The jobs report this morning, April 2, was pleasantly neutral (not too hot and not too cold, but just right) Everyone agreed that the report showed the economy is making progress and the stimulus is working. The markets showed that at the open (bond and futures). There is really nothing to stop the market from moving up another 10%, now. But further out, there is a debate. Today that debate was led between Robert Barbera and Mohammed El-Erian.

Of course, El-Erian was pumping the "New Normal" paradigm of PIMCO. Barbera was maintaining his "Old Normal" posture, for which he has been an outlier the last year (there are a couple others like Mike Darda and Jim Paulsen, our local MN boy). The New Normal states that we are stuck in a stagnant recovery like in the 1930s with high unemployment and low economic growth. PIMCO has been whoring this idea for the past year. PIMCO led by Bill Gross, really thinks they have ALL the answers and everyone else is just wrong. But we have caught Bill Gross being wrong on interest rates in the past. No reason to think they are right this time.

Meantime, Barbera, like Paulsen, has been calling for 4-5% GNP growth this year (same as my call, by the way), with enough momentum to achieve "escape velocity". This is another way of saying the economy will not stagnate near no-growth, but will get back on to a normal cyclical track.

I agree with Barbera and my investing posture shows that. I believe we will get back on a positive economic track and for a lot of good reasons. I have maintained the only thing that can screw up the economy is the government making the wrong moves. But for demographic reasons, I think the Feds will be forced to make the right moves, even against the will of Obama.

Obama is an ideologue. He doesn't seem to care much what happens to the economy so long as he can socialize the country. He wants to "lift up the poor" on the backs of the rich. Unfortunately for him, that is NOT what most Americans want. They didn't want more of the Bush Jr. regime. They did want "change", whatever that means. Now they have found they are getting way too much change. The Dems will lose power in November and that will allow our economy to get back to the "Old Normal".

This is my take and for this reason, I am staying long.

Here is one we can work for a long time, I think.

TBT, which is a blend of Treasuries that produce a 20 year maturity, moves higher with interest rates. It is the "ultra short" version of the bond price, but seems to be a good proxy for 10 times the interest rate. Today it is at 48.50, which is almost exactly 10 times the 4.8% interest rate of a 20 year bond. It was 70 in early 2008 (when it was created) which was similar to 10x the interest rate for a 20 year note at that time. It is not really pegged to that rate, but should move proportionately.

I think we can all agree that interest rates move higher from here. So, I suggest buying the 38 June call and selling the 58 June call. This gives a 20% upside between now and June on a $9.70 investment, which means a better than 100% return if interest rates move over 5% by that time. I just got done discussing using a put to protect the downside, creating a collar, but there is no point in this case. The price never got below 38 in the crisis and it is hard to see lower interest rates than what we just had....forever.

I like using options for any of the "Ultra" or amplified short ETFs because they all use Swaps and the futures market to build their positions. Trading costs and other futures market ineffiiciencies cause the price of such ETFs to deteriorate over time. Using options forces a repricing of the underlying as the traded options expire. This manages (does not eliminate) the problem with short ETFs.

Here are the tickers:

Buy June 38 TBTFL Call for 11.00
Sell June 58 TVTFF Call for 1.30

Net Cost = $9.70 / contract

I think we will be able to keep this trade on, rolling forward and upward, for the next 2-3 years as interest rates climb back into "normal" territory with the 20 year maturity average getting back to 7%. If inflation explodes because the Fed screws up, this is an even better trade and those levels, and beyond, come much faster.