Relativistic Thinking Does Have Its Benefits

Paco Ahlgren put a bit of thought in his article "Gold Is Safer than Treasuries as an Inflation Hedge." He points out that a rising asset price shouldn't be considered in vacuo; what matters is how it squares up with other assets (and with currency debasement.) It's a point normally deployed by gold skeptics, to show that gold's a lousy long-term investment, but Ahlgren is a gold bull who's taken it to heart too.

However, his suggested pair trade - buying gold and an ETF that's short Treasuries (TBT) - rates a warning about the latter part of the pair. A post over at Zero Hedge point out that ETFs that short Treasuries are subject to price-decay over time. If held over the long term, TBT exhibits a very definite negative carry. Longer-term holders who like Ahlgren's idea would do well to consider another option for shorting Treasuries, such as buying long-term puts on the long-bond futures contract or an outright short of an ETF that's long Treasuries. (TLT's one.) Long GLD/short TLT resembles a more normal pairs trade that uses Ahlgren's theme.