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Q: One question while I have you – on the 3x short ETF’s such as SRTY and FAZ, are those the exact assets you’re playing?  Do you worry about the decay at all?  I just know holding these too long is not usually a great idea, so curious as to your thoughts here before I might jump in.

One more: Do you post all sales in your trade alerts, even if it’s just reducing a position size or trading around a core position? I’m assuming yes, but if not, that would be very helpful.

J: These are the exact vehicles I’m using. Because I don’t intend to hold them long-term I’m not too worried about decay.

I don’t post every single trade as an alert but I always do mention it in the chart book or market comment if I make a small reduction or addition here or there. Every major trade is shared via an alert and in the trade ideas spreadsheet.

Q: I read the email from your reader in northern CA. I’m a small business owner in Irvine, southern CA, and I’m seeing the same as the other reader. There are no indications of any type of economic slowdown that I’m seeing. New housing developments are springing up everywhere, and selling out before they even break ground. There are commercial buildings all around me (in Irvine) getting torn down and built up newer and bigger, in addition to new “urban” type high-rise condos everywhere (which are a strange sight in Irvine). There aren’t enough people to fill the job openings. My business, started in 2001, picked up dramatically in 2014 and into 2015 (you might guess my business from my email address). Existing home prices are on the rise. When my family & I dine out or go shopping at the major malls, they are absolutely PACKED. We frequent Disneyland, and that’s total insanity (which their stock reflects). The macro-indicators and stock market show different, but around here, there are no bears to be seen. This is why I like your blog, as it puts a different light on things.

J: When was the last time you remember things booming so much? Right before the real estate bust/financial crisis? What sort of signs did we have anecdotally that hinted at the horrible recession to come? There really weren’t many, if any, were there? This was because it was a financially driven collapse rather than your typical economic slowdown/recession. I think this is sort of the new normal for booms/busts. The Fed creates the boom with financial engineering and then a financial bust follows. This is why watching things like credit spreads, which bottomed about a year ago, is so important.

Q: You saw Fred [Hickey] has bought lots of puts on tech stocks and I know you said you don’t like options even though you are well versed in them. 1.  What do you think of the options he is buying?   2.  Is it too early? 3.   I have an IRA I do some trading in so cannot short and prefer not to even in my taxable account.   If you were going to do a very small percent tage like Fred in puts can you elaborate on how you would trade them? At the money;  out of the money?   in the money, etc. He said he has less than 1% in puts. Also, do you have stops on your puts or just let them expire if you are wrong? FB you have a 83 stop so if you had puts would you trigger a sale at 83 or greater?

J: As for the options I’m really of no use there as I don’t trade them. Generally, I would rather be short with a stop than have to deal with time decay and other issues with options.

Q: Hi Jesse.  Your chart book was much better than average today.  I enjoyed it and I agree that bonds are due for a bounce for all the reasons you cited in your excellent analysis.  Here’s a question for you, besides TLT are Utilities (XLU) a viable way to play a rally/bounce in bonds?  Aren’t bonds and utilities highly correlated?

J: Yes. I think it’s fair to assume utilities will do well if bonds rally. I also think REIT’s like our NXRT and NLY and dividend plays like KMI will also do well if TLT manages to reverse here.

Q: Great blogs this week.  Check out Howard Marks book. The chapter called recognizing risk. It has a great talk on returns being tied to money market returns. I think it is also in his October 2004 letter.

J: Love the book! Made a short reference to it here:

And a lengthier one here:

Q: Jesse,   I missed ZROZ yesterday by using a limit order.   Would you chase it here? also, you haven’t talked about on your ideas if you would buy at market or use limits? Interested in how you buy stocks you like. I still have big position in gold and silver—-would you lighten up until there is a big move?   would free up lots of cash.

J: If you want to own it I would say you could buy half a position and then add on any weakness. I typically use market orders unless I think it will move the price. Even then I’ll just spread my orders out and use multiple market orders. I usually don’t like to bid or offer anything with all the games that are played against those types of orders. As for the precious metals I think it depends on your time frame. I think the junior miners could explode higher at any point right now. Then again they could fall to new lows, too. I’m actually hoping for the latter because I’d like to use some panic selling like that to add more to the relatively small position I have currently.

Q: Hello Jesse, is ZROZ much different from TLT ?

J: ZROZ tracks zero coupon long bonds so, yes, it is significantly different from TLT which tracks bonds that retain their coupons. See this for more: