Wise Bears Sell Municipal Bonds
and US Treasury Bonds
by Richard Gorton, The Resourceful Bear Blog | January 25, 2008
PrintI. Today saw a
rally came from the Federal Reserve cutting the central bank interest
by 0.75%.
My investment motto is: "In a bull market be a bull, and in a
bear market be a bear: in a bull market, one buy on dips, and in a
bear market, one sells pops and rallies". Special thanks to Stockcharts.com
for the free us.eage of charts provided herein; all comments are mine,
not theirs, or those of any one else.
I recommend that one buy gold as it is in a bull market going 'sooner or later much, much higher'.
And I recommend that one identify and sell the best bear financial instrument one can find.
The basis of today's rally was the action of international traders using the Euro to take Gold higher in response to the Fed's announcement of a whopping 0.75 interest rate cut. It's as Kitco.com's Jon Nadler says: "it was the kindest cut of all (thus far)".
GLD
The Russell 2000 shares did not participate in today's rally because
they do not have a positive alpha foreign currency component, nor do
they have have a basic materials dimension; the Russell 2000 stocks
are for the most part, US small companies whose fate is highly credit,
financial and US currency centric; the related charts date from the
October 8th, Citicorp CDO Bust
IWM
IYG
$USD
FXY
FXE
Here is the Yahoo Finance Chart of the Gold/Russell 2000 divergence
since the bottom of the first subprime scare back in August 2007.
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II. Bears Sell Rallies: most bears perceive
traditional sells.
The FXE to FXY ratio (FXE:FXY)
popped up in response to the international effort to drive gold higher
drive; but this isn't going to last for long!
One could open a currency account and start to sell 'EUR
JPY', as today's jump is only temporary: it's going to be 'forever
down', except for a few bumps-up like today; the 5 day Yahoo Finance
Chart shows the effect of the Euro being used to drive gold up and
over 900, as well as short sell covering.
Or even more easily, one could purchase long -- buy EEV at opening
tomorrow; as the EUR/JPY action of today really backed this one down;
I've covered EEV
quite a bit in my blog; and given that I believe the Yen Carry Trades
are going be unwound by future EUR/JPY down-ness, one may want to
purchase this 200% bear of the emerging markets upon opening; the only
bad thing about for me is that it is a dollar denominated asset, and I
favor gold denominated assets; so one could I suppose use margin
credit from a gold ETF, GLD based account to purchase it; but it's
like the chart indicates volatile.
The stock market's rally is seen in VTI;
yet it is a weak rally; it's just a pop in a terrifically bearish
stock market; this is likely to be as good as the "the
rally" is going to get; one could sell into it immediately; yet
the short selling opportunity of a lifetime is found in short selling
municipal bonds, closed end municipal bond funds, and the 20 to 30
Year US Treasury ETF, TLT.
Stocks to consider selling include AA, AKAM, BG, BIDU, CME, ESI, GS,
JOE, JNS, JST, LSI, LYG, POT, RVI, TTWO; the top three are
ETFs to consider selling include: CH, DEW, ECH, EES, EMG, EWP, EZM,
EWZ, FEU, IYG, KBE, ROM, XME; the top three are:
The currency to sell is FXE.
Jody Shenn reported on January 22, 2007 in Bloomberg: Fannie
Mae, Freddie May Face $16 Billion Losses, Credit Suisse Says; and
I have to ask: do you think any self respecting and hungry bear is
going to let these two get away; you know I don't want to hear any
more 'boo hoos' about the one than got away.
The gold stock to gold ratio (GDX GLD) shows that gold stocks rose
today; but are in the process of detaching from the price of gold;
there is coming soon, a time when they are really going to break loose
from gold, greatly rewarding those who are short, as the gold stock's
price to earnings ratio is quite high.
Therefore for the Gold ETF, GLD, based investor, I recommend that one
start to 'dollar cost average' sells; just a limited few of American
Barrick and also, the silver exploration stock SSRI; the company
doesn't make any money -- all it does is explore; nothing in
production; and it commands a terrifically high price; just a few
years ago it was selling at $3 to $4; not the $30 to $40 of today;
it's been the gold bugs and speculators darling.
