2012 Trade of the Year in TBT

Larry Pesavento:  ‘For the past several decades I’ve issued a trade of the year based on butterfly patterns. Though these traits have been correct 90% of the time there have been a few small losses.   Here are a few of my past trade of the year recommendations:

  • 1999 – Buy crude oil at $11 a barrel.
  • 2003 – Buy gold.  Also sold the Euro at 164 and bought it back at 85.
  • 2009 – Short treasury bonds and that led to a very large win.
  • 2010 – Short the Dow Jones industrial average which worked well for three months and then the market had a spike which took out the trade at breakeven.

This year’s trade of the year is going to be short treasury bonds by using the ETF TBT.  Buying  TBT at $17.17 cents per share with a $3 stop gives a very adequate risk reward ratio in my opinion.

The long-term thirty-year chart’s trend for interest rates has been down since 1981.  For the past 30 years our government and citizens have been using paper money via bonds, mortgages, and credit cards to live a lavish lifestyle many far beyond their means. Now is the time that this is going to change if my analysis is correct as we see a final (at least I think it’s final) leg up in treasury bonds bringing the yield on the 30 year treasury bond to near 2.5%. I asked myself this question, is there anyone that you would lend money to for 30 years at under 3% given the history of what’s happened to inflation during that time? The answer is a resounding no. This would be the fundamental factor that I would think would make this trade work. But it is only a trade and carries with it some risk.’