Questions Linger On Future Of 60:40, Risk Parity, While Record-Low Treasury Vol. Catches Gundlach’s Eye
Over the weekend, I asked if it was over for 60:40 and risk parity funds.
And, really, that's giving myself too much credit. Lots of folks have asked that question this year. It's hardly innovative thinking on my part.
The problem, for those who missed it, is that with yields as low as they currently are, it's possible that bonds won't be as effective a hedge in multi-asset portfolios. In addition to the ostensibly limited scope for bonds to rally, the market’s sensitivity to monetary policy
I wonder: How much does the slow grind down in yields have to do with the largest, wealthiest cohort in the country’s history slowly but surely deciding to pack it in? That’s a lot of disposable income that won’t be going into the regular economy. Deflationary in a fairly serious way, no?
There is no perfect hedge. All have flaws. A better allocation might include gold and cash if you are looking to cover all the bases. Maybe even options. But they all have a cost. As an investor rather than a trader, do I care about 9 days? Or is it more important to care about 60 days or longer?
What about income? I guess it’s time for our Boomer parents to start liquidating, to use capital to live on.
“Impaired,” you think?
Will Treasurys even be an asset class any longer? Another leg higher, maybe nudge into negative-rate territory, then what? Get out of them and go into BTC and gold? It’s pretty much going to be a multi-trillion dollar market that is not investible (unless you’re a bag holder). Fed to the rescue.
Rates aren’t going to magically bounce back up for Treasurys. Maybe never again in my lifetime will I see rates at fair/customary levels. What will any of us do for income in retirement, sell roasted chestnuts?
Wait for it…..long term vix futures ETFs. Probably already exists