Everyone in my business is consumed with beating the market. What if I told you I knew a sure fire way to beat the market? It’s simple really. Buy the SPY, the S&P 500 ETF, on margin. You’ll beat the market. You will also lose more on the downside of course. This helps put it into perspective. We’ve had a one way game since 2009, now running into one of the steepest and longest bull markets in history. Perhaps we started from a low base after the crash of 2008. Perhaps we have benefited from zero interest rate policy of the Fed that have inflated asset prices. One thing is for sure, bull markets don’t last forever. At some point beating the market will mean losing less.
My guess is that the unforeseen end to the bull market will be a sudden and unexpected uptick in inflation that alarms the bond market and prematurely ends the friendliness of the Fed. If zero interest rates were truly a beneficial policy, why haven’t we been doing this forever? There will be a price to pay for “free money”. It’s inflation. It’s coming as sure as sunrise tomorrow.
We will put back our trade short the 20 yr Treasury (TLT), long an equal amount of TIPS Monday, as they go ex dividend and I don’t want to pay the richer dividend of the TLT until the trade is in roaring fashion.