There's nothing we love more in the financial news business than a bold call. So rare and refreshing are these outlier predictions, compared to the normal stream of slight over-weights or downgrades to neutral offerings, that when we hear one we can't help but take notice.
And so it is with Rich Ilczyszyn, a Chicago-based investor and founder of iiTrader.com, who says "the mother of all shorts" has begun, and the call is the money that flooded into Treasuries the past few years is starting to come out.
But now, with economic indicators starting to turn, he says a shift has begun amongst big money players to reduce some of those safe-haven holdings.
"If that is the case, it's going to be Niagara Falls through a garden hose on this particular trade," Ilczyszyn says about what's expected to a be disorderly reallocation from bonds to stocks. "You may see another leg up in the equities and a massive decline in the Treasuries."
He's certainly not the first to try to play the bottom in interest rates, after a 25-year journey that has obviously left them little room to go much lower. Still, while rates have already rebounded a little, there are some formidable forces lurking to make sure they don't go too high too fast. Some obvious impediments would be a gasoline-led economic slowdown, actual fighting between Iran and Israel, and of course, the Fed.
"There's only so much Bernanke can do," Ilczyszyn argues, "I think this will be a normal function of the market."
Which is not to say he thinks it's going to happen quickly or in a straight line, as much as he thinks the longer term trend is turning and "rates will probably start creeping higher."
His plan is to ''hedge a little'' and start building a position in the Proshares UltraShort 20-Year Treasury ETF (TBT).
Of course the sibling of his short-Treasuries trade is a go-long stocks call, as a result of the aforementioned allocation shift. In the case of equities, given the S&P 500's 30% rally since October and push back above 1400 last week, he is a bit let sanguine in the short term.
"I think we consolidate and pull back a little bit," Ilczyszyn says, adding, "corrections are to be bought, and on the pullbacks, I think you'll see allocations going in and the market should go up."
When asked if the 2-week, 8% rebound by the Dow Transports was something to chase ahead of a possible breakout, his bias against the "absolutely haywire, totally news driven and temperamental" Energy sector has kept him out of that trade.
What do you think? Has "the mother of all shorts" begun? Are you moving money from bonds to stocks? Let us know if the comment section below.