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Okay there have been a lot of questions about why I'm such a "permabear" so let's go ahead and answer those in a convincing manner.
But first, we need to look at the yield curve.
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But first, we need to look at the yield curve.
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This is the yield curve. More specifically, it's a plot of yields that goes like this:
30y-10y (purple)
30y-5y (dark blue)
30y-2y (light blue)
30y-3m (white)
You'll notice there are certain patterns here, and these patterns are the essence of macro.
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30y-10y (purple)
30y-5y (dark blue)
30y-2y (light blue)
30y-3m (white)
You'll notice there are certain patterns here, and these patterns are the essence of macro.
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As we move through these big waves, certain recurring things tend to happen.
To help you orient in time: we are currently somewhere in the "orange slice" phase, and heading toward the "red slice" phase, based on the curve shape.
What happens around here?
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To help you orient in time: we are currently somewhere in the "orange slice" phase, and heading toward the "red slice" phase, based on the curve shape.
What happens around here?
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Let's start with gold since everyone loves it.
Here's gold, below.
Actually that's a bit messy one moment...
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Here's gold, below.
Actually that's a bit messy one moment...
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Okay here it is without the yield curve backdrop.
As you can see - yes, we're likely going into a curve-drive bull market in gold, but should also probably expect some chop before we get there.
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As you can see - yes, we're likely going into a curve-drive bull market in gold, but should also probably expect some chop before we get there.
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Silver is top of mind right now for many people, so let's take a look at that one.
Here's silver, both with the yield curve backdrop and without it:
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Here's silver, both with the yield curve backdrop and without it:
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Now let's look at equities.
Below you can see SPY for that period. This is also a good view to see that these things truly are cyclical - the pattern is evident in the 2000 curve-driven cycle as well, to the left of the orange/red slices that denote the 2008 cycle:
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Below you can see SPY for that period. This is also a good view to see that these things truly are cyclical - the pattern is evident in the 2000 curve-driven cycle as well, to the left of the orange/red slices that denote the 2008 cycle:
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But what about reflation? Well that sort of narrative kind of always happens during these events.
For example, here's copper. Note that it gets chunked hard, then rebounds (orange slice) then gets totally obliterated (red slice).
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For example, here's copper. Note that it gets chunked hard, then rebounds (orange slice) then gets totally obliterated (red slice).
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And it's not just copper either, here's crude oil where you can see much the same pattern in play:
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And just for good measure let's pick something randomly from the softs - how about wheat? That's a popular one.
Same story, basically:
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Same story, basically:
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These reflation narratives come and go each time, and people are drawn in every time by the price action, like moths to a flame.
We can also see it in TIPS:
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We can also see it in TIPS:
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I'd be remiss not to show my favorite asset, the almighty Dollar.
Yes, rumors of its death are *always* greatly exaggerated, as @SantiagoAuFund likes to note:
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Yes, rumors of its death are *always* greatly exaggerated, as @SantiagoAuFund likes to note:
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And what of the Dollar's cousin, the long bond (the one that @MetreSteven and I like to prattle on about)?
Here we go - I've added the multi-decade channel to this one for funzies:
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Here we go - I've added the multi-decade channel to this one for funzies:
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Finally, let's look at the VIX for fun.
You can see it's relatively common to have a VIX spike, then enter a "high volatility regime" for a bit (where VIX stays elevated) and then after that have the mother of all VIX spikes to break records:
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You can see it's relatively common to have a VIX spike, then enter a "high volatility regime" for a bit (where VIX stays elevated) and then after that have the mother of all VIX spikes to break records:
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So my cute little bulls - get out there and enjoy this ripper while it lasts, the surf is definitely fun to ride.
But remember: winter is coming. It always does.
And it's likely not far off.
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But remember: winter is coming. It always does.
And it's likely not far off.
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