Jurojin outpaces hedge funds as yields race higher

According to a story running in last week's Financial Times in London, some of the world's top hedge funds and traders have spent the recent weeks building bets on a reversal of policy at the Federal Reserve. They are positioning for a rise in interest rates. Jurojin beat them to it.

Manager of more than $33 billion in assets and owner of the Boston Red Sox, John Paulson is a living legend in the hedge fund community. He's the guy who made a fortune betting quite correctly that the subprime mortgage scandal would meet a nasty end. Now, he's gone on record in front of an audience stating that the government won't get away with its stimulus spending without generating inflation. And when that happens, expect rising interest rates he advises.

"It will be difficult for the government to withdraw the economic stimulus," Mr Paulson said in a speech. "An increase in the monetary base leads to an increase in the money supply, which leads to inflation."

Mr. Paulson is one of three hedge fund managers that the FT claims are banking on higher yields for bonds as well as a steeper yield curve. In order to benefit, some are using option contracts as the yield curve stretches from a 3.17% yield to a 3.78% yield.

Some are buying put options on bonds consistent with 7 or even 8% rates - a far-higher rise in yields in the case that the Fed is forced to strangle a dose of surging inflation.

But the underlying theme of optimism leading to a return to normalcy for the U.S. economy is something that the Secret Order of Jurojin has made a point of for the last six months. When we launched our Global Resources Alert over the summer, we warned of the dangers of government policy and the likely return of inflation. In turn we recommended readers buy:

ProShares UltraShort 7-10 Year Treasury ETF -Ticker PST
ProShares Short 20+ Years Treasury - Ticker TBF

Both of these funds target rising yields and as exchange traded funds they appreciate in value when the trend towards lower bond prices and therefore higher government bond yields is in place. We first played the shorter maturity portion of the yield curve back in July and then used the 20-year-plus ETF at the start of December to take advantage of the flight to quality when investors piled into government bonds when debt concerns began to shroud the state of Dubai.

At the same time we also used put options to play a potential reversal in government bonds for subscribers to Jurojin Weekly, our more aggressive futures and options trading service. Each of these trades is working out pretty well as we wind up 2009 and hopefully sets our readers up in a position of strength to start 2010.

You can learn more about our services by clicking this link. 

The Supreme Council of the Secret Order of Jurojin

 Tyche Research

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