Quote from: runeks on August 25, 2012, 01:08:44 AM

First of all, welcome to the forums! I think you are exactly one of the kinds of people that the Bitcoin community needs. I think I agree with all of your points, and it's refreshing to see them expressed with such clarity.

Quote from: Coreadrin_47 on August 19, 2012, 11:39:54 PM

[...] (disclosure: I am fully leveraged short in long-term treasuries as of about 2 weeks ago, along with Japanese long bonds, German bunds, and France long term debt).
[...]

I'm very interested in this as well. I've been thinking about doing the same, and have heard it suggested several places. I'd really like to hear more about your thoughts on doing this.

My first thought when considering this, is that I fear it's sort of a rigged game. I mean, US Treasury bonds are denominated in a currency that is controlled completely by the Federal Reserve. As far as I can see, the Fed could (theoretically) drive up the price of Treasury bonds to any price it desires. I mean, it creates the very currency that these bonds are denominated in. As far as I can see though, it would require the Fed to purchase bonds directly from the US Treasury, instead of in the secondary market. Or am I wrong on this one? How is the price, that your short references, determined? Is this by the price in the secondary market?
This is probably the thing I fear the most. The political system isn't exactly thrilled about speculation, and I'd imagine shorting US bonds is one of the least favored speculation activities a US politician can image. I don't think it would be far fetched to imagine political action that aims to drive up the price of treasuries temporarily, to get rid of the leveraged shorts. Or am I out of line here? I'm just bothered by the opacity of this market, and I feel like I'm trading against politicians instead of the market.

With regards to the actual process of shorting the bonds, I have a fair understanding of how it works. I presume you pay an interest on borrowing the bonds from someone. At which interest rate can you borrow the bonds?
I figure this must weigh in on your decision, since a high interest rate will make your position unprofitable quicker than a lower interest rate. Do you have any time estimate on when you expect the bonds to start declining in price?

I have a core short position, but I a mostly leveraged to the max via LEAPS (the premiums are pretty reasonable short-side right now, just because the VIX is so low and the market's got this huge still-baked-in expectation of continued upside.

As far as the rigging of the game goes - you can only violate the laws of economics for so long. The Fed has been openly purchasing treasuries since 2008 and they already ARE the long-bond market. Twist was just the last twist of the sword in attempting to push down long-term yields. The Fed currently holds well over 2/3 of it's entire balance sheet in long term debt (LT Treasuries and Mortgage Debt). If these markets begin to turn, they will start having to book serious losses, which will be pretty damned embarrassing for the all-powerful ivory tower gods of money.

You couple that with what are sure to be serious, serious shenanigans in terms of the budget, plus the fact that SS continues to pay out more than it takes in (and its balance sheet is also made up almost entirely of treasury bonds), and you've got a highly probably chance that the everyone-and-their-mother who have piled on the Treasury bubble will get wiped out.

It's a 30 year bull market. Not many bull markets can hold out for 30 years, and this one is a doozey. Higher participation than stocks by the average household, and by a long shot. Check out equity outflows compared to treasury inflows over the past 10 years, and you'll basically see another dot-com/NasdAPPL in the works. There's not much possible upside even left on Treasuries, but the way down is a long, long way.

As for the rest of the discussion on here, I think it's going to be imperative to the future of bitcoin for more and more products and services to be offered and denominated in bitcoins. As the underlying economy grows, so will the support infrastructure (bitcoin debit cards, etc.), and so will its value. I'm working on a little something that will make it a lot easier to bring legitimate goods and services to the market and not worry (in the meantime) about your entire profit margin getting eaten up by specs over on the Gox. That's project #1, which will hopefully generate enough revenue that I can focus entirely on my bigger goals over the next 6-12 months.