HEDGEFUNDIE's excellent adventure Part II: The next journey

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Gui0507
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Gui0507 »

Semantics wrote: Fri May 14, 2021 12:10 am
DMoogle wrote: Thu May 13, 2021 12:13 pm
Gui0507 wrote: Thu May 13, 2021 11:16 amMy same question exactly, what’s the consensus here? What HF stated 55/45 UPRO/TMF? What if you didn’t want to be as levered and used SSO instead? Would TMF be appropriate or another bond?
55/45 is still the consensus for best risk:reward ratio. Last I checked, around 70/30 has performed best for maximizing return - more UPRO beyond that just ends up hurting both return AND risk profile.

There's been a lot of talk about TMF having limited upside lately, and I decide to forgo to rebalancing last quarter and just let it ride for a bit.

As for 2x funds vs. 3x funds... I know it's been discussed in the thread, but I'm not as familiar with the nuances. I know there was talk that the fact that the ER of SSO vs. UPRO was about the same, so you might be better off just putting less of your portfolio into 3x (holding the rest as cash) and just skipping 2x altogether.
I think it was shown this doesn't hold? In past performance it didn't really matter whether you hold 50% SSO or 33% UPRO to get 100% S&P 500 exposure.

Reason being the extra ER is offset by the extra compounding loss and borrowing fees in the 3x fund.
So am I understanding that, it’s just better to have UPRO/TMF?
Personally, if I wanted lower leverage, I'd just go PSLDX for 2x, or NTSX for 1.5x. PSLDX is not recommended for taxable accounts, but NTSX is fine.
Agreed.
[/quote]
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

Gui0507 wrote: Fri May 14, 2021 10:14 amSo am I understanding that, it’s just better to have UPRO/TMF?
My recommendation: If you're comfortable with 3x leverage, use UPRO/TMF (not tax efficient). If you want 2x, use PSLDX (not tax efficient). If you want 1.5x, use NTSX (is tax efficient).

If you want something in between these leverage ratios, use a combination of the above.

These products aren't quite apples-to-apples, but the fundamental leveraged stock+bond approach is similar enough that I don't worry too much about the details.
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Gui0507
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Gui0507 »

DMoogle wrote: Fri May 14, 2021 10:25 am
Gui0507 wrote: Fri May 14, 2021 10:14 amSo am I understanding that, it’s just better to have UPRO/TMF?
My recommendation: If you're comfortable with 3x leverage, use UPRO/TMF (not tax efficient). If you want 2x, use PSLDX (not tax efficient). If you want 1.5x, use NTSX (is tax efficient).

If you want something in between these leverage ratios, use a combination of the above.

These products aren't quite apples-to-apples, but the fundamental leveraged stock+bond approach is similar enough that I don't worry too much about the details.
Thank you! That being said, this is in a Roth account so not too worried about tax efficiency. Am I correct in assuming that?

Also, aightly off topic, would this strategy work well for a child account (UTMA/UGMA) I currently have for each of my children? Being that their time horizon is significant?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

Gui0507 wrote: Fri May 14, 2021 10:42 amThank you! That being said, this is in a Roth account so not too worried about tax efficiency. Am I correct in assuming that?
Correct.
Gui0507 wrote: Fri May 14, 2021 10:42 amAlso, aightly off topic, would this strategy work well for a child account (UTMA/UGMA) I currently have for each of my children? Being that their time horizon is significant?
Not familiar with those, but I agree that the higher risk the strategy is, the longer the time horizon should be. So it would be appropriate from that POV.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by mr_mac3 »

Gui0507 wrote: Fri May 14, 2021 10:42 am Also, aightly off topic, would this strategy work well for a child account (UTMA/UGMA) I currently have for each of my children? Being that their time horizon is significant?
I was thinking a Coverdell ESA might be the good place to do this for kids (and their Roth once they have earned income). Unfortunately you can only contribute $2k a year but it looks like you can invest in LETFs unlike a 529.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

DMoogle wrote: Fri May 14, 2021 10:25 am
Gui0507 wrote: Fri May 14, 2021 10:14 amSo am I understanding that, it’s just better to have UPRO/TMF?
My recommendation: If you're comfortable with 3x leverage, use UPRO/TMF (not tax efficient). If you want 2x, use PSLDX (not tax efficient). If you want 1.5x, use NTSX (is tax efficient).

If you want something in between these leverage ratios, use a combination of the above.

These products aren't quite apples-to-apples, but the fundamental leveraged stock+bond approach is similar enough that I don't worry too much about the details.
Wait, how is UPRO/TMF not tax efficient? I own both, filed my taxes this year, and have not noticed any tax inefficiency.

Oh, do you man the "UPRO/TMF" strategy as a whole which requires buying and selling to rebalance? And by tax-inefficient, you just mean the capital gains taxes that will be incurred? As opposed to the actual securities UPRO and TMF being tax inefficient.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

langlands wrote: Fri May 14, 2021 6:27 pmWait, how is UPRO/TMF not tax efficient? I own both, filed my taxes this year, and have not noticed any tax inefficiency.

