Thursday, June 30, 2011

Too Hard To Short A Levitating Bond Market

I respect Jim Rogers for his contrarian bent and his focus on finding value in Asia and commodities.  I do differ with his penchant for trying to make market timing calls.  He wants to short U.S. Treasuries.  Oooooookaaaaay.  The difficulty in working a big short bet into an investment strategy is that no matter how sound the thesis may be, it can take forever to play out given unpredictable events. 

The U.S. bond market is strong thanks to ZIRP and QE, nothing else.  Those things are the result of political decisions that can be reversed in an afternoon.  Taking a short position in an artificially manipulated environment is an easy way to lose one's shorts in the short term even if the reasons for the trade are proven sound in the long term. 

This week's European action is telling.  I had thought Greek politics were too intractable to pass austerity programs, but lo and behold they did pass some and they'll probably get their bailout after all.  I would have been on the losing side if I had bet against a resolution to this crisis.  Some hedge funds undoubtedly did bid up the CDS spreads on Greek debt.  We'll see which ones made that call by the end of the summer if some funds have to close shop. 

Shorting an entire market is hard.  Shorting an individual stock, with far fewer unknowns, is a bit easier but no less nerve-wracking if you're unprepared to lose big.