Saturday, August 28, 2010

Hyperinflation

Here's a good twin set (original and Part 2 follow-up) blog article pair that lays out a case for American hyperinflation, with a particularly good execution mechanism that ultimately comes around to the following four conclusions:

1) A hyperinflationary event will happen, following the crash in Treasuries.
2) Commodities will be the go-to medium for value storage.
3) All asset classes will collapse in short order.
4) Most importantly—civil society will not collapse along with the dollar. Civil society will stumble about like a drunken sailor, but eventually right itself and carry on with a new normal.

3 comments:

  1. Trading between 8/16 and 8/27 was too painful to post. All I will say is August expiry was in the -$10k range and chasing interest rates that were dropping like hot rocks ended up costing about $15k total (and another $5k on other general market plays, for a grand total of 20% of the total portfolio --- ouch!). But it's OK because no one reads this blog anyways. On the other hand, I will begin again with the active trade-blogging, now that I've had a chance to re-coup a little and feel out the current economic landscape from a fresh and non-rose-tinted-inflation-only perspective.

    ReplyDelete
  2. This is my current TBT and TLT positions:

    TLT:
    1) 10 Sept-110c @ 1.34 (meant to capture any further appreciation in treasuries should they still be mid-rocket-rise like Nov 2008, when they hit 122+).

    2) 4 Jan11-100p (LEAPS, so to speak, may roll them up to 105 if TLT goes over 115 this month)

    TBT:
    3) 60 Sept 35 call
    4) 10 Sept 45 call (old position that never got rolled down)
    5) 5 TBT Sept 40/33 put spread (short the 40 puts, long the 33 calls). This position used to be 10 contracts and I had to shrink it back.

    I also have two more TBT plays I would consider LEAPS (these suck because one of the epiphany's I've had recently is that long term investments in leveraged funds is a non-starter). I'm looking to close these on any near term bounce:
    6) 10 Jan11-43c, and
    7) 10 Jan12-75c

    Suprisingly, should interest rates continue to fall, even after Friday's treasury pullback, I would only need TLT to reach ~113.50 in order to break even on my aggregate short term plays (considering also that much of the loss has been factored into the the rolls from August, hence the -$15k bitch-fest in my last post). So either, treasuries need to go way WAY up (TLT 115+, less preferable scenario), or follow Friday's march much lower (TBT 36+, more preferable scenario).


    Another position I entered recently was 10 SDS Jan11-32p. This is a leveraged fund that rises when the US market drops. I am not necessarily bullish on the market, but have certainly noticed a trend in the price action of leveraged funds in general. EVERY THING ELSE BEING EQUAL, PUT OPTIONS ON A LEVERAGED FUND IS PREFEREBALE IN THE LONG RUN. This is simply due to the premium the fund must pay to remain properly leveraged. When the market falls in the short term I lose on SDS but if it stagantes or rises slightly over a longer period, the puts outperform the calls due to price decay.

    I'm not going to try to dig it up now but last year I noticed something funny about two funds that were both 2x (or 3x) the S&P in opposite directions. OVER 2 YEARS THEY WERE BOTH DOWN ABOUT 90%. That is, if you had bought puts on both you would've been guaranteed a profit regardless of market direction. This type of 'free money' does still exist and needs to be exploited.

    ReplyDelete
  3. These are my current TBT and TLT positions:

    TLT:
    1) 10 Sept-110c (meant to capture any further appreciation in treasuries should they still be mid-rocket-rise like Dec 2008, when they hit 122+).

    2) 4 Jan11-100p (would anticipate rolling these to 105 if TLT should go over 115 this month)

    TBT:
    3) 60 Sept 35 call
    4) 10 Sept 45 call (old position that never got rolled down)
    5) 5 TBT Sept 40/33 put spread (short the 40 puts, long the 33 puts). This position used to be 10 contracts and I had to shrink it back. Looking to kill the trade off over the course of the month due to disliking short puts on leveraged funds (more on that below)

    I also have two more TBT plays I would consider LEAPS (these suck because one of the epiphany's I've had recently is that long term investments in leveraged funds is a non-starter). I'm looking to close these on any near term bounce:
    6) 10 Jan11-43c, and
    7) 10 Jan12-75c

    Suprisingly, should interest rates continue to fall, even after Friday's treasury pullback, I would only need TLT to reach ~113.50 in order to break even on the short term plays (considering also that much of the loss has been factored into the the rolls from August, hence the -$15k bitch-fest in my last post). So either, treasuries need to go way WAY up (TLT 115+, less preferable scenario), or follow Friday's march much lower (TBT 36+, more preferable scenario).


    Another position I entered recently was 10 SDS Jan11-32p. This is a leveraged fund that rises when the market drops. I am not necessarily bullish on the market, but have certainly noticed a trend in the price action of leveraged funds in general. EVERY THING ELSE BEING EQUAL, PUT OPTIONS ON LEVERAGED FUNDS ARE PREFEREBALE IN THE LONG RUN. THis is simply due to the premium the fund must pay to remain properly leveraged. When the market falls in the short term I lose on SDS, but if it stagantes or rises slightly, the puts outperform the calls due to decay in the long term (even if the market drops a little this still works out).

    I'm not going to try to dig it up now but last year I noticed something funny about two leveraged funds that were both 2x (or 3x) the S&P in opposite directions. OVER 2 YEARS THEY WERE BOTH DOWN, one about 60% and the other 90%. That is, if you had bought puts on both you would've been guaranteed a profit regardless of market direction. This type of 'free money' does still exist and needs to be exploited.

    ReplyDelete