Been an interesting last 96 hours. Scaled out of Short TLT last week and added Long Gold. Will rebalance when ECB action what they need to do with a looming European banking crisis.
Another noob question.. what exposure does TLT represent? I thought it was dollar, but in another comment you mentioned you'd be worried if TLT and dollar moved together?
All questions are good questions. TLT US is a fund that mimics the performance of US treasuries with a maturity of over 20 years. What is useful about this is that long dated treasuries can give you large "capital gains" if market expectations of inflation and interest rates fall. If a bond has a maturity of 25 years, and its yield falls from say 4% to 3%, you get a 25% capital gain (roughly speaking). TLT allows you do that in a liquid ETF. In times of stress, TLT has been more liquid than actual treasuries (blame clearinghouses for that).
If TLT rose this means the market expects that the interest rates to be lower for the foreseeable future. In this case, if the dollar also rose, it would be a sign that that interest rates everywhere would also be lower, and we were heading to a very deflationary environment. If the dollar fell, its meant the rest of the world is fine, and the weaker dollar will actually be inflationary for the US. A weak dollar shows that any problems are likely to be confined to the US.
My pure SWAG is that SVB will be bailed out, as this allows the Fed to kick the can down the road without having to give up on its goals of furthering Empire and crushing labor, while rich people cannot be allowed to lose money.
Same difference. It accomplishes the purposes I listed above. The Empire can continue the war, labor can be brought to heel, and rich people given the perquisites due their elevated station.
They can't call it a "bailout" as that word has negative connotations and may lead to a questioning of the administration and its policies.
I would get much more nervous is the dollar rallied when TLT rallied.. but with falling yields you get a powerful inflation signal from markets, which fits in with my view that monetary policy is needed to restrain inflation, not promote it...
This move in rates is getting insane... The vol too... Maybe just FOMO buying based on March 2020 muscle memory, but it feels more like a Volmaggedon/CHF de-peg/GME/etc. type squeeze... Some funds/institutions getting caught short?
I tend to agree my base case is the violent repricing of rates we're seeing is premature, I think authorities will spin the SVB failure as idiosyncratic and isolated and the Fed will stay the course for the time being (we'll find out in 2 weeks I guess) and not pivot. However, while SVB seems to have been poorly managed and all the doomsday talk seems more like PTSD from 08-09 than a realistic assessment of the situation, it does show the stress on the system. I'm not a believer in another widespread US banking crisis, but to me it does seem to show that there is a significant risk of a bigger credit/liquidity event down the road (might not be one big thing... may be the economy dying from a thousand cuts...). How do you assess that risk? You've said previously that you don't expect a recession, but if you expect other failures, in banking or elsewhere, surely in a highly leveraged system that raises the risk of an eventual recession?
SVB price action reminds me of Chinese property developers price action. Equity holders got smoked, but with rising wages, it made little "macro" difference. Social media (including substack sadly) is geared towards predicting crisis. I just the trend is higher in GLD/TLT, with whipsawing action as market hope that rates get cut....
Interesting comment about new subscribers. Behind the Balance Sheet by Steve Clapham said the same thing earlier this week. I find that really weird. Both of you were on the Grant Williams podcast, but a while back.
I thought it was funny, maybe not in hindsight.
close enough!
Been an interesting last 96 hours. Scaled out of Short TLT last week and added Long Gold. Will rebalance when ECB action what they need to do with a looming European banking crisis.
Might be a noob question but how much do central bankers care about gold?
They don't- but they do care about food. Gold is a proxy on that... and much easier to hold
Another noob question.. what exposure does TLT represent? I thought it was dollar, but in another comment you mentioned you'd be worried if TLT and dollar moved together?
All questions are good questions. TLT US is a fund that mimics the performance of US treasuries with a maturity of over 20 years. What is useful about this is that long dated treasuries can give you large "capital gains" if market expectations of inflation and interest rates fall. If a bond has a maturity of 25 years, and its yield falls from say 4% to 3%, you get a 25% capital gain (roughly speaking). TLT allows you do that in a liquid ETF. In times of stress, TLT has been more liquid than actual treasuries (blame clearinghouses for that).
If TLT rose this means the market expects that the interest rates to be lower for the foreseeable future. In this case, if the dollar also rose, it would be a sign that that interest rates everywhere would also be lower, and we were heading to a very deflationary environment. If the dollar fell, its meant the rest of the world is fine, and the weaker dollar will actually be inflationary for the US. A weak dollar shows that any problems are likely to be confined to the US.
Does that make sense?
Yes it does, thank you!
My pure SWAG is that SVB will be bailed out, as this allows the Fed to kick the can down the road without having to give up on its goals of furthering Empire and crushing labor, while rich people cannot be allowed to lose money.
Not sure SVB is getting bailed out... but a bunch of tech start ups are getting their deposits back....
Same difference. It accomplishes the purposes I listed above. The Empire can continue the war, labor can be brought to heel, and rich people given the perquisites due their elevated station.
They can't call it a "bailout" as that word has negative connotations and may lead to a questioning of the administration and its policies.
What would lead you to change your mind Russell?
If wheat/corn prices stop rising anymore?
If unemployment in the US > 6%?
Surely the Fed has it limits too.
I would get much more nervous is the dollar rallied when TLT rallied.. but with falling yields you get a powerful inflation signal from markets, which fits in with my view that monetary policy is needed to restrain inflation, not promote it...
Does the stabilisation of energy commodities in particular change your view?
Even wheat now is back to its pre-2022 levels.
From a technical perspective, given the base effects, commodity prices will now be taking away from inflation rather than aggravating it.
This move in rates is getting insane... The vol too... Maybe just FOMO buying based on March 2020 muscle memory, but it feels more like a Volmaggedon/CHF de-peg/GME/etc. type squeeze... Some funds/institutions getting caught short?
Is the larger/premium miners a good enough position to have the call on gold or it's imperative to have the right call to be in $GLD
I go back and forth on this and like the miners for the 3%+ yield they off per quarter
I prefer GLD to miners... particularly as gold looks expensive to energy... if energy prices rise a lot, gold miners do not do well
I tend to agree my base case is the violent repricing of rates we're seeing is premature, I think authorities will spin the SVB failure as idiosyncratic and isolated and the Fed will stay the course for the time being (we'll find out in 2 weeks I guess) and not pivot. However, while SVB seems to have been poorly managed and all the doomsday talk seems more like PTSD from 08-09 than a realistic assessment of the situation, it does show the stress on the system. I'm not a believer in another widespread US banking crisis, but to me it does seem to show that there is a significant risk of a bigger credit/liquidity event down the road (might not be one big thing... may be the economy dying from a thousand cuts...). How do you assess that risk? You've said previously that you don't expect a recession, but if you expect other failures, in banking or elsewhere, surely in a highly leveraged system that raises the risk of an eventual recession?
SVB price action reminds me of Chinese property developers price action. Equity holders got smoked, but with rising wages, it made little "macro" difference. Social media (including substack sadly) is geared towards predicting crisis. I just the trend is higher in GLD/TLT, with whipsawing action as market hope that rates get cut....
👍🏻
Interesting comment about new subscribers. Behind the Balance Sheet by Steve Clapham said the same thing earlier this week. I find that really weird. Both of you were on the Grant Williams podcast, but a while back.
Looks like the surge in net interest subscribers cause a flow to me as he used some of my clearinghouse work back in the day
Хорошая презентация, товарищ
Are you trolling me?