The Pair Trade of the Next Decade
Sell bonds, buy energy.
It’s not technically a new decade yet. But if the trade of the last decade was to sell stocks and buy gold, then maybe the best trade for the next 10 years is to sell bonds and buy energy. Gas, coal, oil, conventional, unconventional, renewable, alternative. You have a whole portfolio of choices.
Gold is no longer as low as it once was. But it’s still not as high as we expect it to go before it starts to look foolish. Meanwhile, today’s government bond market looks an awful lot like the stock market circa 2000. You’re seeing a generational high in bonds. It’s another version of the “high-low” strategy.
This time around, though, we would add energy stocks to the mix, along with gold… There is probably some truth to the fact that oil’s latest move is driven by investment demand more than, say, demand growth in the real economy. But investors ARE looking for ways to profit from U.S. dollar weakness. Oil is liquid and popular. In the long run, it’s the smaller-than-expected oil supply growth that will drive the market.