covered put, if tlt tanks I earn down until 90 for one third of my shorts and unlimited for the rest. That covers the dividend expenses that you must pay being short.

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