Oh, do you man the "UPRO/TMF" strategy as a whole which requires buying and selling to rebalance? And by tax-inefficient, you just mean the capital gains taxes that will be incurred? As opposed to the actual securities UPRO and TMF being tax inefficient.
Correct, sorry for causing the confusion. It's the rebalancing (particularly given the volatility) that makes it inefficient. The distributions themselves are pretty minor IIRC.
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Gui0507
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Gui0507 »

Are there any books out there that provide similar information of these strategies anyone can recommend other than Lifecycle investing?

Thanks!
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hillclimber
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hillclimber »

The topic of hedging using VIX futures has come up recently. I came across an etf, PHDG, that uses VIX futures to hedge an S&P 500 portfolio.

portfoliovisualizer link

It's been around since 2013 and performed better than corporate bonds but nowhere near the S&P 500. I haven't read too deeply into some of the market timing/VIX hedging models earlier in the thread, so it's possible there are different tradeoffs being made.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

hillclimber wrote: Sun May 16, 2021 7:08 pm The topic of hedging using VIX futures has come up recently. I came across an etf, PHDG, that uses VIX futures to hedge an S&P 500 portfolio.

portfoliovisualizer link

It's been around since 2013 and performed better than corporate bonds but nowhere near the S&P 500. I haven't read too deeply into some of the market timing/VIX hedging models earlier in the thread, so it's possible there are different tradeoffs being made.
I didn't read about it in detail, but PHDG seems to be some sort of timing fund that goes between SP500, cash and volatility instruments. By investing in that, you're basically trusting them with an active strategy.

That is completely different from the ideas mentioned in this thread, though. I don't recall the approx. pages where all of it was discussed but you can search for "VIX", "VIXY", "VIXM", "VXZ", "VXX" and "VXZ in the context of this second thread and you should find the periods of interesting exchanges.

I would say the two big lines of approach that were provided here are:
- if you have knowledge of options, you can take on an active approach and roll your contracts. This will be cheaper insurance and you will have a lot of flexibility in strategy.
- if you do not have knowledge of options, or simply wish to stick to the general passive approach with HFEA, you can choose the ETFs or ETNs that do that work for you.

I chose the passive route, with a Mid-term contracts fund. For my tastes, short-term VIX is too volatile for rebalancing the AA every quarter. Mid-term is a very nice companion to TMF.
DMoogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

Gui0507 wrote: Sat May 15, 2021 10:52 am Are there any books out there that provide similar information of these strategies anyone can recommend other than Lifecycle investing?

Thanks!
Pretty sure none others exist; Lifecycle Investing was pretty groundbreaking (even though it hasn't caught on to the masses).
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

Not sure if this was mentioned yet, but there's various news today about Michael Burry's (from The Big Short) positions from Scion's 13-F filings. They are shorting TLT. I am coming up on my rebalance and wondering whether to stay at 70/25/5 UPRO/TMF/VXX, or move back to the traditional HFEA ratio. The collapse of TLT has definitely stabilized recently.
Last edited by tomphilly on Tue May 18, 2021 11:56 am, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

tomphilly wrote: Tue May 18, 2021 11:54 am Not sure if this was mentioned yet, but there's various news today about Michael Burry's positions from Scion's 13-F filings. They are shorting TLT. I am coming up on my rebalance and wondering whether to stay at 70/25/5 UPRO/TMF/VXX, or move back to the traditional HFEA ratio.
Someone has brought up the idea of longing TMV, which is basically shorting TMF, or 3x TLT. I think Dr. Burry's idea is crazy, but he's proven people wrong time and again.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

Marseille07 wrote: Tue May 18, 2021 11:56 am
tomphilly wrote: Tue May 18, 2021 11:54 am Not sure if this was mentioned yet, but there's various news today about Michael Burry's positions from Scion's 13-F filings. They are shorting TLT. I am coming up on my rebalance and wondering whether to stay at 70/25/5 UPRO/TMF/VXX, or move back to the traditional HFEA ratio.
Someone has brought up the idea of longing TMV, which is basically shorting TMF, or 3x TLT. I think Dr. Burry's idea is crazy, but he's proven people wrong time and again.
But keep in mind that he's proven himself wrong more times than that.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by nuclearwhale »

hillclimber wrote: Sun May 16, 2021 7:08 pm The topic of hedging using VIX futures has come up recently. I came across an etf, PHDG, that uses VIX futures to hedge an S&P 500 portfolio.

portfoliovisualizer link

It's been around since 2013 and performed better than corporate bonds but nowhere near the S&P 500. I haven't read too deeply into some of the market timing/VIX hedging models earlier in the thread, so it's possible there are different tradeoffs being made.
SVOL is an ETF that does the same - but is using options to hedge against large crashes and the like. The ETF is literally a week old, though.

See: https://www.simplify.us/blog/volatility ... reimagined

and https://www.simplify.us/etfs/svol-simpl ... remium-etf
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tinkerer-in-Chief »

Ah, the Nostradamus Effect. (See also: Simpsons, The)
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hillclimber »

tomphilly wrote: Tue May 18, 2021 11:54 am Not sure if this was mentioned yet, but there's various news today about Michael Burry's (from The Big Short) positions from Scion's 13-F filings. They are shorting TLT. I am coming up on my rebalance and wondering whether to stay at 70/25/5 UPRO/TMF/VXX, or move back to the traditional HFEA ratio. The collapse of TLT has definitely stabilized recently.
Tom Sosnoff from tastytrade also talks about it. They're betting on interest rates reverting to the mean. It's interesting that Burry is doing calls on leveraged etfs. He's stacking leverage on leverage.

