Until a few years ago, investors pursuing a diversified 60/40 portfolio got decent bond yields and downside protection when stocks slumped. But if that regime comes to an end (not a prediction, but certainly a possibility), how do we diversify from here? (THREAD) 
The chart above shows that during the past two inflation super-cycles (the 1940s and 1965-80), bonds offered little protection. The scatter plot shows the nominal return index for the 60/40 model on the horizontal axis, and the real return index on the vertical. /2
Indexed to this series are the real returns for long-term government bonds, cash, high yield, TIPS (using a colleague’s synthetic series), gold, silver, the CRB, and the S&P 500. /3
During the financial repression days of the 1940s, stocks were the only game in town. Bond yields were capped by the Fed, and price controls limited the return for commodities. /4
From 1965-80, bonds were a drag again, but commodities offered excellent protection against the loss of purchasing power. Our hypothetical TIPS series did well during that period, which suggests that TIPS could remain a good diversifier on the 40 side. /5
The current regime (since March of 2020) looks like a replay of the 1960s so far. Bonds are in the red, while most real assets (including stocks) are doing well. And check out Bitcoin. /END
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