All of this inflation has caused long-term interest rates (and short-term as well as the Fed as increased a lot) to increase dramatically this year. The 10-year treasury is now around 4, which is the highest since 2008.

If you wanted to bet that inflation will start to come down, the economy will go into a deep recession, and that the 10-year treasury will come down along with long-term interest rates, what would be the best security to invest in?

Right now, the monthly inflation numbers on a year over year basis are being compared to months a year ago where inflation was fairly low. In the upcoming months, those YOY readings will be compared to months last year when inflation started getting bad. That will cause the YOY inflation numbers to start looking much better and I believe will start to reverse some of these crazy bond prices. Also, I really don't see how we can avoid a horrible recession with what the Fed is doing, along with the stock market in a free fall, and housing severely slowing down.

I believe there is a significant opportunity here to capitalize on this! I just don't know the best securities, options, etc. to invest in.

Bitcoin

That's a lot to predict happening all at the same time. The basics of bonds and rates is when interest rates and yields go up bonds go down. When rates and yields go down bonds go up. You can see the ETF TLT has been like the short volatility trade was years ago. TLT and LT Bonds have been a steady fall all during the rate hikes. I imagine there will be a massive spike in TLT and bonds once the FED is forced to pivot. Who knows when that will be though. I guess you could buy TLT leap option calls? Or just start buying stock or calls in TLT a couple months out when you anticipate it.

Hard to beat Crypto's ROI, if rates drop.

Depends on how fast/far interest rates drop. If they only go down 25 basis points, that is not going to do much one way or the other.

If it is sustained downturn, might I suggest mortgage origination companies? They will be massive beneficiaries of declining interest rates, especially if it is sustained.

Precious metals might also do well.

Real estate related stuff might do well also.

Probably this. I think that Stanley Druckenmiller summed it up really well when he said that Bitcoin and crypto will do really well in an inflationary boom, but not so much in an inflationary bust like the one we're in currently.

So if you believe that at some point they're going to cut rates and try to fix inflation by working on the supply side of the equation (i.e. by cutting regulations, making it easier for the US producers to produce domestic oil, build pipelines, etc.,) as opposed to attacking the demand side of the equation through interest rates, then I think Bitcoin does really well.

Also probably high P/E growth tech stocks, be leveraged long real estate (as you can refinance at a lower rate and prices will rise), and you can probably buy bonds too to front run the move (as prices on high coupon will rise as interest rates drop as the guaranteed yield becomes more attractive).

The best bet is the most direct bet. If you think 10 year treasuries yields will go down, then go long 10 year treasuries.

If you believe that Columbia will win the next World Cup, you would place a bet that Columbia will win the next World Cup, right? You wouldn't bet that the assistant secretary to the coach of Brazil's national team will be fired, right?

Bond futures

high beta tech stocks? seems like we would just go back to 2019-2021 risk on trade, no?

some of the trash will never get back to its previous levels obviously

buy TLT options then

Lol this fool.

The gift that keeps on giving!

interest rates haven't dropped...

Bigger more important factors at play.

OP did you end up putting this trade on? long-term bonds bottomed in late October. TLT is still rising. Feel free to post more of your macro thoughts.

Apparently, there are a lot of people who followed the OP's line of reasoning, and they're getting clobbered today as it has become evident from Powell's speech that he doesn't expect any rate cuts in 2023.

There will be a bottom for spec tech soon, but the recovery can take decades. Looking at the dot-com bubble, the most recent similar market event, and Microsoft didn't match its 1999 bubble high until 2016. There was a financial crisis in there, adding to the delay, but we probably have a crisis ahead too.

Powell said no rate cuts in 2023, but probably an expected speech. He probably doesn't wanna give off any dovish vibes anytime soon even if he feels different, playing defense is priority for now. Debts getting so high, no choice but to cut rates at the sacrifice of inflation. Not many options available unfortunately.

There is a non-economic incentive for Powell to reduce rates: reduce US Treasury cost of borrowing. I have no idea how much weight Powell puts on that, but it has to factor in somewhere.

Yes, but most of those losses have already materialized so if you go long "spec tech" now, you don't need to hit Nov '21 highs to make a killing.

I'd like to be early on the Powell pivot, but I am unsure if a recession throws a monkey wrench into all that. Won't matter if he pivots if GDP growth is negative. Although I've long maintained the US can't have much of a recession because any real decline in asset prices would cause close to depression level results given the reverse wealth effect that would occur.