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10 Contrarian Ideas for the Summer

I feel that the scenario for gold to have a pullback is a "muddle through" summer, which could cause the fears of the two more extreme scenarios to diminish and result in a gold decline, perhaps to levels last seen in the fall of 2008.

If shorting gold is your thing, I wouldn't go on vacation. Mind the store and get out if your position loses more than 10% from entry or 15% from the position high reached after opening the trade. Possible vehicles include shorting the heavily traded GLD (shown in the chart above) or buy the new UltraShort Gold ProShares ETF (GLL).

2. Buy Corporate Bonds

The yield spreads between investment-grade corporate bonds and U.S. Treasuries remain at historic highs. See the following chart, courtesy of Bespoke Investment Group:

Bespoke Investment Group

In an environment where many are calling for interest rates to rise in response to massive efforts of the Fed to increase liquidity, buying bonds is a contrarian move. However, others are also recommending this, including Dave Rosenberg, chief economist at Gluskin Sheff Associates (and former chief North American economist at Merrill Lynch). So if you are on the wrong side of this trade, you will have some good company.

An ETF for investment-grade corporate bonds is the iShares iBoxx Investment Grade Corporate Bond ETF (LQD). To establish a hedged position, LQD can be paired with a short position in U.S. Treasuries (discussed in idea No. 10, below) to protect against a sharp rise in interest rates, under the assumption that the credit spread would narrow if long-term Treasury rates spike.

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UYG $145.55 -1.10%
QLD $142.55 -2.30%
SEF $17.52 0.46%
SDS $21.33 1.77%
SH $21.46 0.89%


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