Doug Kass and the WORST Trade of the Decade

August 2nd, 2012 by

(August 2nd, 2012) Doug Kass called US Treasuries “The Short of the Decade” in an interview he did in this week’s Barron’s.   Mr. Kass makes some interesting and compelling arguments, however the interview did not discuss that this is not a new call.  In fact Mr. Kass has been touting the short treasuries trade for more than 2 years now.

During that time, he has also talked extensively about using the TBT ETF as a way to express the short US Treasury trade.  TBT is an inverse ETF, which means that it rises in value when interest rates rise, causing long term treasury bonds to fall in value.  It is also a leveraged ETF, so it is designed to give you twice the daily inverse performance of long term treasuries.   In short, Mr. Kass is using the ETF to try and amp up the gains that would be received if interest rates rise substantially, proving his trade correct.  Unfortunately for any traders that have followed this call, the ETF also amplifies losses when interest rates fall.  Interest rates have been falling ever since Mr. Kass starting making his “trade of the decade” call.

As you can see from the chart below and the quotes that follow, saying that traders would have lost money following this advice is an understatement.

Sources:

  1. Doug Kass, familiar to those who watch CNBC, summed it up quite nicely when he recently said, “A once-in-a-generation short opportunity might now be occurring in the fixed-income markets.”
  2. Kass tells CNBC “shorting bonds will be the trade of the decade.”
  3. Kass writes on Thestreet.com “I  am now all-in ProShares UltraShort 20+ Year Treasury (TBT)
  4. Kass tells listeners at an investment conference he is “balls to the walls short treasuries
  5. Kass tells Barron’s that short treasuries is the “trade of the decade”.
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