I sold off $30k of bonds via an ETF I had, TLT, this week and that’s on top of the $10k bond that got called and another $10k that will get redeemed tomorrow. Suddenly, I’ve sold off more bonds in one week than I thought I would do but there’s a good reason for it all.
10 Year Treasury
Above is a chart of the 10 Year Treasury. This is the rate most mortgage rates are linked to and it’s been all over the place over the past year. Everyone assumed the rate would continue to drop, especially after the Fed cut rates 50 basis points at their last FOMC meeting but it is spiking back up.
As a consequence, my TLT holdings have been declining in value in reaction to these changes and it will likely go lower before it turns around and shoots back up at some point in the future.
If the 10 Year spikes to 5% or higher then there will very likely be a stock market sell off again which is why I’m positioned with PUTS as an insurance policy. Ironically, if people pile into bonds as yields spike, bond prices will continue to deflate which is why I’m out temporarily.
I’ll sit on cash until we get clarity. I likely won’t do anything until after the election and we have some direction on where things are headed. No matter which party wins after the election there are too many problems to solve and little will to do what needs to be done to start fixing things. There $35 trillion in debt that’s costing over $1 trillion in interest payments, there’s $130 billon/month spend on social security and similar for medicare. There’s $1 trillion in student loan debt, $1 trillion in credit card debt and on and on.
None of this will end well and hedging strategies can only protect a portfolio up to a point. There’s no way to hedge against catastrophic failure of the monetary system. I hope it won’t go to that extreme but taking some precautions now seems very prudent.
Share The Wealth
Are you doing anything to protect your investment portfolios or will you be a deer in the headlights? Let me know in the comments below.