The lollipop hanging man candlestick in the day trader's 200% gold
stock ETF HGU.TO, indicates that the days of 'buy and hold' profitable
gold stock investing are over.
The best managed and highly touted precious metal mining stock fund
USERX shows as having gone bearish engulfing.
The other dynamic that is operating against the gold stocks, is that
futures gold stocks, and futures U.S. Treasuries, usually make market
turns lower together; and now both have turned lower: it's likely we
have arrived at another turn lower in the gold stocks -- a final and
decisive turn lower.
The futures market traders are abandoning the U.S Treasury Bond. The
Futures market is extinguishing wealth; or perhaps is lacking wealth,
or shorting wealth, depending upon one's point of view. The futures
market place's exit from US Government bonds today is "the nail
in the coffin for the HUI indexed precious metal shares".
$USB Daily
$USB Weekly
$HUI:$USB Daily
$HUI:$USB Weekly
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III.It's Gone Beyond A Primary Bear Market: I say
it's 'a bearsome bear market'; and and 'it's a gona continue bearishly
on' no matter what Stimulus
Deal is provided.
The Dow Theory chart experts, Doug Noland and Richard Russell, have
related its 'a primary bear market'; the Dow Theory charts show 'The
0.75% Rally' has achieved retracement.
IYT
XLI
Trader Tim Knight in his article Bouncing
Blog provides this
chart of the Nasdaq 100 QQQQ suggesting that retracement for the
rally is done or near done.
For historical record, here is today's Stockcharts.com summary of 'The
0.75% Rally'.
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IV. Tremendous divergences and rifts exist: some will
be filled; others expanded.
The
retail to industrial divergence
The
US small company to industrial divergence
The
Germanic halve to the Latin halve of European wealth and power
divergence: Italy will quickly win the race to the bottom of
investment race in Europe.
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V. The 'age of the fiat wealth extinguishment' will see
increasing interpersonal and political strife as well as war.
Italy's Prodi threw in the political towel today; photo that of AP
Alessandra Tarantino.
Regional agreements, such as the Security and Prosperity Partnership
of North America, the
SPP, will provide principles of global governance for continents
and regions.
The SPP will provide for unified state-corporate governance of the
peoples and resources of the North American Continent. Presented below
is a photo from the Baylor
University web site showing Condoleezza Rice And George Bush as
they were greeted by Baylor University's Robert B. Sloan Jr. and
members of his staff immediately prior to the announcement of the
Security and Prosperity Partnership, the SPP, on March 23, 2005. Mr.
Sloan said: "It is an honor for Baylor University to host the
leaders of the United States, Canada and Mexico," and he
continued: "Here at Baylor, we want to teach our students to
serve. Baylor today had the opportunity to serve on behalf of our
country and the world, and it is a tremendous privilege for Baylor to
host this trilateral meeting."
The Security And Prosperity Partnership will mature, and provide state
corporate rule to deal with systemic
risks -- systemic
failures such as debt guarantor insolvencies, and outbreak of
pandemic disease, such as avian influenza as mentioned in the Leader's
Joint Statement of March, 31, 2006 in Cancun, Mexico.
Regional responses will emerge, such as that envisioned by Stephen
Harper, who spoke at the Economic Club of New York. He called for a 'continental
response' to counter the threat of distant, yet nevertheless,
strong economic threats; this was editorialized by Keith Jones World
Socialist Web Site.
Regional
monetary integration, as envisioned by the think tank, Council on
Foreign Relations, will emerge, as proposed by white paper authors:
Peter B. Kenen, Adjunct Senior Fellow for International Economics and
Ellen Meade, Associate Professor, American University.
Andrew G. Marshall writing in a GlobalResearch.ca article sees
North-American monetary integration
specifically
the Amero coming.
VI. Wise Bears Sell Municipal Bonds And US Treasuries
as the greatest bear market is yet to unfold.
Like Alf Field writing in Kitco.com, Into The Abyss, I believe that gold will rise in value, eventually significantly higher, while fiat assets of stocks and bonds decline in value.
