We have a bit too much cash on hand and want to find other ways to take advantage of effective trades other than shorting the market (which we got covered), states Steve Reitmeister of Reitmeister Total Return.
After doing some research, I fell in love with the idea of shorting the high-yield bond market because rates explode higher when a recession hits. If true, then there is a lot more upside in rates...and a lot more upside in shorting high-yield bonds by doing this trade:
- Buy 15% allocation to Proshares Short High Yield ETF (SJB)
Why such a large allocation? Because it's only a 1X short position. Whereas TBT is a 2X short, making the 8% allocation truly worth 16%. So SJB at 15% is more on par with TBT.
This afternoon, there will be much focus on the Fed's rate decision. Truly it is not about 50 vs 75 points. It is about how much longer they intend to be fighting inflation and if they give any acknowledgment to the weakening of the economy as GDP now sank to 0% growth for Q2 after economic reports.
Traders often have an immediate reaction that is 180 degrees off what investors will do in the days that follow. This means we should not give much credence to the immediate reaction.
But what I can say now without the Fed uttering a word...they are too late to the party...the bear market is here...the economy is already on pace for recession, and our portfolio to short the market and make money on rising rates is just about the only game in town.
