IS SHORT TLT DONE?

The idea I have been pushing for awhile now is long GLD/short TLT to capture the move in politics to pro-labour. It has been working well, with a recent spike.Without question the short TLT leg of the idea has been the big winner. Falling from 160 to 83 today.Even as it has fallen, “investors” have been piling into TLT. Shares outstanding has more than quadrupled since 2022.Over the same period, short interest has remained subdued, so losses to owners of TLT have been very large with very little short seller gains! The middle chart shows shares out short, which has remained stable even as shares outstanding has increased.Is TLT still a short? Over the last year it has been very attractive as a short, as the yield curve was inverted. That meant that the cash proceeds you got from selling 30 year could generate an interest coupon greater than the cost you would pay to short the 30 year. That is it had a positive carry. If we look at standard yield curves, then this inversion has disappeared (such as a 2yr v 30yr).The problem is that TLT is not a 30 year treasury. It is an ETF that is designed to remain a long dated treasury forever (i.e. it has no pull to par). A better way to value TLT is its dividend yield versus cash (Fed Funds Rate). On this basis it still looks like a short. Assuming TLT needs a dividend yield of 5% or so, gives another 20% downside.I suspect yields still have further to rise. The JGB bear market continues unabated.TLT still looks a good short. If we see a reduction in shares outstanding in TLT or a rise in short interest, a tactical cover may make sense - but I have not seen either of those yet. This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit www.russell-clark.com/subscribe