I am now all-in this short bond ETF, and I have six reasons why.
This commentary originally appeared on Real Money Pro on Nov. 17 at 10:40 a.m. EST.
Here are six reasons why I am now all-in ProShares UltraShort 20+ Year Treasury (NYSE:TBT) and why I am making long TBT a Kass Katch: The flight to safety, which has buoyed U.S. bond prices (and reduced yields), is likely maturing and in its terminal phase.
A potential catalyst could be a more proactive ECB, which stabilizes the eurozone debt crisis.
The high-frequency economic statistics in the U.S. are coming in better than expectations.
This morning's initial jobless claims number (388,000 vs. 395,000 expectations and 393,000 the week earlier) and yesterday's stronger industrial production and better housing demand -- while starts announced this morning were slightly better than expected, building permits (at 653,000) came in more than 50,000 ahead of forecasts -- are the most recent examples of a domestic recovery gathering strength.
Even though today's November Philly Fed manufacturing index came in light (at 3.6 vs. 9.0 expectations and 8.7 in October), it was the second month in a row of positive numbers following the sharp drops in August and September surveys. The bright spot was seen in the employment component, which recorded the highest read in six months. More importantly, the business activity outlook spiked from 27.2 to 41.9, the highest level since March 2011.
Respectable economic growth on the order of 2.5% (real GDP) can be expected over the next several quarters, which is well ahead of the consensus expectations that existed a month ago.
With retail investors and large pension plans heavily skewed away from stocks and into bonds, a spike in interest rates could occur based on a possible (and maybe inevitable) large reallocation trade from bonds into stocks.
Despite little or no real yields on fixed income, sentiment figures on bonds remain at or near all-time-high and bullish levels.
The housing and automobile industries are operating at low levels of production relative to household formations and the aging fleet of U.S. autos on the road.
As such, latent demand for durables runs high and should be unleashed when there is less uncertainty around the world and at home. Moreover, low mortgage and other interest rates and a 35% drop in home prices have buoyed home affordability and make financing and debt service on car purchases attractive.
Confidence in our politicians is at an all-time low.
While I recognize that this as a long shot, our political leaders might wake up and learn from the eurozone's policy mistakes and effect meaningful and outside-of-the-envelope policy that more swiftly cleans up the mortgage mess (by addressing the shadow inventory of unsold homes), directs more serious attention to our structural unemployment problem and enacts pro-growth fiscal legislation.
Doug Kass writes daily for Real Money Pro, a premium service from TheStreet. For a free trial to Real Money Pro and exclusive access to Mr. Kass's daily trades and market commentary, please click here.