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Macro Insights/Report: Where is TLT going?
Views on bonds
Most days I get questions regarding WHEN to buy bonds.
If there has been one thing I have learned since COVID it’s that interest rates can rule the world.
Who is the most powerful person in the world? Is it the president or Powell? Honestly, I don’t know.
I will say this, nations rise and fall because of interest rates!
Here is the TLT chart:
We came off an extreme in deflation during COVID and moved to an extreme in inflation during 2022. However, a peak in inflation doesn’t necessarily equal a peak in interest rates.
Remember there is the real rate function and inflation expectation function in nominal rates:
If you want to dig into this tension more check out the bond primer I wrote:
What am I looking for to know WHEN to buy TLT? There is a combination of signals:
We need to have a clear regime shift from stagflation to a regime where interest rates can be cut.
How do we know when we are in this regime? When interest rates are more about offsetting a negative growth impulse as opposed to fueling an inflationary impulse. For this to occur, we need to see the dominant impulse in markets shift from inflation to negative growth.
The second thing is a clear BULL steepening in the yield curve. This means a steepening driven by interest rate cuts.
Third, an expansion of credit risk and a negative stock-bond correlation. This means seeing a clear bid to safety at the EXPENSE of stocks.
Fourth, a pronounced, pervasive and persistent indication from economic data that growth is slowing. It is interesting to see the market sell-off on the positive GDP print this morning because these types of price action signals typically occur at inflection points. However, we would need to see additional evidence before there was a clear indication that we are in a regime shift.
Getting these moves in markets is critical to nail and why following it so closely can pay dividends:
In the information age, you simply need to be at the right place, at the right time, with the right information to succeed
You can check out the macro report I wrote for a breakdown of my analysis on this:
Thanks for reading!