I'm just getting started with leverage in one of my accounts, using 75% VT / 25% UPRO so I get about 1.5x. It's almost more like a "tilt" than a fully different portfolio. I feel like using less overall leverage is simpler than going full 3x and using a hedge to mitigate that leverage. Obviously this is lower risk and lower reward. The concept of risk parity is fascinating, though.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

hillclimber wrote: Wed May 19, 2021 10:11 pm
tomphilly wrote: Tue May 18, 2021 11:54 am Not sure if this was mentioned yet, but there's various news today about Michael Burry's (from The Big Short) positions from Scion's 13-F filings. They are shorting TLT. I am coming up on my rebalance and wondering whether to stay at 70/25/5 UPRO/TMF/VXX, or move back to the traditional HFEA ratio. The collapse of TLT has definitely stabilized recently.
Tom Sosnoff from tastytrade also talks about it. They're betting on interest rates reverting to the mean. It's interesting that Burry is doing calls on leveraged etfs. He's stacking leverage on leverage.

I'm just getting started with leverage in one of my accounts, using 75% VT / 25% UPRO so I get about 1.5x. It's almost more like a "tilt" than a fully different portfolio. I feel like using less overall leverage is simpler than going full 3x and using a hedge to mitigate that leverage.
Obviously this is lower risk and lower reward. The concept of risk parity is fascinating, though.
If he's shorting TLT directly then it's not leveraged (TLT is just a basic LTT fund).

Wanted to give you a heads-up about the bolded+underlined, in case you haven't played around with backtests too much yet. Watch out if you increase leverage, as at a certain point LTT increase returns AND protetction. This seems counter-intuitive when you look at it from the standard non-leveraged perspective, where LTTs offer protection but generally at the cost of some returns. In your 1.5x case, you're probably not leveraged high enough for this to be the case, but keep it in mind if you bump it up.

How much of this will hold true in a low-rate environment is anybody's guess, though, as decreasing rates in the last decade have bolstered LTT returns significantly.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hillclimber »

OohLaLa wrote: Thu May 20, 2021 12:29 am If he's shorting TLT directly then it's not leveraged (TLT is just a basic LTT fund).

Wanted to give you a heads-up about the bolded+underlined, in case you haven't played around with backtests too much yet. Watch out if you increase leverage, as at a certain point LTT increase returns AND protetction. This seems counter-intuitive when you look at it from the standard non-leveraged perspective, where LTTs offer protection but generally at the cost of some returns. In your 1.5x case, you're probably not leveraged high enough for this to be the case, but keep it in mind if you bump it up.

How much of this will hold true in a low-rate environment is anybody's guess, though, as decreasing rates in the last decade have bolstered LTT returns significantly.
He bought puts on TLT, calls on TTT (3x short 20 year treasury), and calls on TBT (2x short 20 year treasury), according to the 13F .

Thanks for the tip on treasuries. I'm still wrapping my head around that concept. I've been reading through the thread, and it seems like there's been a lot of effort searching for good hedges for UPRO. I'm still reading up on bonds and efficient frontier stuff.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

hillclimber wrote: Thu May 20, 2021 2:11 am
OohLaLa wrote: Thu May 20, 2021 12:29 am If he's shorting TLT directly then it's not leveraged (TLT is just a basic LTT fund).

Wanted to give you a heads-up about the bolded+underlined, in case you haven't played around with backtests too much yet. Watch out if you increase leverage, as at a certain point LTT increase returns AND protetction. This seems counter-intuitive when you look at it from the standard non-leveraged perspective, where LTTs offer protection but generally at the cost of some returns. In your 1.5x case, you're probably not leveraged high enough for this to be the case, but keep it in mind if you bump it up.

How much of this will hold true in a low-rate environment is anybody's guess, though, as decreasing rates in the last decade have bolstered LTT returns significantly.
He bought puts on TLT, calls on TTT (3x short 20 year treasury), and calls on TBT (2x short 20 year treasury), according to the 13F .

Thanks for the tip on treasuries. I'm still wrapping my head around that concept. I've been reading through the thread, and it seems like there's been a lot of effort searching for good hedges for UPRO. I'm still reading up on bonds and efficient frontier stuff.
It's really an unintended, but substantial, effect of market timing, honestly. If you start with a 50/50 portfolio where the return of one asset is 10% and the return of another asset is 15%, then the result will be a portfolio with a return of 12.5%. HOWEVER, if you introduce rebalancing quarterly rebalancing when one asset (TMF) has historically outperformed during equity market crashes, and the other has had a tendency to rebound after crashes (UPRO), then you can get returns far higher than 12.5%. That's where the "increased returns AND protection" comes from.

Very important to remember here that past market behavior may not mirror future behavior.

I think there's solid reasoning for the "protection" aspect to stick around, due to (1) the Fed cutting rates and (2) people flocking to safer assets, both during times of crisis, but a lot of the outsized TMF returns since the 70s is from the rates being continuously cut lower and lower over time. There remains a question of how much more that can really happen, and if it doesn't, how will TMF continue to perform.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

Any thoughts on the following ratio for the coming quarter?

