Weekly Update 20220709

Given the precarious position of the markets and the ease with which the new Synthetic Systems version can be updated, why not do an update today? The previous week’s run is posted immediately below for comparison.

Synthetic Systems 2022 0709
Synthetic Systems 2022 0702

6 thoughts on “Weekly Update 20220709

  1. Jk says:

    I don’t see much difference. am I missing something?
    if looks like some nominal increase for commodities and a disaster for equities. I’m holding Dec, Mar and Jun’23 puts and a bunch of tlt and phys, so I’m sure rooting for “s”

    1. Bill Terrell says:

      Not much difference … a week is a pretty small horizontal increment. Just got a lot easier to run though, and considering the market setup might run it every week for a while.

      Note if the forecasts were exactly accurate, the plots wouldn’t change at all … just shift from right to left.

  2. kbird says:

    I wish I had the stomach for it, but I just can’t bring myself to buy 30 year Treasury bonds given my inflation expectations. I know I’ll make money if yields go down, but I just can’t do it. I’m astounded by the predicted really in Treasury bonds which far exceeds what happened in 2020.

    1. Bill Terrell says:

      Your reticence is understandable, kbird … the long term fundamentals for UST aren’t appealing. Bear in mind I’m only stating a medium term opinion based on my take on the fundamentals and SS forecasts … we’re not in the business of giving investment advice.

      There’s a more fundamental problem at work here though. As investors we are forced to choose from the assets on the menu; there is no null option. It’s often just a matter of choosing the least repugnant. And to try and invest without either stocks or bonds involves concentration to extremes in less mainstream asset classes like commodities or currencies. And I for one don’t want to try and navigate the current environment heavily invested in stocks. Gold looks good here too, but a one asset portfolio takes a lot of stomach too. Diversification is the closest thing to a free lunch in investing because the future is never certain … the best we can do is handicap the odds.

      So practice I’m hardly holding just long term UST … just more than my usual allocation, and less than my usual stock allocation. And holding more monetary commodities (gold) and less industrial (copper).

  3. jk says:

    the fed has to keep raising short rates until either unemployment rises or something breaks – e.g. the currently low levels of liquidity in the treasury market dry up completely. since all they can do is punish the economy to reduce demand, that’s what they’ll do to show that they’re taking inflation seriously. unfortunately they can’t print oil or wheat.

    the ongoing high levels of inflation, especially in the necessities, will act as a tax and thus lower demand for other goods and services.

    so they have to create a recession, and given all the leverage in the system it might be a doozy. the 2s10s is inverted by 21bps tonight. looks like a recession is baked in the cake. em might be the first to break, given the rising dollar. europe looks like a disaster in the making- i read that the zurich zaitung published the rules which will govern rationing of natural gas in switzerland when the time comes.

    so it looks like the dollar milkshake will suck in global liquidity as capital seeks cover, and treasury bonds will benefit both from those flows and from the severe slowing of the economy over the horizon. [the futures market is predicting 77 bps of fed hikes by year end, but then easing, presumably as the recession takes hold.]

    i’ve gotten out of commodities [still in gold] and hold about 20% in tlt, as well as out of the money dec puts on qqq, march puts on iwm, and june ’23 puts on spy [don’t ask why the vehicles are different- it’s just a product of what ideas hit me when over the last several months.] the puts are worth a bit under 2%, but of course represent a lot more if the indices go down as i think they will. [also 18% in gold, 20% in real estate and 40% in cash.]

    this is not an optimistic portfolio.

    1. Bill Terrell says:

      Much of the same mind, JK. The latest CPI out this morning (^9.1%!) can only enfirm the Fed’s resolve. I still think though that it’s trailing data … when you look at stock prices and now commodity prices you see disinflation. But I agree it may take a financial “accident” to catalyze a real shift in outlook, and the amount of debt and leverage that’s built up makes it seem likely.

      Positioning wise, maybe a bit more moderate here (partly for tax reasons), but am at about 20% gold (including small positions in copper, silver & platinum), 30% in a globally diversified mix of quality, value, dividend and realty stocks, and 50% in a broad range of UST from zero duration cash out to extended duration zero coupon strips. That includes USD, GOVT, EDV, VGSH, VGIT & VGLT. I prefer the latter to TLT because of lower expenses and the broader coverage of 10-30 years (including the less popular 10-20 year maturity range); yields are higher around twenty years than both ten or thirty years making them a good relative value.

      BTW GOVT makes a great all-purpose UST vehicle now that iShares has cut expenses … it covers 1-30 years at market weight, which means heavier in the short to intermediate range, making it not too wild to have a sizable proportion of your portfolio in, and convenient for making quick allocation changes without having to place multiple trades.