HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by jarjarM »

firebirdparts wrote: Tue Nov 16, 2021 9:27 am
tomphilly wrote: Mon Nov 15, 2021 9:44 am But I've also showed in another PV that it performed comparably to HFEA since 2012 - the point I'm trying to make is, it may be a viable medium term flavor of HFEA and one that may also outperform vanilla HFEA during periods of inflation, if you're the type of investor that wants to play with HFEA.
It is comparable. My take is it's 70% UPRO in a raging bull market. VIXY is just water-down-a-froghole that is draining out the excess UPRO. Therefore, it's comparable, but at least in that time frame, it doesn't give you any indication that it's okay. It might be.

I tried VIX hedging this year, and there are several threads where people went into it in some detail. Hasn't paid off, but of course, that's a good problem to have.
We all hope to never have to use that VIX hedge but it'll likely happen sometime in the future. In the meantime, the question is that is it worthwhile to hold an expensive (?) insurance in the portfolio. Only if we can market time :twisted:
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

investor.was.here wrote: Tue Nov 16, 2021 1:21 pm Thoughts on substituting mHFEA (45/55 UPRO/TYA) with 75/25 1.5x-NTSX/TYA in a taxable account?

The idea here is to use margin to lever up the NTSX rather than use UPRO. NTSX holds unlevered equities, avoiding rollover costs, and has a higher maintenance margin. We now have an additional margin cost, but I think rollover cost and tax savings would offset it (at 1.58% APY on IBKR). Not sure at what rate it'd be less attractive. It should be resistant to a margin call and we can easily add NTSE/NTSI to the mix for international exposure, if desired.
It’s worth doing the math but I would guess the break even is at 1% margin rates and 1.58% is a losing proposition.
chrisdds98
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by chrisdds98 »

investor.was.here wrote: Tue Nov 16, 2021 1:21 pm Thoughts on substituting mHFEA (45/55 UPRO/TYA) with 75/25 1.5x-NTSX/TYA in a taxable account?

The idea here is to use margin to lever up the NTSX rather than use UPRO. NTSX holds unlevered equities, avoiding rollover costs, and has a higher maintenance margin. We now have an additional margin cost, but I think rollover cost and tax savings would offset it (at 1.58% APY on IBKR). Not sure at what rate it'd be less attractive. It should be resistant to a margin call and we can easily add NTSE/NTSI to the mix for international exposure, if desired.
its probably fine. you do have risk of a margin call. neither ntsx or tya have much trading volume and are both very new. they may shut down or not perform as expected.
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

jarjarM wrote: Tue Nov 16, 2021 1:36 pm We all hope to never have to use that VIX hedge but it'll likely happen sometime in the future. In the meantime, the question is that is it worthwhile to hold an expensive (?) insurance in the portfolio. Only if we can market time
What's your UPRO/TMF ratio looking like right now? Last time you were down to 16% TMF or something, no? I ask because in the 6 weeks since I rebalanced last, I've gone from 70/30 TQQQ/TMF to currently 76/24. We keep this up and it's going to be a painful rebalance losing all those pretty NASDAQ shares :(
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

Afrofreak wrote: Tue Nov 16, 2021 1:54 pm
jarjarM wrote: Tue Nov 16, 2021 1:36 pm We all hope to never have to use that VIX hedge but it'll likely happen sometime in the future. In the meantime, the question is that is it worthwhile to hold an expensive (?) insurance in the portfolio. Only if we can market time
What's your UPRO/TMF ratio looking like right now? Last time you were down to 16% TMF or something, no? I ask because in the 6 weeks since I rebalanced last, I've gone from 70/30 TQQQ/TMF to currently 76/24. We keep this up and it's going to be a painful rebalance losing all those pretty NASDAQ shares :(
Yeah, it's down to ~14% as of this morning. I'm definitely market timing a bit given the high inflation rate and high likelihood of rate increase. Also, without Fed intervention, I would expect the long end of the yield curve to move up. It is painful to see good money going to bad but I guess that's part of the discipline. Either you're discipline or the other possibilities are let it move to higher equity position (that's what I'm doing), moving to shorter duration with higher leverage in the bond allocation (skier's ITT proposal) or VIXY (tom's proposal). No matter what, part of the portfolio will hurt a bit but overall portfolio should be looking pretty good :beer
Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

jarjarM wrote: Tue Nov 16, 2021 2:13 pm
Afrofreak wrote: Tue Nov 16, 2021 1:54 pm
jarjarM wrote: Tue Nov 16, 2021 1:36 pm We all hope to never have to use that VIX hedge but it'll likely happen sometime in the future. In the meantime, the question is that is it worthwhile to hold an expensive (?) insurance in the portfolio. Only if we can market time
What's your UPRO/TMF ratio looking like right now? Last time you were down to 16% TMF or something, no? I ask because in the 6 weeks since I rebalanced last, I've gone from 70/30 TQQQ/TMF to currently 76/24. We keep this up and it's going to be a painful rebalance losing all those pretty NASDAQ shares :(
Yeah, it's down to ~14% as of this morning. I'm definitely market timing a bit given the high inflation rate and high likelihood of rate increase. Also, without Fed intervention, I would expect the long end of the yield curve to move up. It is painful to see good money going to bad but I guess that's part of the discipline. Either you're discipline or the other possibilities are let it move to higher equity position (that's what I'm doing), moving to shorter duration with higher leverage in the bond allocation (skier's ITT proposal) or VIXY (tom's proposal). No matter what, part of the portfolio will hurt a bit but overall portfolio should be looking pretty good :beer
If you were not market timing (no judgement I'm doing the same thing @ 65/35), how much TMF are you targeting
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

