Friday, May 22, 2009
Yesterday I posted a commnet about how we are all going to get rich and retire when the idiot rating agencies downgrade the U.S. credit rating. I told you to wait until all the lemmings sell Treasuries, then we buy and make a mint as the price of those valuable savings accounts go back up. (Just like in the movie, "Trading Places!")
But here's where I could be wrong; where the whole strategy could backfire, terribly. I'm making you aware of this now so that you can protect yourself and put on a "hedge," right now, to earn a little money while waiting for the real fireworks.
If the Fed were to start raising interest rates after a downgrade of the U.S. credit rating, that would be a disastrous outcome. It would fuel unfathomable selling in Treasuries. Let us hope the Fed understands this. Let us pray the Fed understands this.
In the meantime, to protect yourself against such an outcome, buy the TBT. It's the Proshares Trust Inverse Treasury ETF. If Treasuries take a nosedive, this fund will skyrocket. I recommended this several days ago and it has already gained nearly 7%. Do yourself a favor and pick some up for insurance.
Hopefully the Fed will not mess this up, but something tells me there is that possibility.
Finally, don't despair about not getting your Yacht, because if the Fed DOES raise interest rates AND the credit agencies cut the U.S. credit rating, all you need to do is the opposite of what I told you yesterday. You would sell Treasury futures, buy puts and/or load up on that TBT I just told you about!
We'll still all having our yacht parties in the Caribbean somewhere!