Darwin vs. The Fed. Guess Who’s Losing…

by Darwin on September 22, 2011


So, a few weeks ago, I publicized my crusade against US Treasuries whereby I was shorting naked call options on the 3X Leveraged ETF for long duration government debt.  That’s a mouthful. In essence, with rates at record lows, driving mortgage rates to never-before seen levels, I figured that was it.  With our debt problems and generational low rates, how much lower could they go?  Evidently, much lower.  See, this week, the Fed dreamed up “Project Twist” and the twist is, that instead of spurring a market rally and more borrowing, it sent markets into a complete tailspin and banks aren’t lending crap.  They’re preserving capital and trying to keep their firms solvent.  So, when you play with fire, you’re bound to get burned.  At the moment, my naked calls RIGHT at the strike price of $75 with November Expiry.  What that means is that if TMF didn’t move at all from here, I’d actually still make money because the options would expire worthless.  However, I have a bad feeling this flight to safety into Treasuries may continue.  So, “on paper”, I’m down a good $1000+ on that brilliant play – because the options I sold are much more valuable now that they’re “at the money” rather than out of the money.  The question is whether I can outlast the Fed.  If that was tough to follow, the whole play and background are described in my post over at ETFBase, my site dedicated solely to ETF investing, trading and news.

Lest you accuse me of only reporting my great news and wins, I have plenty of turkeys in my trading history and so far, this is shaping up to be one of them.  With that, check out some of my favorite reads from around the web recently:


Favorite Reads

 The Burning Platform – Great Investment Warren

Invest It Wisely – Planting a Seed of savings

Retire By 40 – 401K vs IRA Investing

Financial Samurai – We Are WallStreet Email

Money Crashers – Get a Workout Without a Gym Membership

Oblivious Investor – 2012 Tax Brackets

Money Mamba – Respect Your Money

101 Centavos – Gold Miners and Valuations


Carnivals that Featured My Content


Carnival of Personal Finance

Festival of Frugality

Carnival of Wealth

Totally Money

Canadian Finance

Totally Money Carnival

Yakezie Carnival



{ 7 comments… read them below or add one }

Moneycone September 22, 2011 at 10:21 pm

Fed’s move took me by surprise as well! How low do they want the rates to be!


Darwin September 22, 2011 at 10:57 pm

If rates were zero percent at all maturities, the economy’s still screwed.


101 Centavos September 23, 2011 at 5:48 am

Bernanke’s a big poopie-head. Twist and shout, indeed…..
Thanks for the link, Darwin.


cashflowmantra September 23, 2011 at 11:29 am

I would have to agree that the economy is in trouble. There seems to be lots of despair and no apparent way out at this time. That being said, there is lots of cash on company balance sheets so when these companies start to feel some confidence, they will have plenty of cash to invest without the need for additional debt. It may be several more years of grinding, though.


JT September 23, 2011 at 1:25 pm

Thanks for the link!

I’m not sure you can say you’re losing. I mean, on an individual trade, sure, but now every stock you own is more valuable as cash flows have a lower discount rate. Same thing with that rental property of yours!


retirebyforty September 23, 2011 at 1:28 pm

Thanks for the mention! I can’t believe the rate has fallen. I’ll have to call my finance guy to see if I can refinance. It might be tough due to the house valuation though.


Invest It Wisely September 24, 2011 at 1:26 pm

Thanks for the inclusion, Darwin! What’s going to happen to the holders of all those mortgage securities should interest rates rise 5 points?


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