We have been writing about interest rates, bonds, and the Fed a little more than normal lately. We have been doing this because we think short bonds are one of many crowded trades in the market place today. To be more specific, we think short bonds, long equities and long residential real estate (apartment and homes in big cities) are some of the most crowded trades in the market place today. What we have been missing is a catalyst for bond prices to reverse and head higher. We think that catalyst may be upon us now. We think bonds could see a short squeeze as the equity market correct. Apart from selling Mall REITs, we have not identified an actionable trade in the real estate market. To be clear, we do not see mall REITs as a crowded trade, we simply see the US market as over-retailed and that retail space needs to shrink somewhat to the right size. Adding to this is changing consumer shopping preferences. The trend of online shopping through Amazon and other online retailers is the wild card. If the shift is at the margin (as we suspect), brick and mortar retailers will right size and recover relatively quickly. If the shift becomes late and secular, traditional retailers will struggle for years to come and there will be a bifurcation between the winners and looser.
