Supply shocks create inflation pressures and upward pressure on rates. Then your Treasuries are not a hedge anymore.

We're looking through this. When we say stay diversified, we're still long the broadening trade. When you hear about a deal, small caps tend to pop.

This is the concept of diversifying your hedges. In an inflation shock, Treasuries do not diversify your portfolio.

This is not saying just get rid of your Treasuries and buy gold. If we get an actual growth shock... you'll still be happy to have Treasuries in your portfolio. We're looking through this, staying diversified along the broadening trade, diversifying our hedges: Treasuries, cash, real asset equities, commodities.

We're at a point where we're on a knife's edge. Are we going to get the growth shock or not?

GDP is still at 2%. You still have massive AI capex, strong high-end consumer, fiscal pedal to the metal. But the oil shock is a tax on the consumer. The inflation chain leads the Fed to maybe eventually hike, or at least not cut, and that tightens financial conditions.

We don't know how long the oil shock will last. The average of the last seven oil shocks, oil peaked at 23 days and at like plus 27%. We're at day 30 and we're already up 40-50%. This too shall pass.

I think it pays to be diversified even between stocks and bonds. I don't want our asset allocation committee to just de-risk completely right now. Stay neutral stocks/bonds, diversify the hedges, and then look through this with the broadening trade.