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8 pts

Opinion on  UltraShort Lehman 20+ Year Treasury ProShares (TBT)
US Government bonds are the worst investment for the next decade

Jun 19, 2008 02:50 PM GMT
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Return Risk
-4.25% MID
Sr. Associate

Fundamental Analysis  

US Government bonds will be destroyed going forward.

Reasons
1.Unwise fiscal policy has resulted in unprecedented money supply growth.This was the root cause for the massive bull market in all assets.But now the cycle has turned and we are going to see unwinding of the bubble in all asset classes.Increase in money supply has resulted in inflation which will continue to increase growing forward since nothing meaningful has been done so far.The central banks have been adding fuel to the fire by pouring in more liquidity when increased money supply was the cause of the malaise.At some point inflation will be difficult to ignore and interest rates will have to be increased.Rising interest rates will cause bonds to tank.

2.At some point there will be dumping of US treasuries by foreign governments and that will be disastrous for bonds.

It is to be noted that there is a chance of pain when there is the herd like "flight to safety" when equities collapse and fund managers automatically shift to US Treasuries and the dollar.Do not panic.Hold or ideally accumulate at lower levels.Why not wait till then?I am lousy at timing market timing and have difficulty counting beyond my fingers so technical analysis is beyond me.I think I am good at strategy so I am sticking to that.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/0...


TBT:  This call was made on 06/19/08 @ $73.36
Rating:   Positive   $73.36 (06/19/08)
Gain/Loss:   -37.13% in 534 days
Target:   in > one year
Allocation:   2.3% of portfolio


Comments (2)

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Thomas George    9 %     1 point   commented 534 days ago reply

Marc Faber on US TIPS bonds

"I have always been skeptical about buying inflation adjusted bonds (TIPS), simply because the yield on inflation adjusted fixed income securities is pegged to the CPI. Since the government will always understate the true rate of inflation the buyer of the TIPS will eternally be shorthanded. Moreover, I think that one day in future, the bond market will finally wake up to the fact that inflation has been understated and sell-off very badly. In fact, you would have to be the world’s greatest optimist (a la Abby Cohen or Larry Kudlow) to buy a US 30-years government bond in US dollars and with a yield of just 4.5% with the view to hold these bonds to maturity. You would have to assume that US inflation will never rise above 4.5% within the next 30 years and that the US dollar’s purchasing power will be maintained. Not a likely scenario, in my opinion (short term, however, bonds could rally somewhat more as the economy weakens)."

http://seekingalpha.com/article/3233-marc-faber-on-the-problem-with-treasury-inflation-protected-securities-tips-etf-tip

http://www.opendemocracy.net/forum/democracy-power/2008/06/02/marc-faber-financial-guru-the-risk-of-a-rout-in-the-us-treasury-market-is-a-very-real-one

http://www.ameinfo.com/157176.html

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ilias Ben   79%     0 point   commented 409 days ago reply

interesting analysis. i share your vision: unwise money flood caused the crisis, and now they are flooding again the market with money???


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Who voted on this idea?
anilhj N/A 06/19/2008



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