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Archive for January 8th, 2013

Why I Sold the Long End

Tuesday, January 8th, 2013

My bond strategy has always had a position in TLT until last week.  TLT, composed of long Treasuries. is a hedge against deflation, and has made money for my clients.

I changed last week because of significant disagreements at the Fed regarding the duration of QE, and also the selloff in the long end breaking my price drop limits.  Also, it is worthy of note that each Fed intervention is leading to smaller results.  In the process, I made more money from my credit-sensitive investments than I lost from TLT.

With stocks, I am not a technician or an active trader.  With bonds, I am both.  Why?

Bonds are more determinate than stocks and the tradeoffs are clearer.  Bonds are promises to pay under certain conditions.  Those conditions can be analyzed more readily than the open-ended conditions of stocks.

At this point in time, I am taking limited domestic credit risks, and taking larger risks in the emerging markets, where economic policy is more orthodox then it is here.

But beyond that, I have pulled in my horns, and have reduced interest rate risk.  If I see opportunities, I will act on them, but I am taking far less risk than previously.


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.

Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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