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TBT: Price Target Revision |
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For those of you who are following
my "Easy Money" early 2009 trade I suggested last weekend, here's an update.
One of the OTC Journal faithful who is much smarter than me pointed
out TBT was not likely to trade back to $60 as the Long
Bond went down to former levels. The percentages didn't work.
If you missed last weekend's edition,
here's a quick recap. I am recommending TBT as an easy money trade
for early 2009. TBT is an ETF that trades 2 for 1 inverse
of the US Treasury long bond. Bonds 101- If there's more buying
than selling in bonds, the price goes up. If the price goes up, the yield
goes down.
The US Treasury Long Bond recently
traded high enough to have a yield of 2.5%- a level not seen since
1952. It's a reflection of irrational fear- the "Fear Bubble" if you will.
Money has been pouring into US Treasuries in absurd quantities purely out
of fear- the 90 day T Bill once traded so high it had negative interest-
at the price you bought it, you had to pay money. Absolutely absurd.
The Long Bond has started to come
back down. I suspect money will come out of the Long Bond and go into investment
grade corporates at 8%, which are absurdly oversold.
Here's a look at TBT:
When TBT was trading at its
bottom- it made a low of about $36 in conjunction with a yield of 2.5%.
The Long Bond is now yielding 3.02, so the price of the long bond has come
down and TBT has gone up. TBT has appreciated to $42
on the Long Bond move of .52% up.
Therefore, TBT has appreciated
16.6% in conjunction with a 20% increase in the yield on the Long Bond.
If you assume the Long Bond is likely
to go back to a more traditional yield in the 4.5% range- there's another
50% move in the yield coming. If the ratio of movement in TBT continues
on the same pace, a 50% move in would equate to a 41.5% move
in TBT.
At the current price of $42 we
end up with TBT at $59 per share if the Long Bond makes it
back to a 4.5% yield. At a more reasonable level of 4%, the
price of TBT would probably be in the $50 to $55 range.
Therefore, I believe once, and if
TBT
trades above the $50 level, that would be the time to take either
part or all of your profits. The overall interest rate picture is not going
up anytime soon, so I don't see this as a very long term idea.
Currently, I own 1000 shares at $40
and 10 March 40 Calls at $4.20.
Also- if you're looking for a trade-
consider going long the S&P 500 tomorrow about 1/2 hour after the market
opens. The jobs report is bound to be atrocious, but the market has been
selling off this week ahead of the news. SSO is a two for one long on the
S&P 500- consider picking that one up 1/2 hour into the trading day.
Home Page : www.otcjournal.com
Email Questions or Comments To:
editor@otcjournal.com
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