#6 Recent addition (4/8): TBT

The SPX has had a big runup since the March lows (up 27% by my calculation). It is nice to have made money during that time, but the big runup also makes it hard to find new investments. It is hard to know if we are out of the woods yet. It is encouraging that home sales are starting to improve and that banks feel good enough about contemplating a return of TARP money. On the other hand, I do still worry about the non-security assets on banks' balance sheets (ie the loans) which are probably being marked at generous levels. Quite frankly if there was a way to put on a trade where you were long marked down assets and short assets as yet to be sufficiently marked down, i think that'd be a good trade. Maybe that is a GS or MS vs. the commercial banks.

Anyways i am getting off track. There are two reasons for our purchase of TBT (200% inverse of the 20yr treasury):
(1) There has been a flight to quality in Treasuries, and I think the Fed has been buying too (albeit more of the shorter term bonds); however as sentiment improves, and inflation becomes more of a concern, Treasuries won't be as attractive.
(2) The size of the Obama budget and prospective deficits should make people relatively less optimistic about the US being able to pay its debts in 20yrs. The TARP and other bailout measures are effectively a transfer of toxic assets from the banks to the taxpayer, so why not short the taxpayer.

There are only 2 short ETFs on US bonds. One is PST, short 7-10yr, and the other is TBT, short 20yrs. We shorted the 20yr.