End of the Fed put and the death of the 60/40 hedge
Excess Fed liquidity is being absorbed by the real economy, so less capital is left to bid up equities.
When the Fed creates liquidity, residual money that the real economy does not absorb has long flowed into stocks. With growth holding and prices rising, that residual is shrinking, so the post-2009 buy-the-dip liquidity regime no longer underwrites portfolios the way it once did.
| Instrument | Side | Target | Reason |
|---|---|---|---|
| GLD | Long | With the policy backstop weaker and fiat claims under pressure from rising real absorption of liquidity, assets that cannot be printed offer a cleaner hedge than duration or equity beta. | |
| XLE | Long | Energy is a real-economy claim that benefits when growth and prices keep absorbing liquidity and when printed financial claims lose relative appeal as the only portfolio hedge. |
US fiscal math and rising global term premia push yields higher and break the traditional bond hedge.
Washington collects about five trillion and spends seven and a half, with roughly forty trillion of on-balance-sheet debt and far larger off-balance-sheet promises. Lending for ten years near four and a half percent while inflation runs above three is unattractive, so fair yields sit closer to five and a half to six. Japanese yields at multi-decade highs also pull capital home from US markets. In a debasement-and-deficits regime, bonds are hit first rather than acting as a diversifier, so the classic 60/40 mix no longer works as designed.
| Instrument | Side | Target | Reason |
|---|---|---|---|
| TLT | Short | We believe long-duration Treasuries are mispriced if fair ten-year yields belong nearer five and a half to six while fiscal supply stays heavy and global funding costs rise, so long-bond proxies should reprice lower as yields grind higher. |
Themes
The content on this page is for informational purposes only and does not constitute financial advice. Stoquate is not a licensed financial advisor. Always conduct your own research and consult a qualified professional before making any investment decisions.