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Post by newtecher on Jan 25, 2023 15:11:46 GMT
As I mentioned in some previous comments, I believe the headline inflation will be low in the next year or so, with YoY prints likely lower than 2% starting in June 2023 in likely through the end of the year. In contrast, the 1-year breakeven inflation (difference between 1 year TIPS and regular treasuries) is now at 2.5%. Is there a way to make a leveraged bet on breakeven inflation rates going lower?
In theory, one could short tips and buy regular treasuries with matched maturity. I tried shorting some STPZ and buying the same amount in matched-duration regular treasury ETFs. However, I end up paying margin interest on these purchases since the short sale proceeds are not fully available.
(I am a total newbie to margin accounts and previously only had one to avoid good faith violations.)
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Post by Chahta on Jan 25, 2023 15:27:10 GMT
Seems like CEFs, leveraged OEFs would suffice. As far as doing it with margin, that is not for me. Plus margin only is allowed in non-tax deferred accounts.
This posted by YBB: "Pg 36, TRADER. STOCKS are trading for soft landing (SP500 fwd P/E 17.1; falling E) and BONDS are trading for recession; the latter may prove to be right.
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Post by newtecher on Jan 25, 2023 15:36:34 GMT
I am already stuffed with long-term ETFs and some CEFs. The question is whether I can do a pure leveraged bet on inflation without interest rate risk (using existing holdings as collateral). I suppose an interest rate swap would do the job but they are only for institutions, I believe.
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Post by richardsok on Mar 1, 2023 0:02:43 GMT
I stumbled across an interesting article on inflation & investing: --------------- Commodities are effective diversifiers and unique compared with other asset classes as they provide a hedge against inflation, says Credit Suisse Research Institute’s Global Investments Year Book 2023. “Historically, commodities have had a low correlation with equities and a negative correlation with bonds, making them effective diversifiers… However, their inflation-hedging properties also mean that, in extended periods of disinflation, they tend to underperform,” the institute said. Pointing to a 2022 study, it said commodity futures portfolios provide the instruments needed to hedge against different types of inflation. ...... The research institute made a study, tracking from 1877, on the monthly returns for 30 futures contracts which began on organised exchanges in the US and UK. The futures showed excess returns for an equally weighted portfolio of futures, turning “water into wine”. “ In every country, and for the world, the excess return on commodity futures dominates the excess return from both stocks and bonds. ( ! ! ! )..... Dwelling on commodities assets allocation, the research institute said it would depend on investors’ tolerance risk. But the optimal allocation for an investor, who is comfortable with a 60:40 risk in equity: bond portfolio, would be 18 per cent in commodities, 60 per cent in stocks, and 22 per cent in bonds.----------- I don't have an opinion on this; thought merely to quote excerpts. For my trading style, commodity ETFs seem too volatile to trade comfortably on technicals, except longer term. To simplify B&H even further, (and assuming the article is correct) I suppose 82% AOM and 18% BCI might work -- if you can stand the volatility. Everyone knows there are long stretches when commods are dead money -- or worse. ENTIRE ARTICLE: www.thehindubusinessline.com/markets/commodities/commodities-are-unique-among-asset-class-provide-hedge-against-inflation/article66555870.ece |
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Post by marpro on Mar 1, 2023 0:14:22 GMT
It is amazing that you linked to my newspaper some 60 years ago, until I left the country some 50 years ago. I was pleasantly shocked to read the URL, and looked carefully. Yes, it was “The Hindu.” I do not read it anymore, but I read the regional edition of the same every day. I have bookmarked the business line now.
The gold was INR55,765/(10 grams). When I got married (1970), it was only INR95.00/8 grams. You can calculate the Indian inflation rate.
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Post by richardsok on Mar 1, 2023 0:56:02 GMT
It is amazing that you linked to my newspaper some 60 years ago, until I left the country some 50 years ago. I was pleasantly shocked to read the URL, and looked carefully. Yes, it was “The Hindu.” I do not read it anymore, but I read the regional edition of the same every day. I have bookmarked the business line now.
The gold was INR55,765/(10 grams). When I got married (1970), it was only INR95.00/8 grams. You can calculate the Indian inflation rate.
I have to say I tried a crude little five minute test, eyeballing BCI chart as a hedge against SPY for varying time periods over the past couple of years and couldn't get it to work as a hedge at all. Longer term, perhaps. |
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Post by bobfl on Apr 22, 2023 14:38:57 GMT
Is there a way to make a leveraged bet on lower inflation?
Inflation down, Fed Fund rates down and
interest rates down, credit instruments up.
Basically when inflation drops the Fed Rate will decline.
The debt (bonds, preferreds, etc.) instruments should rise in price to correlate with the lower interest rates.
However, the Fed Fund Rate could drop because the Fed hurt the economy too much and inflation still could be up.
For a leveraged bet, use a leveraged CEF.
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Post by johnsmith on Apr 23, 2023 15:08:55 GMT
Is there a way to make a leveraged bet on lower inflation?Inflation down, Fed Fund rates down and interest rates down, credit instruments up. Basically when inflation drops the Fed Rate will decline. The debt (bonds, preferreds, etc.) instruments should rise in price to correlate with the lower interest rates. However, the Fed Fund Rate could drop because the Fed hurt the economy too much and inflation still could be up. For a leveraged bet, use a leveraged CEF. I think ZROZ or EDV might be even better. |
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Post by bobfl on Apr 23, 2023 16:05:29 GMT
Is there a way to make a leveraged bet on lower inflation? I think ZROZ or EDV might be even better. The 5 year charts look like you could be right. |
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