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THE TRADE OF THE DAY: BEING PRUDENT

17 June 2009 by TPC 4 Comments

One of the main reasons why I have always been a fairly good investor is due to my machine like discipline. As treasury bonds rip higher on positive inflation news I am taking this opportunity to sell into the greed. After telling investors to short treasuries and buy TIPS at the beginning of 2009 I reversed the position just recently. Bonds ramped for 6% in just 5 days since our “buy American” trade of the day. That is a massive move in the bond market and a fantastic relative move compared to stocks in recent days. While I still believe the reflation trade is overdone and that inflation is not an issue I do believe the attractive risk/reward of owning treasuries has changed substantially after this latest rally.

I always say that good investors are great sellers. There are two parts to every trade. You can be the best buyer in the world, but if you don’t have the prudence to know when to sell you’re bound to underperform.

* No position in any securities mentioned

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4 Comments »

HankB said:

you’ve been all over the bond market this year TPC. Nice work.

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# 17 June 2009 at 10:14 AM

TPC (author) said:

Have to pat myself on the back for this one. I top ticked the long bond to almost the penny yesterday. Feels good after seeing the nearly 2% decline since….

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# 18 June 2009 at 9:59 AM

leftback said:

Nice trade.

I am also long TIPS and short the 10-year – over the long haul.
In the short term I think the long end is a good buy for the rest of ‘09.

The imminent death of Treasuries has been greatly exaggerated.
Even an echo of last year’s deleveraging event would drive a substantial flight to safety.

See you at The Big Picture from time to time.