Friday, July 29, 2011

Trade into the debt ceiling deadline weekend

My trade going into the weekend will be short bonds (TLT), long silver (SLV).  Judging by today's price action, these are hedged, since after news of still no-deal going into today, both gold/silver and bonds ripped.  The price action appears to be treating gold/silver as "safe havens" in this case.  However, gold/silver typically tracks equities somewhat, and any raise on the debt ceiling will be even more dilutive to the USD.  So if the market thinks of this aspect to gold/silver instead, it could rip, which is contrary to public opinion of what would happen.  Likewise, the price action in bonds today is treating USTs as a "flight to safety."  However, if no deal is done, the market could treat this as an additional credit risk, and USTs could actually tank, especially if they officially get their ratings cut.

So this is the scenario as I see it:
1) No deal: then I lose on bonds (with the potential that the market will actually treat bonds differently on monday than it did today by focusing on credit risk rather than flight to safety factors), win on silver
2) Deal: I win on bonds, lose on silver (with the possibility that I don't actually lose on silver, but that it instead almost tracks equities, which should rip)

Wednesday, July 13, 2011

Debt ceiling; UST bond ratings

Moody's follows S&P in putting US bonds on watch negative.  However, they state that this is specifically related to any possible inability to raise the debt ceiling.

I have complete confidence that our gov't will figure out a last second solution for raising the ceiling.  That's simply how negotiations go... the vast majority of standoffs get done at the last second.  Also, there are so many possible workarounds to avoid default, it's not even funny.  So in that sense, I will be looking to make a bet on no-default as we increasingly approach a deadline.

However, in the longer-term sense, it's interesting to see the market finally start to see the big macro events unfolding... one day, US debt could easily be in the same situation as Greece is now.

It was very funny listening to Bernanke respond to Ron Paul's question about whether Bernanke considers gold to be money.  Bernanke's job is to keep foreigners buying USTs and USDs for as long as possible rather than gold/silver, so obviously he has to deny that gold is money while no doubt knowing the opposite to be true.  Bernanke's not an idiot... his position is political.


Today Bernanke got the ball rolling on rumors of QE3, as he knows our economy still doesn't look that hot (driven by continued low housing prices and high home inventory overhang, which will likely keep prices low for awhile).  This may spark the next upleg in gold and silver.  GDX, a gold miner stock ETF, after diverging below gold, has now been catching back up.  This is what Soros had recently replaced his gold holdings with.