FAST FIVE: GaveKal: Markets Are In A Panic, And This Time There Will Be No Happy Ending
Conversely, if the bond market has outperformed, I can go ahead and hedge with long bonds, providing its valuation is not too demanding.
Since May 2019, when the treasury total return/gold ratio fell below its five-year moving average, I have been recommending that investors switch from overvalued bonds to gold as the preferred hedge for their equity exposure (see The Inflation Shift And Portfolio Construction).
But in the last few months, both have powered ahead at the same time.
Specifically, I looked for other occasions when the three-month rate of change for each asset was above its respective standard deviation at the same time.
Structurally, I maintain my call to hedge the equity risk in a portfolio with gold, since bondholders are most likely to be the victims of the next crisis. Indeed, I believe that in the next crisis, trading in some bond markets may be discontinuous, as in Argentina in recent days (see Lessons From The Argentine Shock).