Shorting Treasuries – Jim Rogers’ Position
Posted on | July 8, 2009 | 2 Comments
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For quite some time, I have made the argument that we are likely to see the rate of the 10 year treasury rate move back up after hitting support. After doing some research, I found that Jim Rogers is planning on shorting treasuries in the future because “the idea that anybody would lend money to the U.S. government for 30 years at 3 or 4 or 5 or 6 percent interest is mind-boggling to me.” To me this makes obvious sense. If other countries see that the economy is continuing to struggle in the United States, why wouldn’t they increase rates?
It is very similar to banks lending risky borrowers money. If the bank sees that it is likely that a borrower is not financially sound, they are going to give them a 16% interest rate on their car loan. Well, the same is going to hold true for treasuries. The United States wants to borrow money, but those countries willing to lend it are going to charge a much higher interest rate because, in essence, America is a subprime borrower right now. We must have money to survive and if they pull the plug, we are going to struggle greatly.
With that in mind, I am completely convinced that we are going to see much higher mortgage rates in the future. Although Jim Rogers is sometimes over the edge, there are very few predictions he has made that haven’t come to fruition. In 2006, he started shorting Fannie Mae and Freddie Mac and everyone laughed at him. In 2007, he started shorting the homebuilders. In 1999, he was sinking money into commodities when everyone else was deploying their money in the tech bubble. I could go on and on, but I believe in most of Jim Rogers predictions and I strongly believe in this one.
No one knows when we will start to see the run up in rates of the treasury bonds but it is going to happen. If you want to play this from an investment standpoint, the TBT is the investment to make. This is an Ultrashort ETF of the 20 Year Treasury; in more words or less, you are shorting treasuries by purchasing the TBT. Today we are seeing a breakdown through the 50 day moving average in this etf, but over the next few years, I would agree with Jim Rogers in that we will see interest rates rise greatly and it is a wonderful time to short treasuries.
Tags: jim rogers shorting > Shorting Treasuries > TBT etf
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July 8th, 2009 @ 11:07 am
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July 8th, 2009 @ 12:50 pm
[...] the long term, I see higher interest rates as explained in my shorting treasuries article, but for now, it looks like short term mortgage rates are sinking to new [...]