Shorting U.S. Bonds
Mother's Little Helper portfolio was UP today +$831.84 (+0.80%).
Overall GAIN YTD: +$4,437.46 (+4.44%).
Our benchmark index, the S&P 500 is UP +4.21%
"A basic principle in going short is that there has to be a catalyst"
-Steve Cohen
I made my buys for the year on December 28, 2018, see the new portfolio here (Click Here).
A Change to the Portfolio?
In my January 11th post I made an underlined comment that I wanted to make a change to the portfolio. The idea is kind of simple. Last year the portfolio made a lot of money, this year I'm looking to execute a strategy that preserves wealth while still delivering a satisfactory level of growth. There is every reason to believe that 2018 will be a great year for the stock market but it should also be more volatile. Volatility is great for aggressive stock pickers but not so much for the average investor who just sees a roller coaster ride that at some point has to end.
I've been asked why I didn't just take the closing dollar amount from last year and roll it into a new portfolio of stocks this year. While some of my readers thought it would be fun to see how fast I could get the portfolio to a million dollars, I thought the dollar amounts were beginning to look unrealistic for some investors. Many people in there 40's, 50's and 60's are just starting out investing in the the stock market. I know there are people reading this blog who have never invested outside of their 401K plan at work. For these new investors, putting $5,000 to work in the market is a big deal and the $100,000 I started with this year is still a huge amount. I wanted everyone reading to know that this isn't a game to me, it's a continuation of the project I started last year to prove to ourselves that we can all create a nest egg for ourselves and do it ourselves.
My thinking went something like this, I assumed that we all achieved last years gains, took some money out of the market and diversified it into things like a home improvement project, some college tuition, boosted the retirement saving account, etc. Instead of rolling last years closing dollar amount forward I rebooted the portfolio with $100,000 invested in a foundation of index funds that should provide a much smoother ride with greater diversification. This same portfolio could be created with $5,000, $10,000 or whatever you have.
To make the change I talked about in the January 11th post I sold some shares out of each of the existing positions to raise $10,000 in cash. We don't just have Ten Grand laying around, so to make these decisions real I sold some shares. Trust me, even in this portfolio it's not easy for me to sell shares of an investment that is growing. With real money it's even harder, but once we have conviction in a decision like this there's no choice, you have to follow your convictions.
On Tuesday morning at the market open I'll buy shares in the ProShares UltraShort 20+ Year Treasury (TBT), and the SPDR Gold Shares (GLD). I plan to buy about $5,000 worth of each fund. The TBT is a fund that goes up as U.S. Treasury bonds go down. My thesis is that interest rates are going to keep going up. As rates go up bond prices will come down and bond holders, particularly owners of long term bonds will want to sell and put that money to work elsewhere, like stocks and short term bonds. This investment is there to protect our portfolio from a big decline in the bond market. The GLD is an investment in gold, but I want you to think of it as an insurance policy. The GLD owns physical gold which means you own physical gold but you don't have to store it, insure it or worry about losing it. When the time comes that you want to sell your gold, just a few clicks of your mouse is all it takes. My thesis on gold is that it's protection against all uncertainty. If the dollar get's weaker than gold should go up because investors will buy other currencies and commodities to replace their falling dollars. We are living in an environment that has become aggressive at expanding exports. A weaker dollar encourages buying our exports. Gold plays another role, when stocks decline, gold goes up, so having a 5%-10% position in gold is a good way to help smooth out the corrections in the market.
The GLD
The investment seeks to reflect the performance of the price of gold bullion, less the expenses of the Trust's operations. The Trust holds gold bars and from time to time, issues Baskets in exchange for deposits of gold and distributes gold in connection with redemption's of Baskets. The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust's expenses. The Sponsor believes that, for many investors, the Shares represent a cost-effective investment in gold. The fund has an expense ration of just 0.40% and holds assets of approximately $35 Billion dollars. With an average trading volume of about 6.6 million shares a day, the GLD is a highly liquid way to invest in gold. Meaning, you can get your money our fast.
The TBT
The investment seeks daily investment results, before fees and expenses, that correspond to two times the inverse (-2x) of the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. The fund invests in derivatives that ProShare Advisors believes, in combination, should have similar daily return characteristics as two times the inverse of the daily return of the index. The index is part of a series of indices designed to measure the performance of the U.S. Treasury market. The index is market value weighted and consists of U.S. dollar-denominated, fixed rate securities with minimum term to maturity greater than twenty years. It is non-diversified. The TBT has an expense ration of 0.90%, a little high but okay and an average trading volume of about 2.75 million shares daily. That's plenty of volume to get your shares converted to cash quickly.
“The bear bond market’s time has come as well.
Many would say, including yours truly - It’s about time’.”...."We're short bonds".
- Bill Gross (Janus Fund, 2 days ago)
As Always
Stay Invested
Clay Baker
Disclosure: I am personally invested long in some or all of these funds that appear in the Mother's Little Helper portfolio or manage these investments for my Mother's portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks and funds that do not appear in the MLH portfolio. Since I may on occasion discuss Bitcoin and other cryto currencies I disclose here that I personally own investments in the cryto-currencies listed here: VTI, VWO, VEA, VIG, XLE, MUB, TBT, GLD, Bitcoin, LiteCoin
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.
treasuries' hit the street. Stock were selling off ha
