May 2024 Newsletter: The Bond Market Is the “Dumb Money” Now

Whereas a leveraged inverse bond ETF (one that is designed to go up if bonds go down) can only be held for short periods of time because it bleeds value, a short position in a leveraged long bond ETF (a fund designed to go down if bonds go down) can be held for years because its gradual loss of value works to the short seller’s advantage. So to bet

Disinflation (which lasted from 1981 through 1997) is bad for commodities but is good for bonds and stocks. Deflation (which started in 1998) is good for bonds and bad for commodities—but is also bad for stocks.

Final Thoughts: Three Pillars Reiterated

I continue to view a three-pillar portfolio as an ideal framework for risk-managed investing.

A classic “60/40” stock and bond portfolio consists of two asset types that both prefer disinflation. Stocks generally prefer disinflationary growth, and bonds generally prefer disinflationary contraction. They’ve bot

There’s no single best way to quantify it, but if I had to point to one set of charts, I would say that fiscal dominance occurs when annual public deficits exceed the sum of annual net bank lending and annual net corporate bond issuance on a sustained basis, especially without having been caused by a recession.