Time to Sell Bonds and Gold

In previous articles I have emphasized on the bold move of investors to transfer the assets into riskier securities.  It is something that is anticipated since the economy is experiencing uplift, thus the possibility of inflation becomes higher as well.

With this, investors are tempted to put the risk a notch higher when it comes to any of the following: US Treasury bonds, investment-trade corporate bonds and large-cap stocks.  Eventually, small-cap stocks are being chosen as well.  Gold also makes it to the list.  Despite being an inflation hedge, gold is starting to gain popularity as investors are in search for assents that offers inflation protection and at the same time exposure to the economic recovery.  While such is offered by stocks, it is not the same with bonds and gold.  

All of this has created an opportunity to profit from the decline of two of the most popular asset classes of the past two years: precious metals and bonds. Here's why.

This opened up chances in making profits out of the decline of both assets.  Indeed, for the past two years, precious metals and bonds enjoyed a heyday.

To start with, it is important to note that such occurrence is merely a trend.  It was influenced by how the investors see the future of the economy since last August of this year.

What’s fueling this?  It’s the combined effects of a continuously improving economic fundamentals and an active implementation of monetary policy gets the criticisms stronger against the Fed’s “money printing” operation amounting tp $600 billion.

Besides, the increased anticipation of inflation has been there since August, coinciding with Ben Bernanke’s (Fed Chairman) mention of his inclination towards having quantitative easing again.  The first one this year amounted to $1.7 trillion.

Originally, the policy’s goal is to decrease the long-term interest rates in order to attract loans by businesses as well as consumers.  If this happens, the economy is bound to step forward.  However, because of the tendency for an inflation, what happened was the other way around.  There was an increase in long-term interest rates.  For example, there is an increase of 30-year interest Treasury Bond’s interest rates from 5.3% to 4.4% since August.

For the past three months, money has shifted from bonds and gold to stocks with the most risks however small they may be.  Based on the small-cup index known as Russell 2000, large stocks almost doubled its performance in the Dow Jones Industrial Average.

If you want to play in this current trend, the best move is to use ProShares UltraShort Lehman 20+ Year Treasury Bond or what is known as TBT.  This bond doubles the inverse daily return of Barclays Capital 20+ Year U.S. Treasury Index.  When it reached its high last month, it seemed that it’s ready to be moved.  This is because investors are very keen in moving their assets to stocks instead of boring bonds.  The current volume of TBT shows that it is under accumulation.