ETF Expert

Back on December 23, 2008, I suggested that the ProShares Ultra-Short 20+ Treasury Fund (TBT) could be a successful trader's tool for money leaving the safety of U.S. government bonds. 5 1/2 months and 50%+ gains later, traders should consider exiting TBT.

It's not that I think the long-end of the treasury curve won't continue climbing over the long-term — I believe yields will climb over time. Nor do I feel that a mad rush from equities will fill the coffers of U.S. treasuries as they did in 2008.

The reason for leaving the ProShares Ultra-Short 20+ Treasury Fund (TBT) at this juncture is because:

(1) 50% is a substantial trader's gain in a trader's market. I actually exited much sooner… and have no complaints.

(2) TBT represents 2x the inverse of the daily movement of the 20+ Year U.S. Treasury index, not 2x the inverse of the annual movement. The compounding problems associated with Ultra-shorts and Ultra-Longs is exceptionally well-documented. (Review "Buy-N-Holder's Beware… These Are For Active Traders.")

(3) There's a "confluence" of the smartest minds saying that you'll make money with TBT. In my world, that means it's time to sell and wait for a better entry point.

Indeed, it seems that everyone and anyone is bearish on U.S. treasuries. And it's not as if the reasons aren't sound. China is more interested in shorter-term U.S. debt, the dollar is at 6-month lows, U.S. deficits are setting records, investors want a better return on their money, the Fed will eventually need to combat inflation.

Yet the problem is, with the Fed vowing to purchase long-term treasuries to keep mortgage rates relatively low, and with mortgage rates recently touching 6-month highs, keeping the "recovery" on track will be "Priority #1." Long-term treasury prices may sink as yields climb over a longer-term horizon, but not before the government feels better about U.S. recovery prospects.

Ironically enough, many pundits are quick to suggest a correction for commodities and stocks is coming. It is hardly beyond the scope of imagination, then, to think some folks will park their cash in U.S. treasuries for the near-term, pushing yields down and prices higher.

Sure, I am talking about a near-term occurrence here. Nevertheless, somebody has to send a warning shot across the bow of irrationally exuberant Ultra-Short 20+ Treasury Fund (TBT) advocates. Take the trader's profits and wait for the next opportunity… because TBT is going take a breather.

More proof? Hedge fund trackers "Market Folly" talk about how Jim Rogers wants to short government bonds. Yet look closer, dear reader!!! Rogers had "previously been short the Treasuries, but covered them for the near-term in favor of waiting for another opportunity to short." My point exactly.

If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "live" or via podcast or on your iPod at this link.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.