Ramjet wrote: Tue Nov 16, 2021 2:20 pm
jarjarM wrote: Tue Nov 16, 2021 2:13 pm
Afrofreak wrote: Tue Nov 16, 2021 1:54 pm
jarjarM wrote: Tue Nov 16, 2021 1:36 pm We all hope to never have to use that VIX hedge but it'll likely happen sometime in the future. In the meantime, the question is that is it worthwhile to hold an expensive (?) insurance in the portfolio. Only if we can market time
What's your UPRO/TMF ratio looking like right now? Last time you were down to 16% TMF or something, no? I ask because in the 6 weeks since I rebalanced last, I've gone from 70/30 TQQQ/TMF to currently 76/24. We keep this up and it's going to be a painful rebalance losing all those pretty NASDAQ shares :(
Yeah, it's down to ~14% as of this morning. I'm definitely market timing a bit given the high inflation rate and high likelihood of rate increase. Also, without Fed intervention, I would expect the long end of the yield curve to move up. It is painful to see good money going to bad but I guess that's part of the discipline. Either you're discipline or the other possibilities are let it move to higher equity position (that's what I'm doing), moving to shorter duration with higher leverage in the bond allocation (skier's ITT proposal) or VIXY (tom's proposal). No matter what, part of the portfolio will hurt a bit but overall portfolio should be looking pretty good :beer
If you were not market timing (no judgement I'm doing the same thing @ 65/35), how much TMF are you targeting
Honestly, probably around 30-40% depending on the investment environment so in essence where you're right now :D
stimulacra
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by stimulacra »

Just rebalanced today back to 55/45 (UPRO/TMF)… 

Up ~60% overall since I started (09/2020).

Kind of ho-hum, I've only checked my M1 account a handful of times since June.

I haven't kept up with this thread at all and am curious to catch up on how all the side explorations are panning out for everyone.
investor.was.here
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

skierincolorado wrote: Tue Nov 16, 2021 1:38 pm It’s worth doing the math but I would guess the break even is at 1% margin rates and 1.58% is a losing proposition.
Thanks for the insight. I'm curious, if you're trading futures, why haven't you incorporated inflation hedges into your portfolio?

It's been discussed here a bunch and my take is the main reason we haven't is the lack of good LETFs for it.
km91
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by km91 »

Is 55% UPRO / 45% TMF still recommended? The other thread seems to have settled on 40% UPRO / 60% TYD
investor.was.here
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

km91 wrote: Wed Nov 17, 2021 3:02 pm Is 55% UPRO / 45% TMF still recommended? The other thread seems to have settled on 40% UPRO / 60% TYD
Which thread? The most recently discussed here was 45% UPRO / 55% TYD, with a larger (2x) position. TYA may be a better alternative, depending on your broker.
Last edited by investor.was.here on Thu Nov 18, 2021 4:05 am, edited 2 times in total.
Hfearless
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

investor.was.here wrote: Wed Nov 17, 2021 3:08 pm with a larger (2x) position
What exactly do you mean by that? And why would viability of TYA depend on the broker, and not, say, on its AUM?
investor.was.here
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

Hfearless wrote: Wed Nov 17, 2021 5:34 pm What exactly do you mean by that? And why would viability of TYA depend on the broker, and not, say, on its AUM?
mHFEA is lower risk, lower reward but higher sharpe. So, to maintain the same level of return as HFEA, we need to increase the assets allocated to it. In skierincolorado's example, they compared a 10% SPY with 10% HFEA to 20% mHFEA so I read that as 2x. It seems like a lot to me but I didn't analyze it.

And TYA is not available on all brokers, namely M1Finance. It's liquidity is unclear, I haven't tried to trade it yet nor have I seen any reports on it. Not mentioned much but I think it's a quarterly reset, which may have some implications for decay when paired with a daily reset ETF. I haven't seen any comments on it but I'd think that'd hurt the performance of the portfolio, even though it's more suitable for long term holding and has lower fees.
TheDoctor91
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by TheDoctor91 »

How much would one use TYA to replace TMF in HFEA? Would a 45/55 UPRO/TYA work? 45*3 = 135, 55*2.5=137.5, approximately 50/50 portfolio with LCB and ITT. 2.7x leverage instead of 3x. Is it worth optimizing for sharpe ratios? I would think not if it’s at the expense of returns over time.
investor.was.here
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

TheDoctor91 wrote: Thu Nov 18, 2021 12:14 am How much would one use TYA to replace TMF in HFEA? Would a 45/55 UPRO/TYA work? 45*3 = 135, 55*2.5=137.5, approximately 50/50 portfolio with LCB and ITT. 2.7x leverage instead of 3x. Is it worth optimizing for sharpe ratios? I would think not if it’s at the expense of returns over time.
The idea is to increase the portfolio allocate to mHFEA to compensate for the lower return. This is an only an option for those with other assets to eat into. The new allocation (mHFEA) should have a higher return and sharpe ratio than the old one (HFEA + SPY).

