Gold and TIPS - I got the horse right here
Week Of Aug 3 – The main immediate thing of concern is
future of bonds. The 60/40 golden bough does not hold with bond yields going up
(but bond prices going down) and even the risk averse are piling onto
equities/stocks.
This is a multiyear chicken coming home to roost, as interest rates have been skimming the surface for a long time. Nobody on Wall St minded – different for ma and pa on the farm with a dwindling next egg that used to just generate enough to live on.
Unless the US goes to negative interest rates – and why
should this notion be summarily dismissed when it is in place in Japan and
Europe already? -- bonds are stuck.
Bonds yielding at zero.. which is where they just about .. are have no room to
move lower, as Barron’s Randall Forsythe points out.
He takes his cue from Bob Prince of Bridgewater Assoc. which
sees this as the most important topic facing all investors today - how to manage
money in a zero interest rate environment. The familiar cushion of bonds as a
diversifier in a downturn and recovery is no more, they say.
The wags we turn to here conclude that interest rate shifts are dead and the only way out is stimuli de gobierno!
The long and the short of it is that Bridgewater backs swaps
from nominal bonds to inflation-linked
(IL) bonds, high quality stocks that go some magic selection filter, gold and geographic
diversification.
Less of concern but also related and on the radar: how much
farther up gold and precious metals may go. Gold and treasuries paused last
week as the S&P500 neared its prePandemic peak. Value stocks caught some
wind, not much. Barron’s Forsythe suggested that if confidence in recovery
takes hold, rotation to value stocks could finally happen. I don’t see
confidence, I see irrational exuberance. But whether value happens or not, I
agree with Forsythe that big indexes could lag.
Any way, the good news is I got through this whole thing without saying COVID. - B.B.
Forsythe Forsooth - Barons
Deep dive on what zero means Bridgewater site
Or watch the video below.
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