Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter


The Bernanke Treasury Bond Market Put

Interest-Rates / US Bonds Oct 03, 2010 - 04:42 AM GMT

By: Peter_Navarro


Best Financial Markets Analysis ArticleAccording to Market Edge: “After four weeks of impressive gains, stocks took a breather last week as both the DJIA and the NASDAQ ended the period with minor losses. The DJIA started the week with a 48.22 point (-0.4%) loss which was just the fifth losing session in September. Traders bought the dips throughout the week as the DJIA saw triple digit intra-day swings on both Tuesday and Thursday. Despite several disappointing economic reports, traders kept a bullish outlook throughout the week. For the period, the Dow lost 30 points (-0.3%) to close at 10829, snapping its four week win streak.&r

This is indeed either a breather or the knocking of the markets on a glass ceiling otherwise known as a sideways pattern. You know my concerns. While September was as pleasurable as August was painful, there are still some major tests of technical resistance ahead before we can feel comfortable with the idea of an uptrend.

As always, we must look to economic fundamentals to handicap the markets next technical moves. This last week we had a minor drop in the ISM manufacturing index and the leveling off of the ECR I Weekly Leading Index. Meanwhile, consumer sentiment offered a similarly uncertain picture. Based on what we continue to see from the economic data, this is a "watch and wait" period in which short-term traders can try to take advantage of the upward trend an buy-and-hold investors should remain mostly in cash on the sidelines.

With that out of the way, let’s talk about some longer-term business. In the last newsletter, I trumpeted some of my recent calls in the biotech space – PBTH, CHTP, and SVNT were all double- or triple-digit winners. I also trumpeted two of my short calls on Palm and RIMM and a long on Apple at $250 – likewise huge double-digit winners.

Just to make sure that I don't get too full of myself, several readers absolutely hammered me for my short call on gold in mid July and my call to short the long bond in mid April. I think it is worth talking about each of these trades because discussing the gold trade will help remind readers about the importance of managing your trades and taking profits while discussing the bond trade will both underscore the need to cut losses early and to understand from a macro point of view what drives bond prices and yields.

Let's start with my “short the gold market” trade.  On July 15 when I made the call, the exchange traded fund GLL which shorts the gold market as an unleveraged ETF, was priced at $39.78. By July 29, it hit a high of $42.73 – a nice little gain.

At this point, a seasoned trader would've put up stop loss at at least the initial buying price, and such a stop loss would have been triggered as early as August 6 – no harm, no foul.   My point is simply that any stock that you buy whether because of your own research or by reviewing the research of others requires careful money management and risk assessment. If you don't know how to use stop losses and trailing stops and set your stop losses near key levels of support, then you really have no business engaging in short-term trading at all.

So my advice if you are losing money on trades that first went up but then went back down is to do some more research on trading techniques.  In this regard, I can say without too much self-promotion that my book When the Market Moves, Will You Be Ready? Is a pretty good manual on how to trade and manage both your risk and cash..

Now let’s turn to my “short the long bond” trade – arguably my biggest loser in the last several years.  My instrument of choice is an ETF called TBT. Let's break this one down.

I first flagged this one around April Fools' Day when the price was just around $50. Unfortunately I wasn't joking about buying this dog because as of now it's down to almost $30. Of course, anybody who rode this from $50 down to $30 really needs to go back to Trade School. The most you should ever lose on a trade is 10%,  In fact, if you manage your money well, you can still make a lot of money even if six out of every 10 stocks you pick are losers.

My logic for shorting the long bond in April was simply this: the economy looked like it was recovering, federal budget deficits were spiraling out of control, and these two factors should have pushed the long bond yield up and prices down. What I didn't bargain for was the financial crisis in Europe that made the dollar a safe haven for global investors – and when I say the dollar, what I mean is that these investors bought a ton of US government bonds after exchanging euros for dollars. This had the effect of both driving the dollar up and bond prices up.

This is hardly the end of the story, however. The TBT trade has continued to grow worse as the economy has softened and Federal Reserve Chairman Ben Bernanke has pledged to engage in so-called quantitative easing to further stimulate the economy.

Quantitative easing is a way for the Federal Reserve to manipulate long bond yields by purchasing US government bonds which are being issued to finance the US government budget deficit. The net result of quantitative easing is to provide long bond holders with a hedge against the risk of falling bond prices. In this way, the Bernanke policy of quantitative easing represents a “Bernanke Put” by providing bondholders with put protection on bond prices just as from the late 90s to the early 2000, Fed chairman Alan Greenspan used a policy of easy money to provide stock market investors with put protection of falling stock prices.

While I know this is going to sound like the stupidity of the 1990s tech bubble, I will now say with no tongue in my cheek that if you liked TBT at $50, you will love it at $30. Yep, I haven't given up on this trade-- although I feel a little bit like the guy in the movie Tin Cup who kept trying to hit the ball over the water.

My reasoning is that at some point bond prices are going to have to plummet and yields are going to have to skyrocket as an era of cheap money, huge deficits (and a possible rising Chinese yuan) put a bloody end to the bond market bubble and the Bernanke Bond Put.

So I have begun to rebuild a small position in TBT and I continue to add a little bit to it every time it drops another point. Call me crazy, but I have no doubt that this trade will eventually pay off big. It's simply a matter of time, and the difference between doubling down on an exchange traded fund like TBT and an actual stock of a company that is performing as badly as TBT is this: the company likely sucks and that is what explains its poor stock performance. In contrast, with TBT, it's only as good or bad as it's macro environment –there are no dumb managers or bad products or anything else to worry about. Because I just don't think interest rates will stay at record lows forever, I going to keep a hand in the TBT game just like I kept trying prematurely to short housing stocks during the housing bubble and kept getting burned – and then one day I didn't.

So that's my TBT story and I'm sticking to it. I'm bleeding a little bit with it, but my biotechs and other trade have more than offset any small losses in TBT. Eventually I think TBT will be a good trade. At any rate, a position in TBT helps keep me in tune with the economy as I have plenty of skin in the game to pay attention.

As a final note, there are often typos in this newsletter and the culprit has to do with the fact that much of it is dictated using Dragon Naturally Speaking. The accuracy rate is quite high, but some silly things do slip through. So if you see something that doesn't look quite right, trust the syntax and make your own internal correction.

Navarro on

Click here to review my videos on

Professor Navarro’s articles have appeared in a wide range of publications, from Business Week, the Los Angeles Times, New York Times and Wall Street Journal to the Harvard Business Review, the MIT Sloan Management Review, and the Journal of Business. His free weekly newsletter is published at

© 2010 Copyright Peter Navarro - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


J Carlson
05 Oct 10, 09:06
Bernenke put

This lucid commentary on TBT & shorting T bills helped me very much: my investment advisor did just such a trade, now down 17% and sick to my stomach but have decided to ride it date, anyways.

Thank you 4 the insights!!!

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules