Watch now (10 min) | Western Bond Market have rallied recently. Investors are reading a top to inflation pressures, but I see food inflation continuing, a view being confirmed by the JGB market. Treasuries look a short.
Nice article. Here are two thoughts I formed from it.
China imported anything and everything they could to substitute the use of Corn for Pigfeed as they built up their pig population post Swine Flu. The spike in Beef is really interesting to me as while the Chinese paid a premium for their Beef imports, it did cause a 2020 spike in US Beef prices (perhaps not as high). The net effect is
1. Any increase in Chinese and US food commodity imports would take away food locally from EM populations. This could lead to potential geopolitical risks/opportunities in Brazil, Mexico, Chile etc.
2. What other food commodities could be next in term of a similar spike to Beef caused by Chinese policy/population need?
Russell, second question from me. I was struck by your observation that the JGB seems to be a better predictor for certain macro things than US Treasuries (UST). Is that perhaps because UST is very much used as the world's best collateral, and JGB less so? So my hypothesis would be that UST price action is more driven by liquidity needs around the world, and therefore becomes somewhat erratic in forecasting the macro environment. Which makes JGB's the next best thing.
Russell, avid reader of your writings, and keep up the great work!
Related to your shorting treasury idea, what do you think of the life insurance stocks like CoreBridge, Brighthouse and Jackson Financial? All these are life insurance spin-offs from their old parents (AIG, Metlife, and Pru UK). They are probably extremely “boring” and neglected, but could the new rising interest rate macro environment be conducive to their re-valuation (up)?
Good points. I would point out that TBT is a double short of TLT. I had that position on but had to exit due to rolling over of rates. It moves fast by nature but if you like the short TLT trade then you might love the long TBT trade.
Thanks for the nice article. Couldn’t it be that since June 21 (start of the spike in your chart) money has been allocated to TLT because it’s been down 30% since then? Even the early 2000 lows are around 85, it’s fair to say that TLT has been punished quite a bit and that it doesn’t really look like there is a huge potential to go for a short at this point. Rates can stay high for longer that’s likely but it’s a different setup if you just watch it from the sidelines than entering a short at this time. What are your thoughts on this ?
Nice article. Here are two thoughts I formed from it.
China imported anything and everything they could to substitute the use of Corn for Pigfeed as they built up their pig population post Swine Flu. The spike in Beef is really interesting to me as while the Chinese paid a premium for their Beef imports, it did cause a 2020 spike in US Beef prices (perhaps not as high). The net effect is
1. Any increase in Chinese and US food commodity imports would take away food locally from EM populations. This could lead to potential geopolitical risks/opportunities in Brazil, Mexico, Chile etc.
2. What other food commodities could be next in term of a similar spike to Beef caused by Chinese policy/population need?
The last Log Scale Chart is eye catching too.
Hi Russell, thanks for the update. What do you think of TIPS here given your secular inflation thesis, now that they have positive yields?
Hi Russell, Greay Article. Wondering where your data on pork prices came from if you dont mind sharing?
Russell, second question from me. I was struck by your observation that the JGB seems to be a better predictor for certain macro things than US Treasuries (UST). Is that perhaps because UST is very much used as the world's best collateral, and JGB less so? So my hypothesis would be that UST price action is more driven by liquidity needs around the world, and therefore becomes somewhat erratic in forecasting the macro environment. Which makes JGB's the next best thing.
Russell, when you say short the long bond or short TLT what time horizon do you have mind for cashing in on that trade?
Russell, avid reader of your writings, and keep up the great work!
Related to your shorting treasury idea, what do you think of the life insurance stocks like CoreBridge, Brighthouse and Jackson Financial? All these are life insurance spin-offs from their old parents (AIG, Metlife, and Pru UK). They are probably extremely “boring” and neglected, but could the new rising interest rate macro environment be conducive to their re-valuation (up)?
Suspect you may be right on inflation but Western Government’s will do whatever it takes to create financial repression again.
Good points. I would point out that TBT is a double short of TLT. I had that position on but had to exit due to rolling over of rates. It moves fast by nature but if you like the short TLT trade then you might love the long TBT trade.
Thanks Russell, so when you talk about short TLT what is your time horizon, from now to what price point/time? Thank, C
Any guess on the Fed fund rate in 2023JUN?
5.5?
Thanks for the nice article. Couldn’t it be that since June 21 (start of the spike in your chart) money has been allocated to TLT because it’s been down 30% since then? Even the early 2000 lows are around 85, it’s fair to say that TLT has been punished quite a bit and that it doesn’t really look like there is a huge potential to go for a short at this point. Rates can stay high for longer that’s likely but it’s a different setup if you just watch it from the sidelines than entering a short at this time. What are your thoughts on this ?
Much appreciated.