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How can one bet on this trend? Long bonds?

by JumpinJack_Cash 4y ago

jlbbellefeuille 4y ago
Kalshi
- JumpinJack_Cash 4y ago
  I mean a real market where people bet on the effects of inflation on assets. I am intrigued by Kalshi but very few people are interested in betting on stuff for stuff sake. Most money is exchanged on markets where people bet on the world’s reaction to such events and the impact on asset prices or yields
  - klipt 4y ago
    Also stocks are expected to have positive return on average over long time periods. Prediction markets are expected to have negative return on average once the house takes a cut.
voisin 4y ago
Really, anything. In an environment of decreasing inflation, or a return to moderate inflation, both stocks and bonds will be expected to do well. Look at how every asset class has collapsed this year, due to inflation expectations and resulting rising interest rates. Now consider the reverse. Just don’t go into TIPs bonds or stay in cash.
- fullshark 4y ago
  What about deflation risk?
  - voisin 4y ago
    Theoretically with broad based deflation everything does poorly. Deflation is super destabilizing as suddenly all the debt in the economy are secured by assets less valuable than expected and producing less cash flow (cannot have stable or growing cash flows in the aggregate in a deflationary environment), so the dominoes of debt start falling as borrowers default. You’d want to be in cash so you can take advantage of cheap buying opportunities. Realistically, it seems central banks and politicians will die on the hill of deflation and do everything in their power to avoid it, even if it means (as it has in ‘89, ‘01, ‘08, and ‘20) just kicking the can down the road and causing greater, less stable bubbles. That said, look at the stock market - it has been deflationary this year. So cash is King in this environment. Just not so much at the grocery store or when you get your utility bill.
- francisofascii 4y ago
  Eh. If the Fed overstepped, then you could see a stop to inflation and a recession, which could lead to lower stock prices and higher bond prices in the short term, as Fed stops the rate increases.

How can one bet on this trend? Long bonds?

jlbbellefeuille 4y ago

Kalshi

JumpinJack_Cash 4y ago
I mean a real market where people bet on the effects of inflation on assets. I am intrigued by Kalshi but very few people are interested in betting on stuff for stuff sake. Most money is exchanged on markets where people bet on the world’s reaction to such events and the impact on asset prices or yields
- klipt 4y ago
  Also stocks are expected to have positive return on average over long time periods. Prediction markets are expected to have negative return on average once the house takes a cut.

voisin 4y ago

Really, anything. In an environment of decreasing inflation, or a return to moderate inflation, both stocks and bonds will be expected to do well. Look at how every asset class has collapsed this year, due to inflation expectations and resulting rising interest rates. Now consider the reverse. Just don’t go into TIPs bonds or stay in cash.

fullshark 4y ago
What about deflation risk?
- voisin 4y ago
  Theoretically with broad based deflation everything does poorly. Deflation is super destabilizing as suddenly all the debt in the economy are secured by assets less valuable than expected and producing less cash flow (cannot have stable or growing cash flows in the aggregate in a deflationary environment), so the dominoes of debt start falling as borrowers default. You’d want to be in cash so you can take advantage of cheap buying opportunities. Realistically, it seems central banks and politicians will die on the hill of deflation and do everything in their power to avoid it, even if it means (as it has in ‘89, ‘01, ‘08, and ‘20) just kicking the can down the road and causing greater, less stable bubbles. That said, look at the stock market - it has been deflationary this year. So cash is King in this environment. Just not so much at the grocery store or when you get your utility bill.
francisofascii 4y ago
Eh. If the Fed overstepped, then you could see a stop to inflation and a recession, which could lead to lower stock prices and higher bond prices in the short term, as Fed stops the rate increases.