Cup-and-Handle in the TBT – Interest Rates Going Higher, Tax Problems?

holsturr (43)in #money • 6 years ago

Hold tight for this ride, there’s a variety of reasons why bond prices will stagnate or fall and interest rates will rise.

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Interest rates should rise and be higher than they are now; “should” certainly isn’t a reason for something to happen, but there are scant monetary policy maneuverings available for the Fed to keep interest rates low and by extension, prop the stock market up much longer.

The TBT – ProShares’ 2x Short 20+ Year Treasury Bond ETF – is an exchange-traded fund that seeks to double the inverse of the U.S. Treasury Bond index on the daily. When bonds do poorly from falling prices and/or higher yields, TBT rises and seeks to double the fall of long-term treasuries.

There’s a lot of reasons treasury bonds don’t look so hot in the foreseeable future.

Let’s first be honest about the state of the economy – it’s not doing as well as the Fed and economic experts might lead us to believe.

1. Data continues to show GDP is not as strong as predicted.

GDP estimates are coming out crazy high. It’s alarming to watch as the real numbers are revised lower and lower.

2. Input costs of all types are rising.

Trade concerns and commodity shortages are leading to higher input costs in sectors across the board.

3. Unemployment numbers don’t reflect reality.

The unemployment numbers themselves might be valid, but the way they are calculated today is misleading. Experts claim that unemployment for college degree holders is below 2%. If the assessment is based on simply whether or not degree holders have a job, that might be true – but the numbers are false with regard to the reality of America’s employment situation; an engineering graduate who is cooking pizzas for $8.50 an hour might have a job, but their pay grade is a fraction of what it would be if they could find employment in their field. Record-low unemployment numbers are no good when it means law school graduates are working as office receptionists and scientists are waiting tables, etc., and that’s a more prevalent situation than what experts might lead us to believe.

4. The tax cuts aren’t – and won’t – help the middle- and working class as intended.

The stated goals of Trump’s tax cuts were to repatriate offshore money and bring corporate tax rates to competitive levels with countries like China. Those goals may be becoming realized, but the end result is not beneficial for the little guys. We’ve heard feel-good stories of employers tossing out $1,000 bonuses to employees, etc., but the reality is companies are using the favorable tax situation for stock buyback and M&A (merger and acquisitions) – and as a whole that benefits people at the top much more than professionals in the middle or workers at the bottom.

So, the overarching situation is this: tax cuts aren’t helping the everyday worker as much as experts might expect, and workers may be finding employment but they are underemployed and underpaid.

Bottom line? Lower tax receipts with unfettered government spending will mean the U.S. Treasury will need to issue bonds.

Bond prices will flounder and yields will rise – just as the Fed will presumably need to start printing money ( QE 4?) – begging a couple questions:
How are bondholders going to get paid?
How is the strength of the dollar going to be maintained?

Simply put, there are fundamental reasons for the price of the TBT ETF to climb higher. Similarly, there are technical reasons for the TBT to rise too – a cup-and-handle has printed in TBT’s chart. This indicates higher prices in the future.

A TBT trade is a little more involved than most, but could pay off with big returns on investment as the story plays out.

💰✨Remember… Every single person is their own trusted expert and seeking to promote yourself in that role is vital today, now more than ever.