Bonds, Inflation & Amigos

I’d like to put the bond segment right here after the US stock segment because bonds/yields are so important to sector selections in stocks.

As noted at the site on Thursday I took the bird in hand (profit on combined price and distributions) of the longer-term bonds funds (3-10yr) held in favor of long-held cash equivalent T-Bill funds (SHV) and a far smaller position on 1-3 year Treasury funds (SHY). SHV is after all, going to keep pumping out reliable monthly income that improves with every Fed rate hike.

If this were October 2008 or March 2009 I’d say sure, cash is trash because risk vs. reward in stocks was very positive. But with the combination of a mature stock bull market showing signs of volatility and a rising Fed Funds rate the opposite situation is at hand… cash is not trash.

On the longer-term bond picture, while anti-bond sentiment had built up to a degree perhaps sufficient to propel TLT to its 200 day moving average (black) the pump to the 50 day average was fine for me to get off the contrary bond bounce play, at least actively using my own funds. Point proven… you get a triumvirate of experts pumped at you day after day by the media, you prepare for a contrary outcome. That manifested in a bounce.

tlt

But what of inflation? What of deflation for that matter?

Affixing the Tin Foil Hat

It is the age old story as a deflationary force pulls the macro toward its gaping maw (of debt reconciliation) and valiant (some, like your letter writer would say manipulative and immoral) policy makers, both at the Fed (monetary) and in politics (fiscal) try to forestall it by pumping ever more inflationary policy into the system.

That my friends is where the disparities of society come from; the unending supply of inflationary policy always at the ready to drive asset prices in one casino or another. But in order to benefit, you have to have a seat at the table. The poor and middle class do not have seats, at least not with the high rollers.

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