Performance was poor this month, and I am left in a quandary. The original inflation trade - long GLD/TLT is trading fine, and just as expected.
But all my attempts to try and build related ideas around this fail. Why is this? I have come up with a number of options:
a) As opposed to when I was started back in 2002, when I would read loads of research and company presentations every day, and be surrounded by other investment professionals, now I tend to work by my own, and don’t have the same inclination of dredging through pages and pages looking for a nugget of useful information.
b) Markets have changed, and the period from 1990 to 2015, which I based my ideas and methods on is never coming back. Could be true - but impossible to answer with 100% certainty.
c) I am running the portfolio with an view to launching a fund, so I am looking for eye catching ideas that will market well (either consciously or subconsciously).
One or all of these things could be true. It makes me wonder if I should just move to and old school retirement portfolio style of investing, where I just buy companies I like, that I know will be around forever? Perhaps I should ditch eye-catching, and go for stodgy? The problem is that I know that change in coming, with the certainty that the Starks knew “Winter Is Coming”.
This may be hard for people a bit younger than me to believe, but in the 1990s, when I was at university, there were still people who believed in communism or, to be more accurate, socialism. There arguments were more or less along the lines of “socialism works, it just wasn’t implemented properly”. It made no sense to me, and I think it was the same for the voting public, and the unreconstructed Trotskyites were condemned to electoral doom. Betting on capitalism (or globalisation) in the 1990s was the winning bet.
When I read politics today, I see more and more articles from the right decrying government and its profligacy. Everything would be better if government got out of the way. Welfare beneficiaries are bleeding the nation dry, and voting should be confined to only those that pay taxes are various ideas I see put around. I think this is a response to hard core capitalist seeing that the standard bearing parties of free market capitalism, the Republicans in the US and Tories in the UK, can no longer win on capitalist policies. Free trade and privatisation are not election winners, anti immigration and anti big business are. When I read these arguments, I think to myself, like the unreconstructed Troskyites, what they are really saying is that capitalism works, we just didn’t implement properly. The implication is that hard core capitalists are condemned to electoral doom. This logic keeps me wanting to put inflation trades on.
The logic of inflation makes sense, but it is not working in my portfolio. Of the inflation trades that I have on, the only one that responded well was gold, up 5% in the month.
On the short side, I was actually pleased with TLT. Even though it rallied a little, the Federal Reserve rate cuts led to a steepening of the curve. The 30 year yield relative to 2 year has gone from being 1% less than the 2 year yield, to now 50bp higher. I could see the 2 year yield flatline from here, and the curve steepen much more. Let’s see.
