My steady-build approach to slowly but s…
My steady-build approach to slowly but surely scaling into positions over the course of a few weeks to re-build my portfolio will continue again today. Today, I’m going to be looking to short some HYG, iShares iBoxx $ High Yield Corporate Bond Fund, which means I’ll make money if the cost of capital for second tier corporate America rises. Here’s how I explain my rationale behind the HYG short trade in the 14 Stocks That Could Double (and 6 That Could Collapse) report (Trading With Cody subscribers can read the entire report for free here http://tradingwithcody.com/14-stocks-that-should-double-in-2011-and-6-that-should-collapse):
QE2 has done its job, if its job was cutting borrowing costs for the biggest corporations, banks and giant private equity firms so that they can borrow from the taxpayer at way-below market interest rates and then roll up their competitors, suppliers and other corporations. Corporate, junk, private equity and bank borrowing costs are all at historic lows. But at some point, borrowing costs for these firms will head back to market-based levels, which if you look at what it costs small firms and consumers to borrow money is probably a closer gauge of what’s coming.
This fund will drop if borrowing costs for corporations rise. And I do expect that over the course of the next two, three, five years, that the subsidies and money pumping into these giant corporations (that mostly end up cutting jobs as a result of the acquisitions that this cheap money is financing) will ebb. And their costs will rise. This is also a great play on any upcoming “black swan” event that could throw the financial markets into temporary disarray as is wont to happen every few years too.
Other than that and unless there’s some serious fireworks to either the upside or the downside which would give us new opportunities to buy or sell at higher or lower prices, I’m planning to step off the gas pedal a bit on the trading for the next few trading days. Roll up the sleeves and let’s hit it!