UPRO/TMF/PHDG/VIXY - 65/15/15/5

My thesis:
- TMF: has stabilized recently but the downside case is still strong (inflation not being transitory, etc), and.... Burry is a lot smarter than me.
- PHDG: a hedge that has steadily appreciated like TLT did in the past. But it won't provide a strong hedge like TMF during a crash (though this is in question for TMF too)
- VIXY: expensive crash insurance
- My UPRO is broken up into a few components but it's not really worth mentioning (mostly UPRO, a bit of TQQQ & FAS)


PV, post 2020 crash:
https://www.portfoliovisualizer.com/bac ... tion4_2=15

PV, since Jan 2013 (PHDG inception):
https://www.portfoliovisualizer.com/bac ... tion4_2=15
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

tomphilly wrote: Thu May 20, 2021 10:36 am Any thoughts on the following ratio for the coming quarter?

UPRO/TMF/PHDG/VIXY - 65/15/15/5

My thesis:
- TMF: has stabilized recently but the downside case is still strong (inflation not being transitory, etc), and.... Burry is a lot smarter than me.
- PHDG: a hedge that has steadily appreciated like TLT did in the past. But it won't provide a strong hedge like TMF during a crash (though this is in question for TMF too)
- VIXY: expensive crash insurance
- My UPRO is broken up into a few components but it's not really worth mentioning (mostly UPRO, a bit of TQQQ & FAS)


PV, post 2020 crash:
https://www.portfoliovisualizer.com/bac ... tion4_2=15

PV, since Jan 2013 (PHDG inception):
https://www.portfoliovisualizer.com/bac ... tion4_2=15
My 2 cents about your alternative, and the results are of course perfect hindsight PV results, so keep in mind lol:

1- Mixing a passive TMF+VIXY+UPRO AA with PHDG, an actively managed fund which includes the same instruments, strikes me as odd.

What you are effectively doing, by holding PHDG, is deleveraging your equities portion, all while sometimes allocating more to Short-Term VIX or CASH, based on some secret sauce. I glanced at the prospectus and even the supplement doc and I did not notice any actual explanation of what metrics/ signals the managers use to move from SP500 to ST-VIX or CASH. They also give themselves some leeway, stating they can go off-track if a "defensive" strategy is needed at any time.

You'll have to be comfortable with their approach, as you're basically hedging your passive, leveraged strat with their non-leveraged active one.


2- I would stay away from Short-Term VIX contracts. The drag on returns is huge and protection is ultimately a cr@(shoot, based strongly on timing of rebalance. My suggestion is to move to Medium-Term VIX (VIXM or VXZ, if wanting to avoid the tax structure of the VIXM ETF). It provides ample protection from drawdowns, with costs that end up spread out over a longer window.


3- Take a look at the results of your desired alternative VS something like 60/30/10 UPRO+TMF+VIXM. If you still think 30% to TMF is too risky, you can sprinkle in some more UPRO and VIXM (65/20/15). The latter, at least based on the little dataset, is almost perfectly inline with your idea, but more predictable and with less moving parts.

Also, I've been proselytizing with regard to ITT funds like TYD and UST, for those who wish to rely less on LTT. I think they are a nice complement.


4- Honestly, I think your alternative AA will do just fine, if you are comfortable with holding approx (slightly less than) 3x leverage long-term.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by bjcleaver »

I just sold out of my HFEA positions today (on a nice double green day) because I'm going to reimplement the strategy in my new backdoor Roth. This had been set up in my taxable which wasn't ideal for rebalancing. Might wait for a very red day before I jump back in - probably won't have to wait long given the recent turmoil.

I'm tempted to place a side bet on interest rates rising using TMV or TTT. If inflation does persist, rates should go up at least a little. This wouldn't be part of the strategy and might only serve to cancel out TMF. But I'm willing to bet we will see 2% rates before 1%.

(I also have a side bet on regional banks using DPST so probably best not to listen to me anyway.) :happy
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

bjcleaver wrote: Thu May 20, 2021 2:41 pmI'm tempted to place a side bet on interest rates rising using TMV or TTT. If inflation does persist, rates should go up at least a little. This wouldn't be part of the strategy and might only serve to cancel out TMF. But I'm willing to bet we will see 2% rates before 1%.
It's completely nonsensical to hold both TMF and TMV.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by bjcleaver »

DMoogle wrote: Thu May 20, 2021 2:43 pm It's completely nonsensical to hold both TMF and TMV.
It sure is! Which is why I'll just stick with my DPST bet to play on rates rising and keep TMV for the insurance.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by kim.gold »

Charlie McElligott, cross-asset strategist at Nomura Securities:
Bonds Have Never Been So Useless as a Hedge to Stocks Since 1999
https://www.bloomberg.com/news/articles ... since-1999
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

kim.gold wrote: Thu May 20, 2021 3:19 pm Charlie McElligott, cross-asset strategist at Nomura Securities:
Bonds Have Never Been So Useless as a Hedge to Stocks Since 1999
https://www.bloomberg.com/news/articles ... since-1999
Alternate source:
https://in.investing.com/news/bonds-hav ... 99-2733295
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

kim.gold wrote: Thu May 20, 2021 3:19 pm Charlie McElligott, cross-asset strategist at Nomura Securities:
Bonds Have Never Been So Useless as a Hedge to Stocks Since 1999
https://www.bloomberg.com/news/articles ... since-1999
Nice illustration of John Bogle's quip: "Nobody knows nuthin'"
No one here (I hope) expects bonds to be an ongoing protection against stocks declining. Matter of fact, there's multiple posts on this thread showing that bonds experience bouts of positive, negative and anything in between correlation to stocks.
Hedgefundie's point was that, on major crash days and on those days only, bonds have inverse correlation with stocks, period.
Better lucky than smart.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

OohLaLa wrote: Thu May 20, 2021 11:56 am
tomphilly wrote: Thu May 20, 2021 10:36 am Any thoughts on the following ratio for the coming quarter?

