How do you play a peak in real yields Sure i get this question a lot um you Know and the two the most traditional Way people look at it is either do you Go long tech or do you go along gold Because those two have historically had The most inverse relationship with real Yields and in my view i think going Along gold is a much better play For a peak in real yield rather than Tech and uh and the key here is you know Real yield could be going down either Because of a dovish fed or because of Rising recession risk right and and for Tech if it's rising recession risk that Doesn't bode well for tech as a cyclical Sector so for us Looking at upside and gold and you have Seen in the derivatives market more Demand for upside in gld options for Example to play that peak in real yields Listen saunders was with us 20 minutes Ago just put out on twitter the dallas Trimmed Inflation statistics something chairman Powell watches carefully the first Derivative of this over one month is Stunning 3.0 3.1 and then an explosion In the dallas trim from 5.2 out to a Ginormous 6.9 how do you fold inflation Into a conventional derivative strategy In equities sure so i think the couple Of ways you can look at it so you can Play it uh through uh you know bond etfs
Right so looking at for example we've Been recommending people look at upside Place and tlt which is longer dated Bonds and the view here is that the fed Actually will remain aggressive in Trying to curb inflation and as a result Increase recession risk and that means Actually the back end of the yield curve Goes down because that's much more a Function of inflation and growth you can Look at it through hybrid options or Equity options that are contingent on Rates so there are different ways you Can play it but i would say you know in My view The market has it wrong that the fed is Going to pivot i don't think inflation Is going to come in that quickly You know powell has said that he needs Clear and convincing evidence that Inflation is falling back down to the 2 Target i don't think that we're going to Get that any time soon mandy how much Conviction just to sort of zoom out here How much conviction has this rally had Behind it from a derivatives perspective How much have people closed out their Bearish bets on The u.s economy on the u.s stock market In particular as the market rallied the Most since november 2020 well first of All what bearish bets right so i was one Of the Defining characteristics of this
Sell-off uh in the first half of the Year is that we've seen very very little Hedging in the derivatives market and That contributes to you know the Relatively lower levels of vix vivix all The measures that we track in options And part of that is because we've seen Already very significant de-leveraging De-risking in terms of underlying Positions of people selling out of Stocks going into cash now and over the Past week we have seen some pickup of Upside call buying but certainly not Significant enough so i don't think this Is a high conviction rally if anything i Think this is much more a bear market Rally
