A weekly thread to discuss financial matters - from personal all the way up to global.
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Notes -
I honestly love US 30’s now. I’ve been seeing 2 possible medium term outcomes proposed: (1). AI is real and is a huge productivity boom causing mass unemployment. Deflationary. Likely causing rates to fall (2) it does not do that. Or something in between. Capex buildup for AI falls. Lower demand because that’s removed and is deflationary. Rates fall.
I also think big tech or some of the names after a recent dip are reasonable. And a friend asked me what would I want to hold thinking 9 months out. If I had to be long or short big tech I would choose long. But also the same with 30’s. And if rates fall you actually get very good appreciation in long term bonds too. 100 bps fall in yields will get you 15-20% price appreciation plus the yield
Back to big tech. If I couldn’t trade for a year I would own it. My current portfolio is approximately is about 25% long 30s, 40% cash, 35% equities. A lot of trading in between but overall those ratios I’ve been maintaining the last month. If I couldn’t trade for 9 months I would deploy a lot to Amazon and Google since I like their price better now. And a few random names I follow. And probably increase the 30 year exposure from 25 to 35%. I would have zero cash on a 9 month hold. That’s there to hopefully find better opportunities next few months.
Yeah, that's a good argument for 30 year treasuries.
Here's another one. Rates aren't going to 8%. They're just not. Because the government will go bankrupt in short order. So the Treasury and the Fed will find a way to fix it just like they "fixed" Covid by printing $10 trillion in helicopter money.
So, we might be in a similar situation to 2020, just opposite.
Back then, only a moron would buy treasuries because rates were near zero. It was impossible for them to go lower.
Today, it may be impossible for rates to get much higher. Gilts will be one to watch since British debt is already trading higher than US debt (their 30 year is approaching 6%) and the UK has a bad economy, bad politics, and horror show demographics. Will be interesting to see when they crack and what happens.
Here's a TIP for you. Take a look at TIPS (Treasury Inflation Protected Securities). You can lock in a yield of 3% + inflation for 30 years. So when the government prints you'll be protected, modulo how much you trust the CPI to be accurate.
Despite all this, I own almost no bonds because the stock market is a better opportunity, IMO.
High TIPs spread is one reason I’m recommending owning bonds is ok.
Fundamentally I’m a mean reversion guy. I’ve always traded that way. The trick with having that trading personality is I guess having a fundamental understanding and being right more times than wrong that it’s value. And my gut is rates are value here and not fucked. And duration can offer significant upside.
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