UPRO/TMF/PHDG/VIXY - 65/15/15/5

My thesis:
- TMF: has stabilized recently but the downside case is still strong (inflation not being transitory, etc), and.... Burry is a lot smarter than me.
- PHDG: a hedge that has steadily appreciated like TLT did in the past. But it won't provide a strong hedge like TMF during a crash (though this is in question for TMF too)
- VIXY: expensive crash insurance
- My UPRO is broken up into a few components but it's not really worth mentioning (mostly UPRO, a bit of TQQQ & FAS)


PV, post 2020 crash:
https://www.portfoliovisualizer.com/bac ... tion4_2=15

PV, since Jan 2013 (PHDG inception):
https://www.portfoliovisualizer.com/bac ... tion4_2=15
My 2 cents about your alternative, and the results are of course perfect hindsight PV results, so keep in mind lol:

1- Mixing a passive TMF+VIXY+UPRO AA with PHDG, an actively managed fund which includes the same instruments, strikes me as odd.

What you are effectively doing, by holding PHDG, is deleveraging your equities portion, all while sometimes allocating more to Short-Term VIX or CASH, based on some secret sauce. I glanced at the prospectus and even the supplement doc and I did not notice any actual explanation of what metrics/ signals the managers use to move from SP500 to ST-VIX or CASH. They also give themselves some leeway, stating they can go off-track if a "defensive" strategy is needed at any time.

You'll have to be comfortable with their approach, as you're basically hedging your passive, leveraged strat with their non-leveraged active one.


2- I would stay away from Short-Term VIX contracts. The drag on returns is huge and protection is ultimately a cr@(shoot, based strongly on timing of rebalance. My suggestion is to move to Medium-Term VIX (VIXM or VXZ, if wanting to avoid the tax structure of the VIXM ETF). It provides ample protection from drawdowns, with costs that end up spread out over a longer window.


3- Take a look at the results of your desired alternative VS something like 60/30/10 UPRO+TMF+VIXM. If you still think 30% to TMF is too risky, you can sprinkle in some more UPRO and VIXM (65/20/15). The latter, at least based on the little dataset, is almost perfectly inline with your idea, but more predictable and with less moving parts.

Also, I've been proselytizing with regard to ITT funds like TYD and UST, for those who wish to rely less on LTT. I think they are a nice complement.


4- Honestly, I think your alternative AA will do just fine, if you are comfortable with holding approx (slightly less than) 3x leverage long-term.
Thanks for the analysis. Good idea with TYD. Half TMF and half TYD seems like a sensible bet for the bonds component of HFEA for the next 3 months.

While VIXM doesn't bleed out as fast as VIXY it doesn't provide an adequate hedge - the max drawdown is significantly greater when using it as an alternative to VIXY. I guess that's the price of VIXY, which you'd want over VIXM on circuit breaker days. Again, I think I might combine it with VIXY, and for this coming quarter have a rather complicated ratio of UPRO/TMF/TYD/VIXM/VIXY 70/10/10/5/5 (PV 2012-present) (PV post 2020 crash)
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

tomphilly wrote: Fri May 21, 2021 10:57 am Thanks for the analysis. Good idea with TYD. Half TMF and half TYD seems like a sensible bet for the bonds component of HFEA for the next 3 months.

While VIXM doesn't bleed out as fast as VIXY it doesn't provide an adequate hedge - the max drawdown is significantly greater when using it as an alternative to VIXY. I guess that's the price of VIXY, which you'd want over VIXM on circuit breaker days. Again, I think I might combine it with VIXY, and for this coming quarter have a rather complicated ratio of UPRO/TMF/TYD/VIXM/VIXY 70/10/10/5/5 (PV 2012-present) (PV post 2020 crash)
Your reply made me realize, in relation to VIXM vs VIXY, that I was apparently too focused on the end-game for my strategy (i.e. 2x leverage).

It's really interesting how this dynamic changes when leverage does. I was surprised to see that VIXY, or half-and-half, is probably the "best" choice within an original HFEA approach.
Once you hit 2x and add in the Nasdaq-100, the choice is not as obvious.

