This morning the bond carnage/stock melt up continues in earnest. Although I try to focus on longer term themes, I can’t help but comment on the potential for a short term reversal of this trend.
It is month end, and while many sophisticated investors don’t automatically rebalance on this arbitrary calendar date, many still do.
Pension plans and other multi-asset managers are faced with one of the most dramatic months of relative performance between stocks and bonds.
As many of these managers run a fixed weight stock/bond mix, they will be forced to sell a whack of equities and buy a boat load of bonds to rebalance their portfolios.
I have seen various estimates tossed around about the size of these flows. I don’t think the specifics matter all that much. They are big. That’s all we should concern ourselves with.
I know the good economic news keeps pushing bonds down and squeezing investors into stocks. This morning was no different with the positive ADP jobs surprise and the OPEC deal.
But at this point, the move is getting late. And with pension funds and other fixed weighted managers eager to rebalance, I think it is foolish to be reaching for stocks or pounding out new bond shorts down here.
If you want to put that trade on (long stocks/short bonds), take a breath, go for a walk and wait a day or two. If you are a nutbar and want to fade this move, then for the nimble trader, I think this morning offers a great opportunity.
One quick note before I sign off. Everyone hates gold again. No need for me to dwell on all the reasons, but I want to highlight that my favourite closed end gold/silver fund has once again blown out to an 8% discount.
I bought some Central Fund yesterday. I like gold/silver down here, and I especially like it at an expanded discount to NAV.
Thanks for reading,