And not sure on replacement but I think they were saying 1:1. Maybe because the implicit leverage from the term? Or laziness.
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

investor.was.here wrote: Wed Nov 17, 2021 7:57 pm
Hfearless wrote: Wed Nov 17, 2021 5:34 pm What exactly do you mean by that? And why would viability of TYA depend on the broker, and not, say, on its AUM?
mHFEA is lower risk, lower reward but higher sharpe. So, to maintain the same level of return as HFEA, we need to increase the assets allocated to it. In skierincolorado's example, they compared a 10% SPY with 10% HFEA to 20% mHFEA so I read that as 2x. It seems like a lot to me but I didn't analyze it.

And TYA is not available on all brokers, namely M1Finance. It's liquidity is unclear, I haven't tried to trade it yet nor have I seen any reports on it. Not mentioned much but I think it's a quarterly reset, which may have some implications for decay when paired with a daily reset ETF. I haven't seen any comments on it but I'd think that'd hurt the performance of the portfolio, even though it's more suitable for long term holding and has lower fees.
This assumes the non-HFEA was already 100% equities. Going from SPY to mHFEA isn't that much riskier, and going from HFEA to mHFEA is less risk. So in the example 20% mHFEA is indeed higher return and less risk than 10% HFEA + 10% SPY.

If somebody had the other 90% in a 60/40 portfolio, then it would be more like 10% HFEA + 5% 60/40 ----> 15% mHFEA for higher return while keeping the same or lower risk.
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

TheDoctor91 wrote: Thu Nov 18, 2021 12:14 am How much would one use TYA to replace TMF in HFEA? Would a 45/55 UPRO/TYA work? 45*3 = 135, 55*2.5=137.5, approximately 50/50 portfolio with LCB and ITT. 2.7x leverage instead of 3x. Is it worth optimizing for sharpe ratios? I would think not if it’s at the expense of returns over time.
Yes I think 45/55 UPRO/TYA is a strong AA. Lower fees on TYA and ITT beats LTT. While it's not quite enough duration in bonds to really maximize sharpe ratio, the sharpe is still higher than HFEA and it has less exposure to interest rate increases.
Last edited by skierincolorado on Thu Nov 18, 2021 3:08 pm, edited 1 time in total.
cardioverter
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cardioverter »

skierincolorado wrote: Thu Nov 18, 2021 12:32 pm
TheDoctor91 wrote: Thu Nov 18, 2021 12:14 am How much would one use TYA to replace TMF in HFEA? Would a 45/55 UPRO/TYA work? 45*3 = 135, 55*2.5=137.5, approximately 50/50 portfolio with LCB and ITT. 2.7x leverage instead of 3x. Is it worth optimizing for sharpe ratios? I would think not if it’s at the expense of returns over time.
Yes I think 45/55 UPRO/TYA is a strong AA. Lower fees on TYA and ITT beats LTT.
Purchased TYA on a small account. Bid/ask is fairly decent (<$0.05 spread). Not a concern for my purpose here, but I can imagine on a larger account, transitioning from a large amount of TMF/TYD or just a big lump sum into TYA could potentially cause some issue since daily volume is quite low. Maybe do it over several trading days/weeks if that's the case. Still, 0.15% ER (0.25% sometime next year) is way more tolerable than TYD's 1.09%.
comeinvest
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

cardioverter wrote: Thu Nov 18, 2021 2:59 pm
skierincolorado wrote: Thu Nov 18, 2021 12:32 pm
TheDoctor91 wrote: Thu Nov 18, 2021 12:14 am How much would one use TYA to replace TMF in HFEA? Would a 45/55 UPRO/TYA work? 45*3 = 135, 55*2.5=137.5, approximately 50/50 portfolio with LCB and ITT. 2.7x leverage instead of 3x. Is it worth optimizing for sharpe ratios? I would think not if it’s at the expense of returns over time.
Yes I think 45/55 UPRO/TYA is a strong AA. Lower fees on TYA and ITT beats LTT.
Purchased TYA on a small account. Bid/ask is fairly decent (<$0.05 spread). Not a concern for my purpose here, but I can imagine on a larger account, transitioning from a large amount of TMF/TYD or just a big lump sum into TYA could potentially cause some issue since daily volume is quite low. Maybe do it over several trading days/weeks if that's the case. Still, 0.15% ER (0.25% sometime next year) is way more tolerable than TYD's 1.09%.
My (friendly) advice: Sit down once and familiarize yourself with futures, and be done with LETFs and similar intermediaries and middlemen for the rest of your life (except maybe some employer sponsored 401k's).
Hfearless
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

comeinvest wrote: Thu Nov 18, 2021 3:35 pm My (friendly) advice: Sit down once and familiarize yourself with futures, and be done with LETFs and similar intermediaries and middlemen for the rest of your life (except maybe some employer sponsored 401k's).
But ETFs defer taxation, which can then be possibly avoided through whatever tricks are available at the time of retirement, be it relocation to Dubai or taking out margin loans with no intention to ever repay.
cardioverter
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cardioverter »

