First a bit of housekeeping - I will be in Zurich and Geneva on the 29th and 30th of September. If you would like to catch up - drop me a line.
Also I am trying Substack video for the first time - feedback appreciated.
When I first came up with the idea of GLD/TLT, it was so simple and so obvious, I was almost ashamed to publish it. But as old boss once told me, simplicity breeds elegance. And I do like to be elegant. GLD/TLT has been good, and its bounced back nicely from a sell off earlier this year.
Generally speaking, I thought GLD/TLT will end as a trade when politics turns again, back to culturally liberal, and fiscally conservative. Who knows when that will happen. I thought you would need a crisis era like the 1970s for that to happen. The long term graph of gold versus treasuries shows you the 1970s clearly.
But Hartnettt out of BOA produced this chart. Long dated treasuries have even worse returns now that in the 1970s. This is partly due to the very low coupons they have, which pushes out their duration (the lower the coupon, the move of your value is exposed to rising long term interest rates). But still, the best time to short an asset it when it goes from being good to bad. I wonder - should I still be bearish TLT?
Then there was this chart - where the 10 year returns of commodities have been pretty good.
What I am saying, is that GLD/TLT made total sense politically, but also from a return perspective. When I first suggested it, we were coming to an end in a bond bull market, and the beginning of a commodity bull market. The most tricky thing with fund management is that there are two things you need to get right. The first is holding onto a good trade - especially if you got a good entry point. What the crypto guys call HODLing. But the other thing is knowing when the trade is done, and time to get out. The guys at Situational Awareness were good at the first part, but not good at the second part. While I feel my own track record is mixed on this - compared to other so called “perma bears” - I am way out in front.
So if GLD/TLT done? Probably not. With populist parties still on the march globally, policies that help GLD/TLT are still more likely. As soon as I see a head of the Fed say, “I don’t care what the unemployment rate might be - we need to crush inflation”, is the day I reverse this trade. That day is not today. The other good thing about GLD/TLT is that US retail still don’t get it. Share count of TLT has bounced back, even as ETF flow into GLD remains restrained.
Net/net - not the end of the road. But I can’t help but feel its time for TLT to perhaps do a bit more work in this trade. The gap in US and Japanese 30 year government bonds feels too low to me.
What does this mean? I got into GLD/TLT at a good time, and I probably just need to sit tight for awhile longer.
