The 80/20 Duration & Bitcoin Portfolio Core

A rational approach to preparing for X-flation.
1/
As you’re aware, there’s a raging debate on whether inflation or deflation comes next.

Time will tell but in the interim, some thoughts on preparing for both. Note that I’m not licensed and y’all should do your own research - this is just how I’m approaching the problem.
2/
While I’m personally in camp deflation, I also want to be prepared to be wrong. The ideal expression of this would be 1) simple, and 2) composed of assets I believe have merit in multiple possible futures.

Let’s start with bonds.
3/
Here we’re talking only UST bonds, and only the long end of the curve (20+ year USTs or strips, something like that).

The (strict) default risk here is essentially non-existent, meaning the risk is rising yields which, is covered by BTC.
4/
Let’s talk upside: at the long end of the curve, if yields go to 0.5% or whatever you could see something like a 20% rise in strike from here. Possibly even more if the current extreme positioning takes us to negative rates.

Helps that the Fed is buying, of course.
5/
For the Bitcoin side, let’s note that there’s essentially no default risk here either (nice in these times), and use a vanilla Stock to Flow calculus to think about upside potential - say, something like 8x from here.

Next a bit of scenario planning…
6/
Imagine we hit a super inflationary phase and bonds just get pounded. Imagine they get hit so hard that they literally go to zero.

In that scenario it seems reasonable to imagine S2F bitcoin plays out, you go 8x on it, and your portfolio is up 60% net.
7/
Now let’s imagine super deflation. BTC becomes a total nightmare, lots of forced sellers, and it goes to zero.

In this case, your 80% duration allocation will be doing quite nicely and up at least that 20%, putting you even (technically down 4% but you’re getting yield, so)
8/
While loading up on duration looks nuts to some, and loading up on BTC looks nuts to others, pairing the two seems quite interesting.

Note that in scenarios above, it’s unlikely either side goes to zero but even if it does - the portfolio can handle it!
9/
There is an argument to be made that this is not a ‘buy and hold’ style portfolio (extreme positioning in bonds & S2F cycle will incentivize timing the exit), but if you’re willing to pay attention, I believe it to be a good “default core portfolio” heading into the narrows.
10/
Additionally, this can be expressed with highly liquid and accessible instruments like TLT, ZROZ, GBTC and etc. which makes it pretty approachable from a mechanical perspective.

It also means that if you do want to time or rebalance a bit along the way, you’ve got liquidity.
11/
Have been using this as a core pairing since the blowup earlier this year, and so far it's done relatively well.

Certainly not without risk, but in terms of allocating against X-flation extremes, it seems quite good.

12/12

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More from @coloradotravis

17 Oct
The Inflation Not Felt

Two paths diverged in the macro quandary
And sorry I could not play them both
And be one allocator, long I pondered
Inflation / deflation what lies yonder
And where to go for growth
1/
Then picked deflation, the path of less,
With perhaps the better claim
Though not as popular in the press
Who thinks the Fed has fixed the mess
And made deflation tame
2/
And both those paths before us lay
Treacherous for all
But we’ll keep inflation for another day
It’s coming, but not before this May
Deflation looms this fall
3/
Read 4 tweets
8 Oct
Pre-flight Check: The Halving & Stock to Flow

Short thread with some charts showing where we're at currently.

(note: be sure to check out @100trillionUSD original work linked at the end if you're not already familiar with the S2F thesis)
1/
Green Box depicts the width of previous halving-to-peak span.

Red Vertical Line depicts where we are now, and where where that would have been in the previous cycle.

The 'relative position' we're in now looks like a flat line compared to what follows.
2/
Close up of the flat line zone from the previous halving.

Felt pretty choppy to be in the middle of that line at the time!
3/
Read 5 tweets
7 Oct
This tweet seems to encapsulate the essence of our recent and ongoing struggle as a nation..

And it speaks to the political divide America must confront in order to move forward.
1/

I’ve met quite a few people recently who seem dismayed by how weak and soft-handed the Capital side has become as of late.

After all: if people who make dumb mistakes get bailed out, where is the margin in good decision-making?
2/
This is a real problem today for Capital: the strong capital allocators are being forced to carry the weak ones, in a perversion of the system as a whole.

And so Capital players hate the notion of socialism, **because they live its downside daily.**
3/
Read 9 tweets
7 Oct
Thread: let's see if we can all forget about what we *want* to happen with politics and ask, instead, if we can make sense (from an analysis view) of what's happening and where it goes next.

I've seen 2 takes that seem quite sensible (below) - anyone have others they like?
1/
Best "Trump is toast" take I've seen is this one, in which McConnell just shanked him and will now let him bleed out:
3/

Read 5 tweets
1 Oct
Big Bad Bear Porn™ -- a thread full of charts I drew some lines on.

The thing to note is the similarity of the breakdown in ~6mo trends that appears to be happening broadly.

If overt bearishness isn't your thing, you should probably just move along.
1/
QQQ, SPY, DJI, IWM

All of the indices look broken. Seems like the upward motion is at best a retest but maybe not even that.

I think guys like @TommyThornton would say this replicating pattern means we're mid-wave 2 or something, but that wave stuff is a bit beyond my ken.
2/
HYG, JNK, BKLN, LQD

Debt looks like it's breaking down too.

Most interesting one here might be LQD, which is flirting with an interesting support level. Seems like it could run a bit if it breaks.
3/
Read 11 tweets
26 Sep
@CorleoneBVD @alihobbalah @SantiagoAuFund @Darky999 @1peacefulkoala @DiMartinoBooth @bondstrategist @JeffSnider_AIP @MetreSteven @EmilKalinowski @GeorgeGammon This is a very constructive discussion - my favorite thing ever on twitter!

I'd bet you're in a lot of agreement with many of us dollar bulls, so let me reply by highlight the areas where we may still disagree to help us bring those into focus
1/
@CorleoneBVD @alihobbalah @SantiagoAuFund @Darky999 @1peacefulkoala @DiMartinoBooth @bondstrategist @JeffSnider_AIP @MetreSteven @EmilKalinowski @GeorgeGammon Don’t wanna speak for other bulls directly, but my would be that dollar bears are mispricing three things:

1. What tools the Fed has
2. The Fed’s appetite for controversy
3. Size of deflationary pressures
2/
@CorleoneBVD @alihobbalah @SantiagoAuFund @Darky999 @1peacefulkoala @DiMartinoBooth @bondstrategist @JeffSnider_AIP @MetreSteven @EmilKalinowski @GeorgeGammon First, I’d take the view (developed by others) that the Fed doesn’t have tools to create meaningful inflation. They aren’t really printing money (that’s just a meme) and they can’t force people to take on debt.
3/
Read 8 tweets

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