Investors Bet against the Stimulus Plan and/​or Tim Geithner

I rarely give investment advice unless asked.  But I’ve found that most people are unduly shy about using short sales to hedge and, yes, “speculate.”

If you were invested in, say, an S&P 500 index fund over the past two years, you were actually speculating that stocks of banks and homebuilders would go up.  Index funds are weighted by the value of shares, so financial firms in particular were much too heavily weighted (the market has fixed that).

Exchange-traded funds (ETFs) make it easy to hedge that sort of unwanted long position with shorts.  You buy them like stocks and they have similar trading symbols like SKF or TBT.   Since 2007 (but not lately), I was invested in SRS which shorts real estate, and SKF which shorts financial stocks.  Those are ultra-short funds, which means the rise about twice as fast as those stocks fall in a day (though not over time).  The gains from SKF sometimes topped 150%.

In a May 1 2008 blog, I revealed that “I am shorting oil through an exchange-traded fund (DUG), and shorting precious metals through a mutual fund (SPPIX). I’m also slightly long the dollar (UUP).”  Shorting energy stocks and going long the dollar were contrarian positions, but profitable.  Shorting precious metals (then, not now) was partly because platinum and silver have industrial uses; gold held up fairly well.

If you still hold any mutual fund or 401(k) that is invested in long-term Treasury bonds that shows admirable patriotism and courage but not much caution.

Two old friends, one at a hedge fund the other a California economist, told me they think the government will be borrowing too much, and that the Treasury and Fed are trying too hard to expand money and credit.  That sounds like an easy bet to me.  I suggested another Pro Shares Ultra Short fund called TBT.  It makes a strong, leveraged bet that the price of 30-year Treasury bonds will fall and long-term interest rates will rise.

Since the end of 2008, this bet that government borrowing will cease being so cheap has risen by 36% -- from about $36 to $49.

And that happened even though the Fed has threatened to buy long-term Treasuries.

If the Obama team’s “stimulus” plans and “rescues” keep making it this lucrative to bet that long-term long-term interest rates are heading up, what sort of "stimulus" is that?