Maybe the disagreement is just about different time horizons. While I agree with your view of higher rates in the long term, maybe 20-40 years but we could easily have a bond bull market for the next 6 months. Gold will do well of course too so GLD/TLT will be fine. But, personally I am just long gold and gold equities and don't care about shorting bonds at the moment.
I am not a good trader - so I tend to hold themes. You are probably right - TLT does nothing for 6 months - but when the move comes its big - and if you are not in it you miss it... so I tend to just "short and hold" (i should trademark that!)
Agree with this comment. The spike in M2 money supply is what caused higher inflation during the stimulus years but that’s now over. Agree that longer term factors seem to point towards pro labour policies
Remember there's a lot of supply coming onto the market from the Treasury's new issuance, and the Fed is no longer a buyer. Yields will need to go higher for all this new paper to catch a bid.
It is remarkable just how excited everyone has become over the latest CPI print as the signal that the Fed is done and the bond market is set for a massive rally. I have probably read 10 articles with this thesis for every article like yours. as it happens, I think you have touched on an excellent deep point, the change from pro-capital to pro-labor policies. that is completely in sync with the populist movement from both sides of the aisle.
the funny thing is, to my mind, if the Fed actually does start to cut soon, then the bear steeper is really going to take off as that means they are going to throw in the towel on inflation. as you have written, higher nominal GDP and high inflation has to be the plan as it is the only one that can achieve any meaningful debt reduction without a jubilee. and I don't think a jubilee will work that well.
I too have been baffled by the mkt's reaction by a very boring CPi print. Still well above the Fed's target too.
Interesting point about rate cuts as an implicit admission that the Fed is abandoning its 2% inflation target. Very plausible.
To my mind, looser credit conditions that don't come from the Fed are a self-defeating prophecy: the looser they get, the more likely it is the Fed will resume hiking.
Large chunk of voting population - boomers - are now leaving the work force. Once retired, presumably they prefer a continuation of pro-capital policies to boost their retirement savings? The US political class is also old and asset heavy. Wonder if it might take another 15yrs to get a real swing toward labor...?
I would forget about that style of analysis. Look at how Republicans are moving to cultural issues and away from fiscal management policies to tell you where the votes are.
May I know your views on US Labor Unions as well? It looks like they are pushing inflationary pressure, and some big unions are setting benchmark for others. Like UAW, 33% for 4.5 years, mean 7.3 % per year, I think this support your long GLD/TLT trade
Yes - both Trump and Biden are courting the labour vote - which is why they are appointing much more sympathetic people when it comes to labour policy. And yes, this supports the GLD/TLT view
I would argue that the natural trends to consolidation that happen in capitalism, then breed a populist political reaction to place the "will of the people" over the elite. Or income inequality breed political instability.
Maybe the disagreement is just about different time horizons. While I agree with your view of higher rates in the long term, maybe 20-40 years but we could easily have a bond bull market for the next 6 months. Gold will do well of course too so GLD/TLT will be fine. But, personally I am just long gold and gold equities and don't care about shorting bonds at the moment.
I am not a good trader - so I tend to hold themes. You are probably right - TLT does nothing for 6 months - but when the move comes its big - and if you are not in it you miss it... so I tend to just "short and hold" (i should trademark that!)
Agree with this comment. The spike in M2 money supply is what caused higher inflation during the stimulus years but that’s now over. Agree that longer term factors seem to point towards pro labour policies
Remember there's a lot of supply coming onto the market from the Treasury's new issuance, and the Fed is no longer a buyer. Yields will need to go higher for all this new paper to catch a bid.
Yes - and my view is that in a world of rising wages, Fed doing that will put a fire under inflation assets.
It is remarkable just how excited everyone has become over the latest CPI print as the signal that the Fed is done and the bond market is set for a massive rally. I have probably read 10 articles with this thesis for every article like yours. as it happens, I think you have touched on an excellent deep point, the change from pro-capital to pro-labor policies. that is completely in sync with the populist movement from both sides of the aisle.
the funny thing is, to my mind, if the Fed actually does start to cut soon, then the bear steeper is really going to take off as that means they are going to throw in the towel on inflation. as you have written, higher nominal GDP and high inflation has to be the plan as it is the only one that can achieve any meaningful debt reduction without a jubilee. and I don't think a jubilee will work that well.
I too have been baffled by the mkt's reaction by a very boring CPi print. Still well above the Fed's target too.
Interesting point about rate cuts as an implicit admission that the Fed is abandoning its 2% inflation target. Very plausible.
To my mind, looser credit conditions that don't come from the Fed are a self-defeating prophecy: the looser they get, the more likely it is the Fed will resume hiking.
Large chunk of voting population - boomers - are now leaving the work force. Once retired, presumably they prefer a continuation of pro-capital policies to boost their retirement savings? The US political class is also old and asset heavy. Wonder if it might take another 15yrs to get a real swing toward labor...?
I would forget about that style of analysis. Look at how Republicans are moving to cultural issues and away from fiscal management policies to tell you where the votes are.
A guy like Neil Howe would tell you that the boomers will end up given up some of their social benefits voluntarily within the next 10 years.
Given how well asset markets have done, they can probably take the hit
Russell, thanks for you sharing.
May I know your views on US Labor Unions as well? It looks like they are pushing inflationary pressure, and some big unions are setting benchmark for others. Like UAW, 33% for 4.5 years, mean 7.3 % per year, I think this support your long GLD/TLT trade
Yes - both Trump and Biden are courting the labour vote - which is why they are appointing much more sympathetic people when it comes to labour policy. And yes, this supports the GLD/TLT view
Pro-labour right wing politicians
Where have I heard that before, 1930s Europe? 😱
I would argue that the natural trends to consolidation that happen in capitalism, then breed a populist political reaction to place the "will of the people" over the elite. Or income inequality breed political instability.