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Author: trader2012 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Re: Bond Offers a YTM of 522.5%! Date: 9/28/2012 5:05 PM
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alt,

You're playing a far more sophisticated game than me. I'm just the smallest of small fish, someone who managed to swim his way into the backwaters that bonds really are for them that can't "trade 'em in size". (Were I to be granted another another turn of the wheel, I'd choose be a market-marker in bonds. Now, that would be fun.)

Yeah, zeros might be a good way to go if one isn't responsible the implied-interest. But futures on the long-bond are a more direct route. In the past, I've traded that contract successfully with total indifference to market-side. Long or short, it didn't make me no difference. But that kind of trading is a high-effort, high-stress gig for which I'm good for about 45 minutes before I get tired, sloppy, and into trouble, though even just a couple ticks makes a day's wages.

But I'm looking for bigger, easier money. I ran a couple of no-brainer, multi-day, test trades in the Spring on which I made about a gazillion percent annualized. But then I got sucked right back into bonds, which have been my first love going on a dozen years now. In lots and lots of very principled ways, there is zero-difference between 'investing' and 'trading' (and between 'investing' and 'gambling', or 'investing' and 'speculating'). But in the real world of actually putting those trades on (whether they are called and/or thought of as 'investments' or 'trades"), there really are nearly insurmountable differences in how one has to organize one's day (mind, thoughts, emotions, money, and actions) so that one doesn't screw up the gig one is pursuing. Maybe some people can both 'trade' and 'invest'. I can't. For me, it's gotta be one or the other. I can't do both at the same time. And since the lazy, kick-back gig that bonds are has provided me with twice my living, I haven't had much need to look elsewhere.

That's going to change, of course, due to Bernanke. In fact, it already has. The only ones who can still pull decent money out of the current bond-market are the experienced hands. The newbies, the flood of fresh, dumb money now buying the top, are just going to have their heads handed to them, and Dalbar will be able to report of them next year in their annual study that their fate has been the same as for the last 20 years. The average fixed-income investor will under-perform their benchmarks by 85%. (That's not "the benchmark minus 85 basis points". Their returns will be no better, on average, than 15% of whatever the benchmark achieved.)

Pure intellectual interest can't be spent at the grocery store. So Bernanke is forcing me out of the bond-market as well. I'd like to stay, and I've been delaying my departure as much as possible. But I've gotta make the switchover from 'bond-investor' to 'risk-trader' if I want to keep growing my account.

Charlie
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