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Friday, September 6, 2013

Is It Safe To Stay In The Water?

I am normally a very conservative investor. I follow the rules about diversification, try to keep bonds or cash based on the old adage of 100 minus age (so 38% stocks, 62% bonds or cash), invest only in ETF's, and only occasionally buy a stock for a short term trade with the goal of trying to get a 10 or 20% return. Sometimes, when I feel the market needs to retreat, I will hedge with an inverse ETF like SH, to short the S&P index. On June 10th though, I had the really strong conviction based on lots of reading, that interest rates were going to rise dramatically, and that helicopter Ben was going to be compelled to start to taper. Besides a small short leveraged position in gold (which I kept a week and made a 24% return on), I put 40% of our money, both our IRA's and are much larger taxable ameritrade account in inverse ETF's that short the 5, 10, and 20 year treasury markets. This for me was a very large gamble and my plan was to hold those positions until the 10 year treasury yield hit 3%. My belief at that time was that once 3% was reached, the US Government will start to have difficulty servicing its debt, and that that would be the point when the market would begin a serious correction. Today, interday, the ten year hit 3.01%, before falling back to 2.95%. So, in slightly less than two months, the 10 year has risen from 2.15% to 2.95%, and my returns on these three inverse ETF's have been between 7 and 13%. And, we actually haven't started to taper yet.
So, here I am at an inflection point. Do I think the taper will start in September no matter what and keep printing money along with Ben, or does Ben get cold feet in 11 days and hold off based on how shitty this economy really is. If he does start to taper, no matter how small, it would be worth hanging on a bit longer with the target of 3.25-3.5% for the 10 year yield. If he says......."oh lets wait and keep the stock market artificially propped up and keep screwing all the old folks out of any interest they could get to live more comfortably while we keep inflating the cost of fuel, food, utilities, medical costs, etc!", bond yields will start back down and I will start to give back some of my remarkable gains. And, if he does start to taper, do I add huge short stock positions along with these inverse treasury ETF's, planning on a huge correction in the stock market, and just go all in to the deep end of the big are my kajones anyway......

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