INSURANCE AGAINST MONEY PRINTING AND RECKLESS BORROWING MAY PAY OFF BIG

By Nigam Arora & Dr. Natasha Arora

Prevailing Wisdom

Nobody argues the following two facts:

• The Fed has printed trillions of dollars.
• The U. S. government is borrowing trillions of dollars.

The prevailing wisdom is:

• Money printing by the Fed is a free lunch, i.e., the Fed can create money out of thin air with no consequences.
• The U. S. government borrowing trillions of dollars is also a free lunch because there is no need to pay it back in the foreseeable future.
• The Fed will manage to keep interest rates low for a very long time.
• The inflation that we are seeing now will be transitory.
• The Fed will be able to artificially control bond prices for a long time.

The History

History shows us that the prevailing wisdom is likely wrong. The key question for investors is how to get the insurance that can pay off big if the prevailing wisdom is wrong.

The Chart

Please click here for a chart of leveraged inverse bond ETF (TBT).

• TBT is a double leveraged inverse ETF that goes up when bonds go down.
• Bonds go down when interest rates go up.
• Historically interest rates go up when inflation heats up.
• The chart shows that TBT was around $200 even after the great financial crisis of 2008 when interest rates were already low.
• The chart shows that TBT is trading around $19 as of this writing.
• TBT will not go back up to $200 because this is a leveraged ETF and has a tracking error.  However, the chart gives you a qualitative idea as to how far TBT can move if inflation gets out of control or if the Fed loses control.
• The horizontal white line on the chart shows a realistic first target if the prevailing wisdom starts proving wrong.
• TBT is the best insurance you can buy that can pay off big if the free lunch does not materialize.

Zones

The new buy zone is 🔒 (To see the locked content, please take a 30 day free trial).  This is a very long term position.

The first target zone is 🔒.  The second target zone can be much higher but will be given at the appropriate time.

The mental stop zone is 🔒.

The recommended quantity is 🔒 of full core position size but can be adjusted higher or lower based on the size of the portfolio.

Those who want to reduce risk may consider unleveraged inverse ETF (TBF).

What To Do Now

Those in TBT may consider continuing to hold.

Those not in TBT may consider following the parameters given above.