comeinvest wrote: Thu Nov 18, 2021 3:35 pm
cardioverter wrote: Thu Nov 18, 2021 2:59 pm
skierincolorado wrote: Thu Nov 18, 2021 12:32 pm
TheDoctor91 wrote: Thu Nov 18, 2021 12:14 am How much would one use TYA to replace TMF in HFEA? Would a 45/55 UPRO/TYA work? 45*3 = 135, 55*2.5=137.5, approximately 50/50 portfolio with LCB and ITT. 2.7x leverage instead of 3x. Is it worth optimizing for sharpe ratios? I would think not if it’s at the expense of returns over time.
Yes I think 45/55 UPRO/TYA is a strong AA. Lower fees on TYA and ITT beats LTT.
Purchased TYA on a small account. Bid/ask is fairly decent (<$0.05 spread). Not a concern for my purpose here, but I can imagine on a larger account, transitioning from a large amount of TMF/TYD or just a big lump sum into TYA could potentially cause some issue since daily volume is quite low. Maybe do it over several trading days/weeks if that's the case. Still, 0.15% ER (0.25% sometime next year) is way more tolerable than TYD's 1.09%.
My (friendly) advice: Sit down once and familiarize yourself with futures, and be done with LETFs and similar intermediaries and middlemen for the rest of your life (except maybe some employer sponsored 401k's).
For those who are using futures (for mHFEA or otherwise), what brokerage is everyone using? And I'm assuming tax-advantaged accounts?
Last edited by cardioverter on Sat Nov 20, 2021 3:17 pm, edited 1 time in total.
comeinvest
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

Hfearless wrote: Thu Nov 18, 2021 4:41 pm
comeinvest wrote: Thu Nov 18, 2021 3:35 pm My (friendly) advice: Sit down once and familiarize yourself with futures, and be done with LETFs and similar intermediaries and middlemen for the rest of your life (except maybe some employer sponsored 401k's).
But ETFs defer taxation, which can then be possibly avoided through whatever tricks are available at the time of retirement, be it relocation to Dubai or taking out margin loans with no intention to ever repay.
I think there was a post a few pages back in the mHFEA thread that showed that the futures win even after tax. (Probably even compared to TYA, although it's closer.)
viewtopic.php?p=6308901#p6308901
viewtopic.php?p=6321842#p6321842
viewtopic.php?p=6322512#p6322512
viewtopic.php?p=6322951#p6322951

Adjust zkn's results for the lower expense ratio of TYA vs. TYD, and it won't move the needle. Unless someone detects a flaw in zkn's calc. The big difference between ZF/ZN and TYD seems odd.
L2F
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by L2F »

comeinvest wrote: Thu Nov 18, 2021 4:55 pm
Hfearless wrote: Thu Nov 18, 2021 4:41 pm
comeinvest wrote: Thu Nov 18, 2021 3:35 pm My (friendly) advice: Sit down once and familiarize yourself with futures, and be done with LETFs and similar intermediaries and middlemen for the rest of your life (except maybe some employer sponsored 401k's).
But ETFs defer taxation, which can then be possibly avoided through whatever tricks are available at the time of retirement, be it relocation to Dubai or taking out margin loans with no intention to ever repay.
I think there was a post a few pages back in the mHFEA thread that showed that the futures win even after tax. (Probably even compared to TYA, although it's closer.)
viewtopic.php?p=6308901#p6308901
viewtopic.php?p=6321842#p6321842
viewtopic.php?p=6322512#p6322512
viewtopic.php?p=6322951#p6322951

Adjust zkn's results for the lower expense ratio of TYA vs. TYD, and it won't move the needle. Unless someone detects a flaw in zkn's calc. The big difference between ZF/ZN and TYD seems odd.
I don't think the same will be true for futures on stocks so (unless you are OK with callable margin and box spreads) LETFs should win.
comeinvest
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

L2F wrote: Thu Nov 18, 2021 6:05 pm
comeinvest wrote: Thu Nov 18, 2021 4:55 pm
Hfearless wrote: Thu Nov 18, 2021 4:41 pm
comeinvest wrote: Thu Nov 18, 2021 3:35 pm My (friendly) advice: Sit down once and familiarize yourself with futures, and be done with LETFs and similar intermediaries and middlemen for the rest of your life (except maybe some employer sponsored 401k's).
But ETFs defer taxation, which can then be possibly avoided through whatever tricks are available at the time of retirement, be it relocation to Dubai or taking out margin loans with no intention to ever repay.
I think there was a post a few pages back in the mHFEA thread that showed that the futures win even after tax. (Probably even compared to TYA, although it's closer.)
viewtopic.php?p=6308901#p6308901
viewtopic.php?p=6321842#p6321842
viewtopic.php?p=6322512#p6322512
viewtopic.php?p=6322951#p6322951

