A LAYUP BET

I hope you all had a nice pretend holiday and rested well, courtesy of the Federal Govt. Markets opened up angry and have been attempting to fool all morning. Alas, I only kept my BTC and IEP positions following my usual morning liquidations. Unfortunately, Carl is a little flaccid this morning and caused me to drawdown. Nothing too severe, off by 29bps.

I do have what I consider to be a lay up bet. The problem for me, if being honest, I will likely not profit too much from it because it requires patience and I am mostly day trading. The bet is TMF — ultra long long bonds.

The premise is as follows:

The inflation narrative is dead and will soon be replaced with FOMC easing. By the time we get to that, rates would have already crumbled to pieces. In the event of an economic downturn or market scare, the bias for rates is now LOWER. If there was a war or perhaps the high rates finally affected people other than the working class –both TLT and TMF will take off. If you just wanted to play the alpha you could buy some zero coupon bonds, like ZROZ, and wait.

This trade requires waiting. There are people out there, very evil people, who believe this entire circus is going to end one day and all that will be left are govt bonds.

Bottom Line: All western nations are heavily indebted and cannot afford to carry the interest on their burdens. The natural direction for rates is lower — not because western governments are responsible and deserve low rates — but because it’s rigged. If, for example, rates reflected the true risk of the underlying governments, all 100% debt to GDP players would have to endure the highest of rates until they got their shit together. But we do not live in a world with free markets. Markets are nationalized and the people who control the guns also control the rates, so figure it out.