Before I get started, I want to wish everyone a wonderful New Year. I truly look forward to prospering with all of you in 2013.
Last year I was asked to give readers a trade for 2012. While I am not a fan of “guessing” where a stock or ETF is headed over the course of 12 months, I submitted what I thought was a sensible idea for not only the year, but for the decade ahead.
At the time it was, in my opinion, the “trade of the decade.”
One year later, the trade remains my go-to trade … nothing has changed.
The global financial system is in dire straits. Debt burdens are at epic proportions on every level – global, national, state and local. Indeed, resuscitation looks doubtful.
In my view, one can't ignore the current failures that are the direct result of the “prosperity boom” that began in the 1980s and came on the backs of ever-expanding credit and debt. And now advanced economies are witnessing the damage of the flawed theory firsthand.
Ireland, Spain, Portugal, Greece, Italy … all are in trouble. The top five largest economies – including the U.S. – are not far behind.
Maybe the Fed said “at least” because they can't afford to admit that they agree with the International Monetary Fund's assessment that global debt issues would persevere for 10 years or more. Director Christine Lagarde warned of the risk of a “lost decade” for the global economy unless nations act together to counter threats to growth.
"In our increasingly interconnected world, no country or region can go it alone," Lagarde said in a speech to a forum in Beijing several weeks ago. "There are dark clouds gathering in the global economy."
But haven't we already experienced a lost decade? Just look at the S&P's performance over the past 12 years.
And now that the U.S. and other leading economies have exhausted every effort to inject life into the global economy, we are left with bleak GDP growth and inevitable inflation woes.
And that is exactly why I think shorting iShares Barclays 20+ Year Treasury Bond (NYSE: TLT) or buying ProShares UltraShort 20+ Year Treasury (NYSE: TBT) could be the trade of the decade.
I mention TBT because it is a more aggressive ultra-short fund for Treasuries. Because of my conviction that the bond bubble will eventually burst wide open, I want to have some exposure to an aggressive ETF.
Fortunately for the bond bulls, “the safety trade” still looks intact despite all of the world's troubles. But how much longer can rates stay at record lows? Realistically, the reward is now to the downside.
So how exactly would I play TLT or TBT?
Personally, I would buy TBT. In fact, in full disclosure I have bought TBT on numerous occasions over the course of the past year. But I don’t stop there. As an options guy, I always want to use what I have in my portfolio to my advantage. And because TBT is highly liquid, it offers a wonderful opportunity to use what is known as a covered call strategy. The strategy is one of the most simple options strategies around.
If you would like to know exactly how I use covered calls on TBT, please sign up for my FREE weekly newsletter, The Strike Price (sign up here). On Sunday, I’ll discuss how I will use a covered call strategy in TBT for the year ahead. You will not want to miss this one.
Again, I hope all of you have a wonderful and safe New Years!!!
Editor and Chief Options Strategist