TLT? from Michael Brush

August 29, 2023 |

Who is buying TLT [as of 18 Aug]? Raise your hands.

Nils Poertner responds:

could be a fab trade. What are the odds that in the next downturn some of the US Tbonds would have zero or even neg yields? It is not impossible at all And Knowing how those CBs have to try ever harder, and mkts tend to overshoot then.

Big Al comments:

The thing about Treasuries at this point is that the probability that the Fed will raise rates much farther from here is very low. Much more likely is that rates stay in the current area for a while, maybe even 2-3 years, and then come down a couple hundred bps. So you're getting a nice coupon while you wait for the Fed to lower rates. There is the opportunity cost, but one assumes you factor that in one way or another.

Nils Poertner replies:

Maybe. The way to make a killing in mkts is to play with scenarios. Whether the consensus belief is misguided and there are good reasons /signs for a meaningful move (does not always have to be inn the other direction, can also be in the same - just more extreme).

Eg. remember the discussion (also here in this group before inflation really took off.. "Only a bit of inflation vs More Pronounced." And how it really unfolded. I just asking qn - don't have the answers.

Jared Albert writes:

I'm not a macro person, but the theory that China is selling treasuries to support the Yuan seems to have legs given the relentless quality to the selling IF the fed is done or nearly done raising. Especially since until now the longer bonds haven't moved very much.

William Huggins adds:

Chinese money supply has been on an expansive tear for over a decade (since 2008?) So no surprise the limits of cash to activity would eventually be breached. Inflation by its other name (devaluation). Youth unemployment is in the range that Spain peaked at during the euro-crisis. Not a good time to "ride the dragon" (Evergrande finally blew up too).

Michael Brush responds:

The main important role of China in this equation is that its economic weakness is putting downward pressure on U.S. prices.

Big Al offers:

Another option is to buy dividend-payers.

Michael Brush comments:

Ha what fool wrote that. RILY, nice yield and insider buying. Market sensitive in the early stages of a new bull market.

Comments

1 Comment so far

Lon Evans on August 31, 2023 10:02 pm
Hey guys, I’m baaaaaack!

So it’s been more than a decade, and, yeah, I’m still vertical. So anyway, regarding TLT, a lot of talk concerning China. Kinda pointless. As with the GFC and the housing collapse (you know, the one the room ridiculed me for calling), the room misses the pertinent aspect. China’s will do what China’s been doing for the past two decades…., obfuscate. And with totalitarian overreach, it will do it with abandon.

What we might discuss it the collapsing U.S. consumer. Any discussion regarding potential speculations, of any type, must focus on this cohort. With 2/3 of the economy anchored to our addiction to consume, a pullback in the impulse poses potentially catastrophic consequences for the economy at large.

I’ll call it now (and no doubt, suffer slings and arrows). The U.S. consumer is tapped out , both in savings and credit. I needn’t elaborate. There’s enough intellectual depth in the room to understand the implications. So as for TLT, when the Treasury must sprint to the well for the buckets of trillions it will argue are an existential necessity, and with the China reveling in its disinterest, who will pick up the slack? Zimbabwe???

Hang on, it’s gonna be a wild ride.

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