Down goes the Dow

Igy, you should probably just call it a day.

Oh, just in case you stock bulls missed it GLD and TLT have outperformed.

Ghost of Igloi wrote:

Oh, just in case you stock bulls missed it GLD and TLT have outperformed.

Sometimes I think there is an inflation trade building, with rallies in gold and copper and TIPS.

But long term bonds are also rallying, which they shouldn't, if inflation is building.

Probably I'm missing something like the dollar's influence on all this.

But gold seems to me to be a good trade going forward...all this new debt should weaken currencies and spur inflation. And interest rates are low, which helps gold too.

I'm leaning into TIPS too, in case all these trillions of new dollars start making a difference.

“Assuming a large percentage gain in economic activity in the second half of this year, the Fed, the World Bank and many economists project that there will still be a substantial gap between potential and real GDP. In economic theory, this is called a deflationary gap. At the end of the three worst recessions since the 1940s, the output gap was 4.8% in 1974, 7.9% in 1982 and 6.4% in 2009. The gap that existed after the recession of 2008-09 took nine years to close. This was the longest amount of time to eliminate a deflationary gap. Even when the gap was closing over the last decade, the inflation rate continued to trend downward, remaining near or below 2%. This indicates that there were even more unutilized/underutilized resources than was captured by the magnitude of the gap. Considering the depth of the decline in global GDP, the massive debt accumulation by all countries, the collapse in world trade and the synchronous nature of the contracting world economies the task of closing this output gap will be extremely difficult and time consuming. This situation could easily cause aggregate prices to fall, thus putting persistent downward pressure on inflation which will be reflected in declining long- dated U.S. government bond yields.“

—Van R. Hoisington Lacy H. Hunt, Ph.D., Hoisington Asset Management Q2 2020 Letter

Better than stocks:

https://www.marketwatch.com/investing/fund/whosx

Ghost of Igloi wrote:

Better than stocks:

https://www.marketwatch.com/investing/fund/whosx

it's a long term bond fund...that's a typical return for a fund with a duration of 21, as it has.

SPTL is an etf that has similar performance.

unrepeatable performance, of course, unless we have severe deflation.

OK. I just find Lacy Hunt to be one of the more interesting and cogent fixed income commentators. You mentioned inflation/deflation and I pulled this up.

gold up almost 9% in 13 days.

the EU and US throwing new trillions out of choppers is starting to scare people.

agip wrote:

Ghost of Igloi wrote:

Better than stocks:

https://www.marketwatch.com/investing/fund/whosx

it's a long term bond fund...that's a typical return for a fund with a duration of 21, as it has.

SPTL is an etf that has similar performance.

unrepeatable performance, of course, unless we have severe deflation.

Interestingly, both funds have a similar average effective maturity; SPTL-25.06 and WHOSX-25.27, yet their average effective duration; SPTL-19.47 and WHOSX-21.93. WHOSX's portfolio is 46% treasury strips ( zero coupon ). E.g., a 20 year treasury bond at 1.1% has a duration of 18.06, if you were to create a treasury strip out of that bond the duration will be 20. Here's a chart of 20 year treasury rates and the price of a 20 year strip.

At 1.1% a treasury 20 year strip will gain 22.07% with a 1% drop in rates and lose 18% with a 1% increase.

agip wrote:

gold up almost 9% in 13 days.

the EU and US throwing new trillions out of choppers is starting to scare people.

ack scratch that - I was looking at the wrong numbers.

Gold up almost 6% in two weeks.

11% in 6ish weeks.

using GLD as a proxy

agip wrote:

Ghost of Igloi wrote:

Oh, just in case you stock bulls missed it GLD and TLT have outperformed.

Sometimes I think there is an inflation trade building, with rallies in gold and copper and TIPS.

But long term bonds are also rallying, which they shouldn't, if inflation is building.

Probably I'm missing something like the dollar's influence on all this.

But gold seems to me to be a good trade going forward...all this new debt should weaken currencies and spur inflation. And interest rates are low, which helps gold too.

I'm leaning into TIPS too, in case all these trillions of new dollars start making a difference.

Re inflation, watch unit labor costs.

another view

la gente esta muy loca wrote:

agip wrote:

Sometimes I think there is an inflation trade building, with rallies in gold and copper and TIPS.

But long term bonds are also rallying, which they shouldn't, if inflation is building.

Probably I'm missing something like the dollar's influence on all this.

But gold seems to me to be a good trade going forward...all this new debt should weaken currencies and spur inflation. And interest rates are low, which helps gold too.

I'm leaning into TIPS too, in case all these trillions of new dollars start making a difference.

Re inflation, watch unit labor costs.

https://fred.stlouisfed.org/graph/?g=tjto

another view

https://fred.stlouisfed.org/graph/fredgraph.png?g=tjtT

how does all the stimulus factor into this? Is it old fashioned to think that too many dollars chasing too few goods will cause inflation?

I mean...TIPS are flying, and gold is flying, and copper is flying, and silver is absolutely soaring. Even timber is doing ok.

These are inflation trades...something is going on.

Could just be a hedging move...for those who need to own stonks, they need something harder to hedge the risks there. And have less to do with inflation than I think.

agip wrote:

how does all the stimulus factor into this? Is it old fashioned to think that too many dollars chasing too few goods will cause inflation?

Read this recently: “The only problem with creating money is that it might cause inflation, as more paper and electronic dollars chase a slowly growing supply of goods and services. This is what caused hyper-inflations in smaller countries in the past. In the past decade, no matter how many securities the Fed has purchased, inflation has remained stubbornly low, breaching 2% only when oil price run-ups occurred. The mechanisms that drove inflation in past decades don’t seem to be working the same way anymore, and for that reason it appears that inflation is going to remain low for some time to come.”

J. Hardy wrote:

agip wrote:

how does all the stimulus factor into this? Is it old fashioned to think that too many dollars chasing too few goods will cause inflation?

Read this recently: “The only problem with creating money is that it might cause inflation, as more paper and electronic dollars chase a slowly growing supply of goods and services. This is what caused hyper-inflations in smaller countries in the past. In the past decade, no matter how many securities the Fed has purchased, inflation has remained stubbornly low, breaching 2% only when oil price run-ups occurred. The mechanisms that drove inflation in past decades don’t seem to be working the same way anymore, and for that reason it appears that inflation is going to remain low for some time to come.”

Here's the thing though - what are the "too few goods?" It's not oil, cheap plastic toys and trinkets, or even food and other regular consumer items.

Housing supply is certainly diminishing and the lack of supply combined with everyone trying to gtfo of cities certainly reflects in housing prices. Equity prices are inexplicably high considering the GDP forecast we're expected to hit at the end of the month but again, every investor in the world wants to park their money in the US to some capacity.

Metals are only partly inflation plays, it depends on how you invest.

I am still riding my 3-fund portfolio, and absolutely killing it—however, I am not proud of it. Like in The Big Short, I am making a killing off collapse, off the demise of others. I have essentially been shorting the USD with 2 funds, foreign RE, and foreign currency. I will diversify into some foreign stocks, but there already are some in the 2 funds.

Bond funds are just as much of a joke as are most US stocks, maybe more. Get out now. I have told you many times, something has to give, and that something will be, and is, the dollar.

Evidently parking a lot of money here:

https://thefelderreport.com/2020/07/22/if-that-was-a-bubble-whats-this/