Quoting the article:
« There are three components that match each of the three assets: the yield curve, the inflation breakeven rate minus the yield curve, and the 20-year TIP bond rate. »
The idea is attractive, as it seems to be consistent with Harry Browne’s reasoning. The parameters used are a reflection of the state of the economy, and so there is some logic in their signalling which of the three PP components to buy. My interpretation of the above is :« The strategy is simple - you buy whatever signal is highest.
- If the yield curve is highest, you buy stocks.
- If the inflation expectation rate minus the yield curve is highest, you buy gold.
- And if the 20-year TIP rate is highest, you buy long-term bonds. »
- If the difference between the 10-year Treasury rate and the two-year Treasury rate (« the yield curve ») is highest, buy stocks. A rising yield curve is bad for long bonds, good for stocks.
- If the 10-year breakeven inflation rate minus the above difference is highest, buy gold. 10-year breakeven inflation rate = (10-year nominal Treasury yield) - (10-year TIPS yield).
- If the 20-year TIP rate is highest, buy long bonds.