Disclaimer for any impressionable readers: "Past performance is not indicative of future results [yet we only have the past to rely on]". :mrgreen:
parval
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by parval »

Anyone else here follow Damodaran? He just posted a great piece on inflation. Affirms our understanding in this strategy where TMF will be devastated (more than currently) if unexpected inflation takes off:

http://aswathdamodaran.blogspot.com/202 ... rm-or.html

I'm currently in the process of deleveraging, selling whenever LTCG hits.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by elderwise »

Im tired of TMF,

FWIW i started the OG HF strategy switched to 100% TQQQ, then after some time have now switched to 100% FNGU (ETN).

this is not 100% of my NW or PF..probably 30%
taojaxx
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

elderwise wrote: Tue May 25, 2021 3:11 pm Im tired of TMF,

FWIW i started the OG HF strategy switched to 100% TQQQ, then after some time have now switched to 100% FNGU (ETN).

this is not 100% of my NW or PF..probably 30%
Just the day where it saved my bacon: UPRO red, my adventure green.
Hasn't happened in a looooong time. But it did today. Close to breakeven on my TMF. Same thing, loong wait.
Also, TLT just crossed above 20 and 50 DMA. 200 DMA way up there of course but who knows? Green on my long bond future as well (ZB).
Better lucky than smart.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

taojaxx wrote: Tue May 25, 2021 3:30 pm
elderwise wrote: Tue May 25, 2021 3:11 pm Im tired of TMF,

FWIW i started the OG HF strategy switched to 100% TQQQ, then after some time have now switched to 100% FNGU (ETN).

this is not 100% of my NW or PF..probably 30%
Just the day where it saved my bacon: UPRO red, my adventure green.
Hasn't happened in a looooong time. But it did today. Close to breakeven on my TMF. Same thing, loong wait.
Also, TLT just crossed above 20 and 50 DMA. 200 DMA way up there of course but who knows? Green on my long bond future as well (ZB).
We've definitely bottomed out, question is do we rise from here or just stay flat? My money is on flat, but I'm comfortable putting money in at this point in time.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

Afrofreak wrote: Wed May 26, 2021 8:21 pm
taojaxx wrote: Tue May 25, 2021 3:30 pm
elderwise wrote: Tue May 25, 2021 3:11 pm Im tired of TMF,

FWIW i started the OG HF strategy switched to 100% TQQQ, then after some time have now switched to 100% FNGU (ETN).

this is not 100% of my NW or PF..probably 30%
Just the day where it saved my bacon: UPRO red, my adventure green.
Hasn't happened in a looooong time. But it did today. Close to breakeven on my TMF. Same thing, loong wait.
Also, TLT just crossed above 20 and 50 DMA. 200 DMA way up there of course but who knows? Green on my long bond future as well (ZB).
We've definitely bottomed out, question is do we rise from here or just stay flat? My money is on flat, but I'm comfortable putting money in at this point in time.
How do we conclude that we have bottomed out on TMF?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

perfectuncertainty wrote: Thu May 27, 2021 10:38 am
Afrofreak wrote: Wed May 26, 2021 8:21 pm
taojaxx wrote: Tue May 25, 2021 3:30 pm
elderwise wrote: Tue May 25, 2021 3:11 pm Im tired of TMF,

FWIW i started the OG HF strategy switched to 100% TQQQ, then after some time have now switched to 100% FNGU (ETN).

this is not 100% of my NW or PF..probably 30%
Just the day where it saved my bacon: UPRO red, my adventure green.
Hasn't happened in a looooong time. But it did today. Close to breakeven on my TMF. Same thing, loong wait.
Also, TLT just crossed above 20 and 50 DMA. 200 DMA way up there of course but who knows? Green on my long bond future as well (ZB).
We've definitely bottomed out, question is do we rise from here or just stay flat? My money is on flat, but I'm comfortable putting money in at this point in time.
How do we conclude that we have bottomed out on TMF?
The fact that the whole reason it was dipping so heavily was because of the Japanese banks and insurers selling off their treasuries in time for rebalancing at the end of Q1. Lo and behold it's been flat ever since.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Centurion »

Afrofreak wrote: Wed May 26, 2021 8:21 pm We've definitely bottomed out, question is do we rise from here or just stay flat? My money is on flat, but I'm comfortable putting money in at this point in time.
Yes we have somewhat bottomed out in the sense of we have reached a price for TMF that is on pre-covid levels. However *IF* inflation continues to rise (quite likely in my opinion) we will see higher treasury yields and thus way lower TMF prices.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LeverageWBeverage »

Centurion wrote: Fri May 28, 2021 5:43 am
Yes we have somewhat bottomed out in the sense of we have reached a price for TMF that is on pre-covid levels. However *IF* inflation continues to rise (quite likely in my opinion) we will see higher treasury yields and thus way lower TMF prices.
I agree with your thought process. But I try not to overthink it. The chance of a prolonged continued inflation in the long term is low. If TMF keeps going down, I will rebalance into it and buy it at lower prices. It will eventually pay off. And I need TMF right now when markets are near all time highs. If I was going to get cute and drop TMF for a while it would be after a stock market crash.. not before.
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

LeverageWBeverage wrote: Fri May 28, 2021 11:40 am
Centurion wrote: Fri May 28, 2021 5:43 am
Yes we have somewhat bottomed out in the sense of we have reached a price for TMF that is on pre-covid levels. However *IF* inflation continues to rise (quite likely in my opinion) we will see higher treasury yields and thus way lower TMF prices.
I agree with your thought process. But I try not to overthink it. The chance of a prolonged continued inflation in the long term is low. If TMF keeps going down, I will rebalance into it and buy it at lower prices. It will eventually pay off. And I need TMF right now when markets are near all time highs. If I was going to get cute and drop TMF for a while it would be after a stock market crash.. not before.
Similar mindset on my side. Nobody knows nothing, but this just feels like short-term pressure, based on context.

