JJC and the Volcano

A wife's tale demonstrates the good that taking a little pressure off a bond position can do.
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Looks like the maiden-in-the-volcano strategy worked for our once-painful bond position.

When my wife, Karen, used to trade with us, and we would be getting killed on a position, she would turn to me knowingly and say, "throw the maiden in the volcano to please the gods of losses."

When we were down badly on our bonds, we tossed the maiden into that steaming cauldron of losses, and, wouldn't you know it, the gods were appeased and we are back in the black on the lion's share of the 30-year paper that we did not sell.

Of course the maiden-in-the-volcano theory of trading is strictly an old wives' tale. But taking a little pressure off our position by selling a small portion of bonds -- relieving pressure being the real purpose of volcanic action -- made us stay long all of the rest through some tricky navigating.

Besides the mythical appeasement, why are long bonds rallying? The talking heads say people were short and had to cover. Yeah, yeah, that's always the case at big turns. To me the answer is that the

Fed

has put everybody on notice that it is going to repeal the gift of that last 25 basis-point cut the moment the

CPI

is confirmed by other numbers.

That vigilance, backed by

Greenspan's

incredible inflation record, may have been enough until we have more bad data. And if we don't get any more bad data? I still think bonds go back down closer to 5.5%.

Stay tuned.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

letters@thestreet.com.