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Right now bond prices are close to their highs, which would seem to be the time to initiate the short position in expectations of being able to cover when prices do fall, but war worries and some tricky inflation stuff are messing with what I was expecting to happen and keeping the Fed at a neutral stance. In fact, yields at the long end are still falling, as the channel on a chart will show.

I'm not commited to making the short bond play, but I'm watching for the opportunity. If it unfolds, I made the trade. Otherwise, I do other things like hold my nose and look at junk, or at equities (where despite the continuing declines in the broad market there are some pockets of strength, particularly in small caps, and, with the falling dollar, possibly foreign stocks, as Buffet is beginning to tout.)

My only point in calling attention to the fact that things like RYJUX and RRPIX exist is that most people don't have the expertise to use debt futures, and bear bond funds are the only way they can trade the downside of the bond market if they wanted to do it. Do they have to attempt the trade? Of course not. But knowing that the tools and techniques are available and knowing exactly why one is choosing to use them, or not, reinforces other investing skills that help keep one out of trouble over the long haul.

This is my view only, but I think that one doesn't protect one's capital by suspecting trouble and then running the other way like Chicken Little and sitting in CD's. You look the risk in the eye, decide whether it's unmitigated danger or a manageable opportuity, and only then either back off or do the trade. Interest-rate risk, which is only one of several hundred ways to impair your capital, cannot be avoided, but it can and has to be managed. Bear funds, when used properly and appropriately, are some ways to manage that interest-rate risk that don't get the attention they would merit if investing were a totally rational process, which it isn't, because of the way human beings are hard-wired.

Obviously, the easiest way to manage interest-rate risk is to hold individual issues until maturity, which, as a bond investor I'm doing. But the trader in me sees a possible fixed-income opportunity and wants to capture it. In '94 I didn't have the capital to manage the risks. This cycle I do. The next cycle, 5-10 years away, I'll be positioned to use debt futures, in an ever increasing schedule of learning how all of this stuff works.

My goal? Simply to be the best well-rounded investor I can be, and not trading the short side is ignoring half the market.

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