Global Macro Trading Journal
- Thread starter Daal
- Start date
Short Apr ZQ (fed futures) 99.285
The Fed might want to hike now instead of later because of the issue of no press conference (and econ projections) in the meeting after march (since it alternates). inflation is so high, they might want to take some insurance.
and I'm getting odds for this bet (% chance of a hike is less than 50%)
plus this will help me 'hedge' a little my US bond, gold and EM stocks exposure (neg correlation)
The Fed might want to hike now instead of later because of the issue of no press conference (and econ projections) in the meeting after march (since it alternates). inflation is so high, they might want to take some insurance.
and I'm getting odds for this bet (% chance of a hike is less than 50%)
plus this will help me 'hedge' a little my US bond, gold and EM stocks exposure (neg correlation)
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Mnuchin said to Becky Quick that they are considering a 50y or 100y UST bond. That bond will be either the greatest thing ever or it will be the worst thing ever. I love the idea of capital efficiency of such huge duration bond. So if someone has 30% of their assets in 10y bonds, they can own instead something like ~6%-8% in 100y bonds and get a similar exposure. Freeing up a lot of cash for other uses (while still retaining 'balance' between bond duration/stocks and gold in a all weather fashion).
But at the same time, if the US has a fiscal crises down the line, that bond can be hurt big time. There is a fair amount of curve risk as well. So I dunno, but I do like the fact that the bond (and the option to get involved with it) will exist
But at the same time, if the US has a fiscal crises down the line, that bond can be hurt big time. There is a fair amount of curve risk as well. So I dunno, but I do like the fact that the bond (and the option to get involved with it) will exist
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Interesting chart.
I mentioned in the past that I believe equities and real estate are more resilient than bonds (and bonds are more vulnerable to uncertainties). It sounds crazy but this chart shows that well, the best countries on earth have 4 bond markets with negative returns (after 117 years!), no equity market with losses (even in the countries that suffered huge shocks which lead to negative bond losses due WW2).
If you include shittier countries (where inflation is main problem not deflation), bonds will do even worse vs stocks and real estate as the latter two have an inflation hedge component in them.
In fact, I suspect bonds have negative real returns if you put every country in there, and if its positive, it ain't by much
Of course, that 'resiliency' depends on the market price. If bonds were priced lower, they would protect the investor against shocks more than they did in the past 117 years. So I guess what I'm saying is that its possible that bonds are consistently overpriced relative to the tail risks that might affect them. Whereas stocks, aren't as much.
I guess this is the issue of the Black Swan problem, people think they can ignore tail risks and then one day they blow up. Its easier for that to happen in bonds because there is not much margin of safety (risk premiums are super low there) while in stocks and real estate risk premiums tend to be higher and hence protect the investor against future shocks
So yes, one can have huge drawdowns in stocks, but that's fine because the asset class is already priced in a way that takes that possibility into account. In bonds, huge drawdowns SHOULD NOT happen (but they do), because the way the asset class is priced, a huge drawdown is pretty much a terminal event
I guess this is the issue of the Black Swan problem, people think they can ignore tail risks and then one day they blow up. Its easier for that to happen in bonds because there is not much margin of safety (risk premiums are super low there) while in stocks and real estate risk premiums tend to be higher and hence protect the investor against future shocks
So yes, one can have huge drawdowns in stocks, but that's fine because the asset class is already priced in a way that takes that possibility into account. In bonds, huge drawdowns SHOULD NOT happen (but they do), because the way the asset class is priced, a huge drawdown is pretty much a terminal event
I believe its adjusted for inflation, Credit Suisse (which is the source) adjusts all returns for inflation. Its worrying but I guess not surprising. If there is one asset class that should behave like this it is bonds
It offers the lowest risk premium but the highest 'stability'. Its not a surprise to see that people get sucked into it and then face huge losses sometimes (that is, that they might consistently overprice bonds)
Stocks are volatile so it gets priced in a way that takes into account that volatility, real estate too. Usually their real risk premiums will be quite high, high enough that if someone loses 70-80%, you can still make it back in their lifetime. In bonds, the risk premiums are so low that if a tail event happens (70-80%+ loss), it takes several lifetimes to make it back
So in that sense, stocks and real estate are a lot more resilient to an uncertain world than bonds. The fact that some bonds are at 0% or even negative going out several decades is simply absurd
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