Quote from: runeks on August 25, 2012, 03:29:43 AM

I won't pretend I understood the majority of the terms you just used, but again I agree with your general perspective on the market. I just find the dimension of time to be so damn difficult to grasp. I mean, as far as I can figure it could all come down next year, but I could also see it running for another 10 years, albeit very poorly, and with lots of intervention of course.

May I ask how long it can take the bond market to collapse before you don't make a profit because of the premiums you pay on borrowing the bonds?

I mostly focus on the opinion of the people on the street. We all agree the fundamentals are terrible, but still, I have yet to run across anyone in my daily life (in the "real world", ie. not these forums) that really think the whole system could collapse. And if it were to collapse, I find it quite probable that most people would voluntarily give up some freedom to keep it going longer - via capital controls, for example.
Then again, I don't really know many people who are even interested in economics, so that might be why. It's like everyone agree on the logic behind why the system is terribly unstable, but they have a very hard time envisioning a breakdown of it. Even just suggesting high inflation (>5%) is considered nonsense by most people.

Like I said, most of my position is using LEAPS (long term options, essentially). they expire worthless if they aren't in the money by the expiration date. I'm betting on a good hop up in the VIX even if treasuries manage to eke out another rally, which should keep the time premiums on the LEAPS up high enough that it's a very low-risk play. And even if things are looking a little iffy, you can usually roll things over another year out (when available) for not too much price difference, sometimes you're only looking at a 10-15% rollover cost which gives to another 12 months.

I don't trade on fundamentals, but they do certainly bust open the dam when it's time for the trade to roll your way. Investing is the long, long play. Trading is on psychology, where the laws of economics can be stretched and ignored for a while. We had a beautiful internal divergence on a host of indicators on that latest high in long bonds, a mature pricing pattern (early adopters, early majority, majority rush, late majority, final batch of greater fools), etc. It was a great time to short it on a contra play.