Now, if you want to trade a potential PIIGS-driven spike in U.S. Treasury bond prices, you can do so via the Direxion Daily 20+ Year Treasury Bull 3X Shares (NYSE: TMF) or the Vanguard Extended Duration ETF (NYSE: EDV). TMF is a leveraged ETF, which suggests that it is great for trading, but terrible as a long-term holding due to the reverse compounding nature of such instruments. EDV is an ETF comprised of long-term zero-coupon bonds, the most sensitive Treasurys to a drop in long-term bond yields. There are risks to this view coming from the eventual end of QE2 in June, but this tactical trade should have played out by then.
Signs Still Point to Silver Correction
Taking a quick look back, the short silver miners, long silver trade I suggested last week, which I have been talking about since late March, is working out as mining stocks are literally moving in the opposite direction of the rallying metal. Since last week, we’ve seen a 6% drop in the Global X Silver Miners ETF (NYSE: SIL), while the underlying metal, as represented by the iShares Silver Trust (NYSE: SLV), has climbed more than 9%!
Granted, we had an even bigger divergence in the fall of 2008, but that was at a time of serious stress in the credit markets. While there is some stress in Europe, the situation is not nearly as dire now as it was then.
In my experience, mining stocks tend to underperform metals before a more meaningful correction. This situation has been going on for four months, and it is beginning to accelerate, so something has to give soon. I am only looking for a shakeout of the kind that we saw in January, but the move could be magnified by a 2010-style temporary surge in the U.S. dollar — everyone’s favorite currency to hate — based on the belated realization that the euro is even worse.