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‘The Better 40’
Is 60/40 well and truly dead?
I doubt it. First of all, 60/40's a religion. A religion organized around a correlation assumption that says bonds can cushion an equity portfolio during periods of turbulence. That assumption was undermined in the 2020s, when macro developments drove up inflation, activated monetary policy and undercut bonds. Far from being a stabilizer, bonds were a source of portfolio volatility. But religions aren't so easily dislodged as all that, religious zeal being generall
Seem to me the bonds vs commodities choice may reflect one’s views on
1. Inflation and interest rates.
2. De-globalization and re-Balkanization.
3. Geopolitical conflict, Cold War II.
Of course these are all related. As countries or blocs bring their trade flows home, prices for goods will go up; similarly, as global financial flows retreat with trade flows and rising distrust, prices for money should go up.
Then there is the oft-called-for commodity supercycle based on green responses to climate change, and the equally-oft-called-for commodity downcycle based on global recession. Interestingly, those seem related too – if #1-3 above come to pass, will countries care as much about climate change as won’t they be more often in recession?
In the short term, November feels like a major factor, with so-called “Trump trades” often heavy on inflation and commodity exposure. In the longer term . . . well, maybe we should just see what happens in the next three months.