I was giving my 2 cents over the last months, as I saw more and more people talking about dropping TMF, partially or completely, or simply not rebalancing into it. I was suggesting diversifying your hedge instead of neglecting it. The latter is really playing with fire, at 3x. Was surprised to see people basically saying they will know when it's time to put funds back into it, as if it had to be something smooth and gradual.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by olympia_t »

MotoTrojan wrote: Mon Aug 12, 2019 6:03 pm
rascott wrote: Mon Aug 12, 2019 4:16 pm
MotoTrojan wrote: Mon Aug 12, 2019 3:54 pm Since everyone is so focused on such short timeframes now I thought I would chime in to say my XIRR since 2/27/19 is 88.9%, compared to an S&P500 price-return XIRR of 5.2% :sharebeer .


In all the noise it's been lost.....but what are you actually doing? 3 different combos?
In all honesty I have been bouncing around much more than I'd have liked but the amount of data coming in has been significant.

I started with the OG 40/60 on 2/27/19 and had some additional contributions over the next couple of months.

I utilized the 20-day look-back risk-parity method for the month of July and then decided I wanted to reduce my exposure to long-bonds but maintain a passive rebalancing approach by doing 40/30/30 UPRO/TMF/EDV quarterly. On 8/1 I also split off 40% of that for a 20% target volatility UPRO/TMF combo which had even more economic research backing it than a look-back risk-parity.

The more I let it simmer though the more I realized the added strain of monthly rebalancing and having potential regret during a sudden downturn was not fitting in with my desire to simplify my finances overall. After seeing more mention of this 55/45 idea I did a deeper dive and found that I was comfortable with the additional risk, was getting the extra potential of return that I desired (even without volatility targeting), and liked the tilt away from long-bonds which was similar to my earlier 40/30/30 idea. The 45% TMF exposure is quite similar to the 30/30 TMF/EDV, so really I was just adding additional leverage to the equity side, at the cost of more volatility, larger drawdowns, and higher expected returns.

I do not plan to make any future changes but will be contributing some additional funds to PSLDX in the future (which would've gone into this) to diversify and keep overall portfolio leverage in check.

Yup, I am the poster-child of what not to do, but it has paid of handsomely and now I can buy & hold.
Sorry to revive this old thread - wondering if you could share any perspective for someone considering 55/45 now? Have been considering it but have been sitting on the sidelines a bit too long worrying we're in a bubble. Thanks so much!
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by rchmx1 »

olympia_t wrote: Fri May 28, 2021 12:43 pm Sorry to revive this old thread - wondering if you could share any perspective for someone considering 55/45 now? Have been considering it but have been sitting on the sidelines a bit too long worrying we're in a bubble. Thanks so much!
The way I think about it, if you view this as a long term strategy then your approach shouldn't different from a 1x. Time in the market is better than timing the market. Someone could use the exact same reasoning as justification for staying in cash instead of investing in a 1x AA of stocks and bonds. UPRO could be considered "expensive now," while TMF could be considered "cheap," or at least back down to closer to its "normal" price. A better question than, "Is this a good time to jump in," is whether you'll be ok with pumping up the volatility you'll be experiencing with this portion of your portfolio. If you're actually ok with high volatility, and you believe in the ideas behind this strategy, and you expect to stay in it for a decent period of time, then now is as good a time as any to jump in, just like with investing in general.
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by parval »

rchmx1 wrote: Fri May 28, 2021 1:06 pm
olympia_t wrote: Fri May 28, 2021 12:43 pm Sorry to revive this old thread - wondering if you could share any perspective for someone considering 55/45 now? Have been considering it but have been sitting on the sidelines a bit too long worrying we're in a bubble. Thanks so much!
The way I think about it, if you view this as a long term strategy then your approach shouldn't different from a 1x. Time in the market is better than timing the market. Someone could use the exact same reasoning as justification for staying in cash instead of investing in a 1x AA of stocks and bonds. UPRO could be considered "expensive now," while TMF could be considered "cheap," or at least back down to closer to its "normal" price. A better question than, "Is this a good time to jump in," is whether you'll be ok with pumping up the volatility you'll be experiencing with this portion of your portfolio. If you're actually ok with high volatility, and you believe in the ideas behind this strategy, and you expect to stay in it for a decent period of time, then now is as good a time as any to jump in, just like with investing in general.
ftw the index for volatility is essentially at all time lows :)
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tcrez »

I'm coming into this thread a bit late. I found the backtest to 1955.

Did anyone backtest in the decades before that? I'm curious to see data back to the 1800s if possible.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DMoogle »

joelin02 wrote: Sat May 29, 2021 1:03 pm I'm coming into this thread a bit late. I found the backtest to 1955.

