These ETFs seem better than leveraged ETFs, for reasons related to the excessive trading by leveraged ETFs.
I see multiple reasons why bonds are likely to be bad investments over the next few years:
AI is likely to drive up real interest rates, by making capital more productive.
AI-induced job loss might cause the Fed to be less concerned about inflation.
AI-induced job loss may reduce tax revenues, so the government will need to sell more bonds.
Trump is pressuring the Fed to adopt policies that would cause inflation.
If AI doesn’t increase GDP growth, there are increasing doubts about whether the US is responsible enough to keep servicing its debt.
In the past couple of months, some commodities have shown price surges that look more like a harbinger of inflation than like stable monetary conditions. See copper, silver, DRAM, and lithium.
Markets may be efficiently pricing a few of these risks, but I’m pretty sure they’re underestimating AI.
I’ve been shorting t-bond futures, currently 6% of my net worth, and I’m likely to short more soon.
Do you have an opinion about what maturity is best to short?
(My first thought is that if you have a view about what interest rates will do over the next 5–10 years, then you should short 5–10 year bonds. But I’m not sure that’s right.)
I haven’t given that a lot of thought. AI is likely to have the strongest effects further out.
A year ago I was mainly betting on interest rates going up around 2030 via SOFR futures, because I expected interest rates to go down in 2025-6. But now I’m guessing there’s little difference in which durations go up.
“AI-induced job loss might cause the Fed to be less concerned about inflation.”
This sounds more bullish bonds because low inflation concerns → fed can cut. Also (more importantly) the fed has a dual mandate so low employment → cut.
These ETFs seem better than leveraged ETFs, for reasons related to the excessive trading by leveraged ETFs.
I see multiple reasons why bonds are likely to be bad investments over the next few years:
AI is likely to drive up real interest rates, by making capital more productive.
AI-induced job loss might cause the Fed to be less concerned about inflation.
AI-induced job loss may reduce tax revenues, so the government will need to sell more bonds.
Trump is pressuring the Fed to adopt policies that would cause inflation.
If AI doesn’t increase GDP growth, there are increasing doubts about whether the US is responsible enough to keep servicing its debt.
In the past couple of months, some commodities have shown price surges that look more like a harbinger of inflation than like stable monetary conditions. See copper, silver, DRAM, and lithium.
Markets may be efficiently pricing a few of these risks, but I’m pretty sure they’re underestimating AI.
I’ve been shorting t-bond futures, currently 6% of my net worth, and I’m likely to short more soon.
Do you have an opinion about what maturity is best to short?
(My first thought is that if you have a view about what interest rates will do over the next 5–10 years, then you should short 5–10 year bonds. But I’m not sure that’s right.)
I haven’t given that a lot of thought. AI is likely to have the strongest effects further out. A year ago I was mainly betting on interest rates going up around 2030 via SOFR futures, because I expected interest rates to go down in 2025-6. But now I’m guessing there’s little difference in which durations go up.
“Trump is pressuring the Fed to adopt policies that would cause inflation.”
That’s more cleanly expressed as a curve steepener (front lower, back higher), so bullish short end vs bearish back.
“AI-induced job loss might cause the Fed to be less concerned about inflation.”
This sounds more bullish bonds because low inflation concerns → fed can cut. Also (more importantly) the fed has a dual mandate so low employment → cut.
That’s mostly bearish for bonds because it increases inflation.