Adjust zkn's results for the lower expense ratio of TYA vs. TYD, and it won't move the needle. Unless someone detects a flaw in zkn's calc. The big difference between ZF/ZN and TYD seems odd.
I don't think the same will be true for futures on stocks so (unless you are OK with callable margin and box spreads) LETFs should win.
Equity index futures have a slippage of ca. 0.3-0.4%. I don't see how UPRO can win, given that UPRO itself uses futures (or swaps? probably doesn't matter) plus a fee; not to mention the unknown effect of volatility decay and some other artifacts, where my understanding is you have to hope that the index doesn't mean revert too much but trends more in the future, or that hedge funds bail you out.
I personally also use international equity index futures, which probably have an additional advantage after withholding tax, although I still have to calculate my effective cost.
skynjia
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skynjia »

Hello Bogleheads,
I have been following this thread for sometime now. Still learning! I did not want to start a separate thread, so thought I would post here. Would like to incorporate some leverage in my portfolio, especially HSA. Would like to know how are you guys doing this inside Fidelity HSA, anyone using the modified HFEA or are UPRO and TMF the only options there, or are they options at all? Your suggestions will be valuable. Thank You!
zkn
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by zkn »

comeinvest wrote: Thu Nov 18, 2021 8:21 pm
L2F wrote: Thu Nov 18, 2021 6:05 pm
comeinvest wrote: Thu Nov 18, 2021 4:55 pm
Hfearless wrote: Thu Nov 18, 2021 4:41 pm
comeinvest wrote: Thu Nov 18, 2021 3:35 pm My (friendly) advice: Sit down once and familiarize yourself with futures, and be done with LETFs and similar intermediaries and middlemen for the rest of your life (except maybe some employer sponsored 401k's).
But ETFs defer taxation, which can then be possibly avoided through whatever tricks are available at the time of retirement, be it relocation to Dubai or taking out margin loans with no intention to ever repay.
I think there was a post a few pages back in the mHFEA thread that showed that the futures win even after tax. (Probably even compared to TYA, although it's closer.)
viewtopic.php?p=6308901#p6308901
viewtopic.php?p=6321842#p6321842
viewtopic.php?p=6322512#p6322512
viewtopic.php?p=6322951#p6322951

Adjust zkn's results for the lower expense ratio of TYA vs. TYD, and it won't move the needle. Unless someone detects a flaw in zkn's calc. The big difference between ZF/ZN and TYD seems odd.
I don't think the same will be true for futures on stocks so (unless you are OK with callable margin and box spreads) LETFs should win.
Equity index futures have a slippage of ca. 0.3-0.4%. I don't see how UPRO can win, given that UPRO itself uses futures (or swaps? probably doesn't matter) plus a fee; not to mention the unknown effect of volatility decay, where my understanding is you have to hope that the index doesn't mean revert too much but trends more in the future, or that hedge funds bail you out.
I personally also use international equity index futures, which probably have an additional advantage after withholding tax, although I still have to calculate my effective cost.
TYA and TYD are different beasts, so I would not recommend generalizing the results from TYD to TYA by adjusting for expense ratio alone. TYD uses swaps and daily resets leverage. TYA uses futures and presumably tracks more like quarterly reset (quarterly rolling). TYA may be reasonable if someone wants to pay the expense ratio for someone else to manage future contracts for them, but we'll see when we have more history for TYA.

The reset period has implications on what the investor is implicitly betting on concerning autocorrelation of daily/weekly/monthly/quarterly returns. Daily reset works best with positive autocorrelation of daily returns, but daily returns have been negatively autocorrelated in the last couple of decades because markets have been mean reverting. I think this is part of the puzzle why TYD underperforms IEF in terms of Sharpe despite that TYD leverages up IEF. I don't know if it is reasonable to continue to bet on negative autocorrelation. Daily reset also obviously makes one vulnerable to flash crashes that occur over more than one day.

Aside from daily-reset underperforming monthly or quarterly reset periods in recent history, it is clear that leveraged reset swap ETFs (TYD, TMF, UPRO, etc.) have non-trivial fees. Aside from the explicit expense ratio, you have the expenses of holding ETFs inside an ETF (for TYD, TMF) and embedded leveraged fees from the swaps that subtract from returns. With the SEC banning new 3x funds, existing 3x funds have no reason to reduce their fees.

When you add all that to that observation that longer duration bonds have underperformed historically (risk-adjusted), you get a picture why TMF in particular has underperformed. Furthermore, despite sometimes stated to the contrary in this thread, shorter duration bonds are definitely more sensitive to the Fed's actions on the cash rate and rally more in a deflationary shock crash than longer duration bonds when matching on risk. So shorter duration bonds leveraged cheaply (i.e., with futures) is a better hedge than TMF, for sure.

My view is that sticking with a leveraged strategy once initiated is so critical that a big risk with investors who are only comfortable with leveraged ETFs is that either the closure of the ETF or the deleveraging of the ETFs would force the investor to abandon the strategy. Even if someone wants to stick with leveraged ETFs, I would strongly recommend they become familiar with a backup plan to re-lever at short notice if necessary. Especially because if your leveraged ETFs did close or deleverage, it would probably happen at the worst possible time to abandon the strategy (in a major crash), locking in losses. Difference in fees or after-tax return is only part of the comparison, the integrity of the leverage should also be considered.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

zkn wrote: Thu Nov 18, 2021 9:25 pm ... With the SEC banning new 3x funds, existing 3x funds have no reason to reduce their fees...

