Thursday, December 18, 2008


We need to figure out the inflation vs deflation debate.

A few months ago, I decided that short term we would have deflation.
I had bought long duration treasury (TLT) calls.
Treasury yields have been crushed. I wish I had bought more.
(The calls increased in value tenfold.)

Now the treasury move is approaching parabolic:
Treasuries have no substance. Economic textbooks say that they need never be repaid.
Clearly the fundamentals are terrible.
Parabolic move plus bad fundamentals equals inevitable crash.

We can make another huge return, betting on the treasury crash, if we can time it right.
But I think the forces of deflation are stronger than people give credit for:
Also, there are still too many treasury bears for the crash to happen yet.

Comments encouraged.


Anonymous said...

Are you still short COF?

CP said...

Yes I am still short COF and short COF calls. I do the same trade with JOE, WFC and certain others.