I learned to read at 22 months old and it is the main reason I am where I am today.

Global bond markets are blowing up. It feels to me like the crowd that tells us this isn't about fiscal stress is the same crowd that was rearranging the deckchairs on the Titanic. You think it's AI investment driving yields in France and Italy vertical? robinjbrooks.substack.com/p/…

what’s wrong babe ewe’ve baaaarely touched your tiramisu

A timely Bberg quote

We are excited to announce Simplify’s sixth annual Entering the Fall thought leadership event, streaming live from the @NYSE on October 21! Entering the Fall is a gathering of select financial and economic thought leaders to discuss the current economic environment, market landscape, and investment outlook. View the agenda and register for the live stream. Link in the reply.

This paper finds that 90% of the observed rise in the 10-year US Treasury since August 2020 has occurred in the three-day window around US payroll reports or speeches by top Fed officials (the chair, vice chair, or Waller), which accounts for just 24% of trading days The paper finds those days are responsible for 81% of the rise in markets' expected average short-term rate over the next 10 years, which means this isn't about investors getting nervous about holding long-term debt and is instead about markets revising their view of short-term rates.

HARD ASSETS COMPLETE THE INVESTOR TOOLKIT A stock-bond-cash book is three ways of being short inflation. Conventional wisdom around “diversification” fails in a specific way: equities, bonds, and cash are all short inflation. If your “diversified” portfolio is some mix of those three you are running a stacked bet that inflation stays contained. That totally worked for decades, but the world has changed. Map the main financial asset classes by the big macro exposures that drive long-term results — growth, inflation, and exposure to the cost of liquidity. (See table below). Cash and gold help because they expose you positively to the cost of liquidity going up. They are dry powder for the moments when risk premia rise, the cost of capital goes up, and your remaining liquidity has more pricing power. I view the return drag from an allocation to those liquid reserve assets as an option premium you pay for the possibility of having more pricing power at some opportunistic point in the future. Often worth it. Commodities and real assets also belong in the mix. They are the only mainstream sleeve that is both long growth AND long inflation, and often they work better than stocks do (like this year). They also diversify your growth exposure across the mix of global economic activity, unlike the concentrated tech bet that US stock indices now represent. Upstream production assets, infrastructure, and the liquid commodities are how you stop the whole book from being an implicit short of the physical economy, when the physical economy is gaining pricing power vs the financial and virtual economies downstream in the supply chain. If you want an adaptive total portfolio approach rather than rigid sleeve targets, every dollar of allocation has to continuously earn its place by what it does to the profile of the whole book. Without real assets in the available toolkit, you cannot engineer the exposures you may need across regimes, and “stay diversified” is just a nicer way of saying “hope the inflation short keeps working.” If inflation rises and liquidity gets scarce, what in the book is supposed to pay you, and how do you preserve dry powder to buy future bargains? Real assets matter.

Of note from Dollar General yesterday but I guess nothing we didn't already know: “But the interesting thing with this economy, because of the other sustained headwinds of inflation over the years that have passed, even that middle to upper middle is acting more like a lower income shopper these days. And they have that same characteristic. That high income for us is that $100,000 plus crowd. I would tell you, we’re hearing more and more from them is I don’t feel like I’m higher income at $100,000 any longer because of all of the headwinds that I just mentioned.”

Anyone else see a theme? US10Y >5%, HIGHEST SINCE 2007 US30Y >5.4%, HIGHEST SINCE 2004 JAPAN 10Y =3%, HIGHEST SINCE 1996 UK10Y >5.4%, HIGHEST SINCE 2007 FRANCE 10Y >4.5%, HIGHEST SINCE 2008 GERMANY 10Y =3.5%, HIGHEST SINCE 2009

Long yield spiking.