The 'up and coming bear market is in Government Bonds'; and the US is at the epicenter of that bear market; those who recognize this bear market, and sell into it at its infancy will be rewarded beyond belief.
At the first of the year, I suggested that one short sell a number of ETFs, a list and their performance can be found here.
The financial rewards that are coming to those who short sell the municipal bonds, closed end municipal bond funds, as well as the long out U.S. Government Treasury Bond ETF, TLT, is most definitely beyond what can be expected from stocks, like the ones I have been suggesting one short sell.
Short selling municipal bonds, and closed end municipal bond funds represents low risk and great reward: It's always best to short at a market top like the one in closed end municipal bond funds -- the last thing a short seller wants is a short sell coming back up on oneself: the likelihood of VGM, and its peers going higher is about nill. When one gives thought to the downward potential of municipal bonds, that has come with the downgrade by Fitch of AMBAC on Friday January 18, 2007 as reported by Stephen Bernard and Leslie Wines of the Associated Press, one can see the reward is great.
That announcement is the 'nail in the coffin' for the eventual default of debt guarantors AMBAC and MBIA.
Government bonds have traditionally, and especially over the last seven months, been a 'lifeboat of safety', from the sinking ships of stocks and real estate.
But inflation as well as the yield curve are seen rising; these are terrifically destructive to municipal bonds; the traditional lifeboats of financial safety have sprung leaks and are about to be capsized.
I recommend that one buy
the gold ETF, GLD, and use margin credit to sell the municipal bond
ETFs, and the closed end municipal bond fund VGM, and its peers EIM,
BKK, CXE and PZC; and that one start to gradually 'dollar cost
average' in sells of the 20 to 30 year US Treasury ETF, TLT.
Here are the charts for
the closed end municipal bond funds VGM, EIM, BKK, CXE and PZC;
and
their comparative performance is found by clicking here.
One needs to be careful with shorting, when one has margin credit
based upon gold, as gold is a commodity, and is subject to drops down
as well as great moves up like today; gold could easily fall to $840
and even $820 before going onward and upward.
World wealth is in the process of being extinguished; there are a number of extinguishers at work. The primary extinguishers are the steepening yield curve, surging inflation, bursting of the real estate bubble, deflating CDOs, diminishing corporate earnings, failure of municipal guarantors AMBAC and MBIA, a spent out and indebted consumer, decreased demand for durable goods, lessened demand for new housing, shrinking bank loan activity, less business credit generated, and helicopter drops of money by the Federal Reserve Chief onto and into the banks to preserve their solvency, and which now only serves to deflate stocks, raise the Yen and the Euro, deflate the US dollar, and inflate gold.
Currencies in addition to stocks and bonds are being extinguished as well: for example the EUR/JPY is going to take the Euro, FXE, and the Yen, FXY, into a mutually embracing downward death spiral together.
Yet gold will endure; and will be part of the basis of currencies used by the soon coming regional alliances and governments.
For those with investment wealth, I recommend that one start now to 'dollar cost average' buys of gold at BullionVault.com or other Internet tradable vaults outside of the U.S.
Gold, GLD, and a limited amount of reasonable, and wise short selling, is now the sole and sustainable means of garnering and preserving wealth.
Here's the clear, cogent and convincing evidence for short selling the
municipal bonds, the closed end municipal bond funds and the 20 to 30
year ETF TLT. I suggest that every one take a look at, and download
the candlestick action in the US Government Bond ETFs SHY, IEF, and
TLT before opening; and then print them out; and hand them out, and
post them on their dart board; because they are of awesome historical
note; you know, the kind of thing one looks back at years from now and
says: "I sure am glad I shorted VGM
and TLT,
they were the short selling opportunity of a lifetime".
Copyright © 2008 Richard Gorton, The
Resourceful Bear Blog
Editorial Archive
Short Bio My investment statement is simple: in a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength. Research indicates that the stock market has transitioned from bull to bear; and that one's wealth is now best garnered and protected by investing in gold.
contact information
Richard Gorton 360-756-5431 | Bellingham, WA USA | Email | Website
The opinions of FSU contributors do not necessarily reflect those of Financial Sense.
