On a day like today where Bernanke’s mandate of “price stability” is violated to the upside on the order of ~3-4% (S&P 500, Russell 2000, crude oil), it helps to have a repeatable multi-factor, multi-duration risk management process to contextualize such moves beyond merely attributing performance to a fictional character tasked with spurring consumerism via holiday cheer.
To that tune, the long end of the Treasury bond market continues to suggest to us quantitatively that the global growth/inflation/interconnected risk outlook for the short-to-intermediate term has not changed. All that’s changed are market prices (to inconsequential levels) and the latest batch of consensus storytelling. As such, we’ve taken this wonderful opportunity to continue Fading Beta by purchasing long-term Treasury bonds via the TLT ETF in our Virtual Portfolio.
Until a) long-term Treasuries sustainably break down through any of our three risk management levels and b) the Treasury market stops being a leading indicator for U.S. equities (it has led domestic equities lower in every economic slowdown since 2007), the gentleman (and ladies) of Hedgeye will continue to prefer bonds.
Buy low. Sell high. Fade Beta – for now, at least.