My view is that sticking with a leveraged strategy once initiated is so critical that a big risk with investors who are only comfortable with leveraged ETFs is that either the closure of the ETF or the deleveraging of the ETFs would force the investor to abandon the strategy. Even if someone wants to stick with leveraged ETFs, I would strongly recommend they become familiar with a backup plan to re-lever at short notice if necessary. Especially because if your leveraged ETFs did close or deleverage, it would probably happen at the worst possible time to abandon the strategy (in a major crash), locking in losses. Difference in fees or after-tax return is only part of the comparison, the integrity of the leverage should also be considered.
When does the SEC ban 3x funds? So TYA was the last one?
Seems like the SEC keeps working to harm American investors - it gets worse and worse over the decades. Maybe once they find nothing else to do to harm retail investors and favor institutional investors, they will prohibit futures for retail investors, or futures in retirement accounts, along with any other form of leverage. After all, the SEC has to justify its existence somehow. Then you can kiss goodbye your mHFEA.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by L2F »

comeinvest wrote: Thu Nov 18, 2021 8:21 pm Equity index futures have a slippage of ca. 0.3-0.4%. I don't see how UPRO can win, given that UPRO itself uses futures (or swaps? probably doesn't matter) plus a fee; not to mention the unknown effect of volatility decay and some other artifacts, where my understanding is you have to hope that the index doesn't mean revert too much but trends more in the future, or that hedge funds bail you out.
I personally also use international equity index futures, which probably have an additional advantage after withholding tax, although I still have to calculate my effective cost.
I agree that futures have lower costs and allows for more efficient leverage reset strategies.
However, I'm not convinced futures are still better after tax - especially in a bull years.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

L2F wrote: Fri Nov 19, 2021 3:23 am
comeinvest wrote: Thu Nov 18, 2021 8:21 pm Equity index futures have a slippage of ca. 0.3-0.4%. I don't see how UPRO can win, given that UPRO itself uses futures (or swaps? probably doesn't matter) plus a fee; not to mention the unknown effect of volatility decay and some other artifacts, where my understanding is you have to hope that the index doesn't mean revert too much but trends more in the future, or that hedge funds bail you out.
I personally also use international equity index futures, which probably have an additional advantage after withholding tax, although I still have to calculate my effective cost.
I agree that futures have lower costs and allows for more efficient leverage reset strategies.
However, I'm not convinced futures are still better after tax - especially in a bull years.
I personally use index replication (sampling) with ca. 50 individual stocks in taxable, not futures.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jz451 »

I just found out about this strategy yesterday and retroactively looking through some of the comments chronologically and was intrigued as it seems like a fun experiment. Looking back, using data from Yahoo Finance if one were to invest $1000 starting at the top for UPRO on 2/19/20, 55% UPRO, 45% TMF, rebalanced quarterly at the end of the first day of January, April, July, and October, the investor would have a portfolio of $2077. A 108% gain over one of the most chaotic volatile periods ever with a max drawdown over the period was 43%.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

jz451 wrote: Fri Nov 19, 2021 12:50 pm I just found out about this strategy yesterday and retroactively looking through some of the comments chronologically and was intrigued as it seems like a fun experiment. Looking back, using data from Yahoo Finance if one were to invest $1000 starting at the top for UPRO on 2/19/20, 55% UPRO, 45% TMF, rebalanced quarterly at the end of the first day of January, April, July, and October, the investor would have a portfolio of $2077. A 108% gain over one of the most chaotic volatile periods ever with a max drawdown over the period was 43%.
I genuinely think Hedgefundie should win some kind of investment award. It's so simple yet so genius.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tinyz »

Hi guys,

for reasons
Last edited by Tinyz on Fri Nov 26, 2021 4:19 pm, edited 1 time in total.
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

Afrofreak wrote: Fri Nov 19, 2021 4:45 pm
jz451 wrote: Fri Nov 19, 2021 12:50 pm I just found out about this strategy yesterday and retroactively looking through some of the comments chronologically and was intrigued as it seems like a fun experiment. Looking back, using data from Yahoo Finance if one were to invest $1000 starting at the top for UPRO on 2/19/20, 55% UPRO, 45% TMF, rebalanced quarterly at the end of the first day of January, April, July, and October, the investor would have a portfolio of $2077. A 108% gain over one of the most chaotic volatile periods ever with a max drawdown over the period was 43%.
I genuinely think Hedgefundie should win some kind of investment award. It's so simple yet so genius.
"My fellow degenerates, I welcome you to the Annual Fallen Bogleheads Investment Awards... Please enjoy the delicious cockaaatail shrimp on display and a cold Yuengling to drown it all down. Now for our first award..." :mrgreen:

I have been lurking the past few months and I see some folks jittery because of the inflation and rate scares. These small dips here and there are enough to worry people... and it makes me wonder how many can actually stick with 3x allocations, let alone complete portfolios. I think this is a rarely discussed point, IMO probably the true silent killer.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

Tinyz wrote: Fri Nov 19, 2021 9:16 pm Another concern that I have is my allocation plan. I am still young, with more than 20 years of time horizon. Currently, I am doing a 100% equity on ISAC. But, I am planning to allocate a 10% of my portfolio in this strategy, 6% UPRO and 4% TMF.
This has been discussed multiple times, and it does not make sense to dedicate this many percent to unleveraged equities and that many to HFEA. Instead, determine the desired ratio of equities to bonds, the desired leverage of your overall portfolio, and implement that.

