OTW #38: Oil over bonds? | Fed confirms credit event | Move over 60/40 | and more
Important financial stories to check out over the weekend
Hi Antagonist readers,
Welcome to another issue of “Over the Weekend.”
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1. Replace bonds with oil?
Louis-Vincent Gave, co-founder of Gavekal, gave a thought-provoking interview on the latest Macro Voices podcast.
Louis has spent most of his professional life in Asia, which has helped him develop insights and perspectives that are often overlooked in Western markets. His understanding of China is particularly interesting and important.
In this episode, Louis and Macro Voices host Erik Townsend break down several topics including:
China recovery expectations
China/U.S. trade relations
De-dollarization and BRICS
Recent rally in energy markets
Are we headed toward a bifurcated world?
Possibility of Russia “weaponizing” energy prices and its implications
Antagonist’s take
This episode is loaded with insights that can make you a better investor.
I was especially intrigued by Louis’ thoughts on the bond market and oil. He argues that bonds (and the 60-40 portfolio that many people follow) are no longer providing diversification from stocks.
Here are his closing thoughts to the interview:
Before I go, I’d just like to conclude with just one quick idea for you. In this phase of the cycle, where energy prices and gasoline prices are creeping higher at a time when mortgage rates are also creeping higher, it’s rarely a super happy combination.
So, it seems likely to me that things are going to get tougher as we move forward. And portfolio construction is going to be more important than ever.
In this world of portfolio construction, you have to look at every one of your assets and think, okay, what job is this particular asset doing in my portfolio? And the reality is, bonds haven’t done the job for three years. So whatever you have in bonds, you need to rethink and put somewhere else.
Louis now believes that energy is the ultimate diversification. He expects it to continue climbing even as bonds and equities slide.
If you regularly read The Antagonist, you’ll notice that Louis’ thoughts closely align with my energy thesis that I’ve been writing about since last February.
Energy stocks have been some of the best performers in our Blend Portfolio. If you’re not holding any oil or energy positions, I urge you to consider adding them. Check out this free report for more details.
Also, watch episode 3 of the Energy Transition Crisis docuseries by Erik Townsend. Erik discusses actual data—without political agendas or sensationalism—to explain why he’s predicting an oil and gas energy crisis in the late 2020s
2. Fed confirms a credit event is coming.
, the award-winning researcher, fund manager, and editor of , has been warning about a credit event for months.Michael’s research and analysis of leading indicators is some of the best I’ve ever seen. So, when he talks (or writes), I listen!
Michael recently explained how comments from Atlanta Fed President Raphael Bostic confirm that a credit event is indeed on the horizon:
At a recent conference in South Africa, Bostic said the following…
“We have a lot of existing debt out there that is at very low prices. When that comes due, they’re not going to be able to refinance into comparable prices. There’s going to be an adjustment that needs to happen on that. So I actually think there’s a shaking out that’s about to happen at all levels.”
Read that last statement again. There’s a “shaking out” that’s about to happen “at all levels”. That sure sounds like a credit event to me. I think they know it’s coming and they’re going to let it happen.
This is exactly what I’ve been warning about for months, especially the part about refinancing debt. A lot of this short-term corporate debt is about to mature over the next year or two and it’s going to need to be rolled over into debt. Only this time, the rate is going to be about 5% higher than it was before. This was one of the events that I felt was going to potentially push corporate credit over the edge. Bostic essentially confirmed that something like this is coming.
Antagonist’s take
As I mentioned above, Michael is one of the best in the world at spotting conditions that lead to a rally or a crash.
He has already cited multiple economic reports that are signaling a credit event. The quote from Bostic is just more confirmation that conditions are worsening, and we should all be prepared.
On another note, if you’re not subscribed to Michael’s Lead-Lag Report, you’re missing out on insights that can make you a lot of money. I highly recommended signing up.
3. Time to move on from 60/40?
In another compelling and extremely-well researched article, Tavi Costa argues that traditional portfolios of 60% equities and 40% fixed-income assets are overvalued and vulnerable to inflation.
Tavi suggests replacing bonds with hard assets such as gold and commodities.
Antagonist’s take
In a previous post, I shared how and why Tavi believes that gold is a superior alternative to U.S. treasuries. This excellent article builds on those ideas with even more data from both history and our current economic backdrop.
Last thing...
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Thank you for reading, and have a great weekend!
Jason Milton
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