Did anyone backtest in the decades before that? I'm curious to see data back to the 1800s if possible.
A tremendous amount of work was put into creating these backtests. I'd suggest you ask the MVPs in this thread: viewtopic.php?t=272640&start=100
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by perfectuncertainty »

parval wrote: Fri May 28, 2021 3:03 pm
rchmx1 wrote: Fri May 28, 2021 1:06 pm
olympia_t wrote: Fri May 28, 2021 12:43 pm Sorry to revive this old thread - wondering if you could share any perspective for someone considering 55/45 now? Have been considering it but have been sitting on the sidelines a bit too long worrying we're in a bubble. Thanks so much!
The way I think about it, if you view this as a long term strategy then your approach shouldn't different from a 1x. Time in the market is better than timing the market. Someone could use the exact same reasoning as justification for staying in cash instead of investing in a 1x AA of stocks and bonds. UPRO could be considered "expensive now," while TMF could be considered "cheap," or at least back down to closer to its "normal" price. A better question than, "Is this a good time to jump in," is whether you'll be ok with pumping up the volatility you'll be experiencing with this portion of your portfolio. If you're actually ok with high volatility, and you believe in the ideas behind this strategy, and you expect to stay in it for a decent period of time, then now is as good a time as any to jump in, just like with investing in general.
ftw the index for volatility is essentially at all time lows :)
The VIX isn't - what index are you referring to?
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan »

olympia_t wrote: Fri May 28, 2021 12:43 pm
MotoTrojan wrote: Mon Aug 12, 2019 6:03 pm

Yup, I am the poster-child of what not to do, but it has paid of handsomely and now I can buy & hold.
Sorry to revive this old thread - wondering if you could share any perspective for someone considering 55/45 now? Have been considering it but have been sitting on the sidelines a bit too long worrying we're in a bubble. Thanks so much!
Since that post I had swapped to 43/57 UPRO/EDV, which I still think is as much better way to approach this moving forward (bit less leverage, lower overall expense-ratio and borrowing costs, less volatility decay). The 43/57 UPRO/EDV has about the same volatility ratio as 55/45 UPRO/TMF, just with ~78% of the overall leverage.

I got out entirely after a ~45% overall gain on what was initially 28% of my portfolio after feeling the expected return (assuming rates stayed flat) was not worth the risk, in particular the behavioral risk if rates started to rise swiftly. I also was gaining more knowledge and conviction in systematic value investing and wanted to make room to pursue that more deeply. I have since gone off the deep-end and am a full-bore factor-junkie, rocking a 100% tilted portfolio.

As to your bubble comment, this is supposed to be a bubble-resistant strategy thanks to the long-treasuries. It is obviously still highly exposed to equity though so will still see downside pressure.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by majasan »

Gui0507 wrote: Sat May 15, 2021 10:52 am Are there any books out there that provide similar information of these strategies anyone can recommend other than Lifecycle investing?

Thanks!
1. Investable Benchmarks: A Guide to ETFs, Technology and Leverage
David S. Kreinces
2. The 20% Solution: A Long Term Investment Strategy That Averages 20.13% Per Year Paperback – May 16, 2019
by Tim Morris
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

Not sure there's a pay wall but today's WSJ has an interesting article on the belief that all underpinnings of HFEA as regards the Fed mandate and policy action are now a thing of the past.
https://www.wsj.com/articles/the-wall-s ... lead_pos13
Basically inflation returning and positive stocks bonds correlation with no more rate cuts possible when stocks crash.
OP's nightmare -and ours too- :twisted:
Better lucky than smart.
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Gui0507
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Gui0507 »

taojaxx wrote: Tue Jun 01, 2021 10:35 pm Not sure there's a pay wall but today's WSJ has an interesting article on the belief that all underpinnings of HFEA as regards the Fed mandate and policy action are now a thing of the past.
https://www.wsj.com/articles/the-wall-s ... lead_pos13
Basically inflation returning and positive stocks bonds correlation with no more rate cuts possible when stocks crash.
OP's nightmare -and ours too- :twisted:
Couldn’t read it since I’m not subscribed to WSJ. So what you are saying or rather what its saying is that TMF for example will not provide any insurance as a hedge for UPRO when and if a market crash with rising rates since bonds notoriously perform poorly in that scenario?

Damn, I just started this less than a month ago 😆
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

Gui0507 wrote: Tue Jun 01, 2021 10:49 pm
taojaxx wrote: Tue Jun 01, 2021 10:35 pm Not sure there's a pay wall but today's WSJ has an interesting article on the belief that all underpinnings of HFEA as regards the Fed mandate and policy action are now a thing of the past.
https://www.wsj.com/articles/the-wall-s ... lead_pos13
Basically inflation returning and positive stocks bonds correlation with no more rate cuts possible when stocks crash.
OP's nightmare -and ours too- :twisted:
Couldn’t read it since I’m not subscribed to WSJ. So what you are saying or rather what its saying is that TMF for example will not provide any insurance as a hedge for UPRO when and if a market crash with rising rates since bonds notoriously perform poorly in that scenario?

Damn, I just started this less than a month ago 😆
It's alright guys! JPow to the rescue!

Very interesting comments that Robot Monster linked in another thread:
https://www.youtube.com/watch?app=desktop&v=zG4BmzD_T8A

Comments about "tools" to keep inflation in check (I imagine some good ol' quantitative tightening). :twisted: Also, his comments about the nature of the inflation right now is in line with my gut feeling, whatever that's worth. lol

Now the question is: who do you trust more, the government or WSJ?
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