90% equities (let’s say SPY for simplicity) + 6% UPRO + 4% TMF means 108% SPY, 12% TLT, for an equities-to-bonds ratio of 9:1 and a total leverage of 120%. Backtesting reveals only an extra percentage point of CAGR while drawdowns stay the same.

If you think HFEA is at all a good idea, you should bring your overall allocation closer to 60:40, which, at 120% leverage, slightly outperforms an equity-only allocation and makes the drawdowns considerably milder.

Then you could replace long-term treasuries with intermediate-term ones, at a ratio of about 1:3, which, while nominally it increases the leverage, decreases risk further.

You can take as much or as little risk as you wish, but the risk-adjusted returns are better if you think in terms of overall asset allocation rather than separate buckets.

Finally, if you do decide 108% SPY, 12% TLT is the way to go, there are multiple ways of achieving that. For example, 78% SPY, 10% UPRO, 12% TLT is the exact same thing but it only leverages SPY, which might be better in terms of taxation.

Also, what’s the taxation of futures in Singapore? Perhaps that could solve your problem?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tinyz »

Hfearless wrote: Sat Nov 20, 2021 5:20 pm
This has been discussed multiple times, and it does not make sense to dedicate this many percent to unleveraged equities and that many to HFEA. Instead, determine the desired ratio of equities to bonds, the desired leverage of your overall portfolio, and implement that.
Thank you so much! I had did some tinkering as well with some backtest.

However, from what I see, if I use the 60/40 allocation with TLT, the minimum Leverage ratio seems to be at around 150% and anything above does not make any sense. The bond component seems big and I think something seems wrong, the leverage ratio does not seem to provide any difference. I had did a bull time frame from Dec 2009 to Dec 2019 but the results does not seem satisfactory, the returns seem to be the same but it does have slightly better sharpee ratio. I had also tried a rising interest from near 0 to 2.5% (a reasonable increase that I felt the fed will take) and had even included the covid crush with a time frame of Jul 2015 to Mar 2020. In both case, the returns seems to give a maximum of 1% higher with a little better sharpee ratio. https://www.portfoliovisualizer.com/bac ... on10_1=-50

This gets me a little confused. It gets me to think this strategy highly requires TMF or I need to separate it as different bucket. I am not sure if I had gotten any mistakes. I find that a 70/30 allocation would have been better with TLT and anything different gives poor results.

Also, I do not think I had tax on futures in Singapore. I do not have capital gain tax. Hence, I think the rebalancing issue will not affect me. The only tax is the 30% withholding dividend tax which applies to the TLT/TMF and I think it will be quite a drag, 0.3% less annualized? LOL. Not sure how American folks fared.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

Tinyz wrote: Sun Nov 21, 2021 5:14 am However, from what I see, if I use the 60/40 allocation with TLT, the minimum Leverage ratio seems to be at around 150% and anything above does not make any sense. The bond component seems big and I think something seems wrong, the leverage ratio does not seem to provide any difference. I had did a bull time frame from Dec 2009 to Dec 2019 but the results does not seem satisfactory, the returns seem to be the same but it does have slightly better sharpee ratio. I had also tried a rising interest from near 0 to 2.5% (a reasonable increase that I felt the fed will take) and had even included the covid crush with a time frame of Jul 2015 to Mar 2020. In both case, the returns seems to give a maximum of 1% higher with a little better sharpee ratio. https://www.portfoliovisualizer.com/bac ... on10_1=-50

This gets me a little confused. It gets me to think this strategy highly requires TMF or I need to separate it as different bucket. I am not sure if I had gotten any mistakes. I find that a 70/30 allocation would have been better with TLT and anything different gives poor results.
The backtest link shows you using intermediate treasuries (VFITX), not long-term treasuries (VUSTX). Maybe that is affecting your conclusions?

Also, you maybe should use rebalancing frequencies shorter than annual with leveraged strategies.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by BoglyIndex »

I was wondering, did anyone figure out how to simulate this strategy with SP500 Options? I have tried simulating multiple ways, but cannot seem to find the right one that would ever come close to UPRO/TMF profits.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

I was recently made aware that there is a website that graphs the markets expectations with respect to the Fed raising interest rates.
https://www.cmegroup.com/trading/intere ... -fomc.html

If I'm reading this correctly, the market believes that 1 rate hike is likely before the Fed has even finished tapering at current pace in June and another one (2 total) is more likely than none at all by July. By the start of 2023, the market expects 2-3 rate hikes and there is a higher probability of 4(!) rate hikes than the one the Fed is currently forecasting according to their most recent dot plot from September.
https://www.federalreserve.gov/monetary ... 210922.pdf

I don't know about you guys but this makes me even more bullish than I already was. If the Fed is indeed able to keep interest rate hikes to just 1 next year, the prices of both TMF and UPRO/TQQQ are going to explode just on this alone. Tremendous room for growth. On the flipside, it does appear like 2-3 rate hikes are already priced in, so it would have to be a really fast and intense period of hikes to destabilize the markets given the market already doesn't believe the Fed will be able to stick to just the sole hike next year. That is a lot of slack baked in.

Paging @skierincolorado
Anyone know how to send them a notification from a post like on reddit?

Is this what you were referring to when you were talking about how many rate hikes the market had priced in? When we were discussing, I was saying how I thought the market had priced in as many rate hikes as the Fed said they were going to do, with a little bit of extra cushion baked in (like 25% chance of 2 hikes instead of one next year). Clearly I was way off, market is already a lot more pessimistic than I thought.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

In general, what kind of event causes the FOMC to hike more often than it itself predicted?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

Afrofreak wrote: Sun Nov 21, 2021 2:28 pm

Paging @skierincolorado
Anyone know how to send them a notification from a post like on reddit?
Don't know if a direct way to notify someone on Bogleheads forum at present time, but a workaround could be to do a quote with his name in it. If he has it in settings to be notified whenever someone quotes him, that should send out a notification? Although if he has it in settings to not be notified whenever someone quotes him, that method won't work.
Last edited by cflannagan on Sun Nov 21, 2021 5:54 pm, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Booogle »

Can one buy TLT on margin to offset 100% Equities?

Please respond here:

viewtopic.php?f=10&t=362860
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

cflannagan wrote: Sun Nov 21, 2021 5:33 pm
Afrofreak wrote: Sun Nov 21, 2021 2:28 pm

Paging @skierincolorado
Anyone know how to send them a notification from a post like on reddit?
Don't know if a direct way to notify someone on Bogleheads forum at present time, but a workaround could be to do a quote with his name in it. If he has it in settings to be notified whenever someone quotes him, that should send out a notification? Although if he has it in settings to not be notified whenever someone quotes him, that method won't work.
Yeah I thought of that but was too lazy to scroll up to find his latest post lol, figured there might be an easier way. He's pretty active anyways, I'm sure he'll see it.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Afrofreak wrote: Sun Nov 21, 2021 2:28 pm I was recently made aware that there is a website that graphs the markets expectations with respect to the Fed raising interest rates.
https://www.cmegroup.com/trading/intere ... -fomc.html

If I'm reading this correctly, the market believes that 1 rate hike is likely before the Fed has even finished tapering at current pace in June and another one (2 total) is more likely than none at all by July. By the start of 2023, the market expects 2-3 rate hikes and there is a higher probability of 4(!) rate hikes than the one the Fed is currently forecasting according to their most recent dot plot from September.
https://www.federalreserve.gov/monetary ... 210922.pdf

I don't know about you guys but this makes me even more bullish than I already was. If the Fed is indeed able to keep interest rate hikes to just 1 next year, the prices of both TMF and UPRO/TQQQ are going to explode just on this alone. Tremendous room for growth. On the flipside, it does appear like 2-3 rate hikes are already priced in, so it would have to be a really fast and intense period of hikes to destabilize the markets given the market already doesn't believe the Fed will be able to stick to just the sole hike next year. That is a lot of slack baked in.

Paging @skierincolorado
Anyone know how to send them a notification from a post like on reddit?

Is this what you were referring to when you were talking about how many rate hikes the market had priced in? When we were discussing, I was saying how I thought the market had priced in as many rate hikes as the Fed said they were going to do, with a little bit of extra cushion baked in (like 25% chance of 2 hikes instead of one next year). Clearly I was way off, market is already a lot more pessimistic than I thought.
I think it is 1 fewer hike than you are reading for July but your numbers look correct for early 2023 (2-3 hikes). By July I see a 60.8% probability of 1 or fewer hikes.

Based on the methodology, these probabilities are based on Fed Fund futures contracts assuming no term premium. Thus they are basically the breakeven point where we would make no money. It's not like if this happens we would make money. If the mean projection comes true, we would be breakeven on our bonds because the method for these probabilities includes 0 term premium. So for example, if there are 2-3 hikes by early 2023, owners of STT (and probably ITT) would be beakeven. Fewer than this and we will make money. In reality the market is probably expecting slightly fewer (1-2 hikes) but the contracts are priced for (2-3) because in rality they includes a positive term premium (basically our profit for taking on the risk).

We can calculate this pretty easily for ourselves too. The two year yields .523% currently. We could buy a 2 year bond trading at par today $1000 with .523% coupon. If in a year from now interest rates have risen by 0.5% (two hikes with more coming), we would at that point hold a 1 year bond yielding ~1%. The price of our bond would now be $995. The 0.5% price decrease would be offset by the 0.5% coupon and we would have been breakeven.

Thus the breakeven point on buying 2 year bonds is approximately 2 rate hikes in the next 12 months. If there are more hikes than that, most likely we will lose money. If there are fewer, we will make money. I am optimistic as well.
Last edited by skierincolorado on Sun Nov 21, 2021 6:41 pm, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

skierincolorado wrote: Sun Nov 21, 2021 6:33 pm I think it is 1 fewer hike than you are reading for July but your numbers look correct for early 2023 (2-3 hikes). By July I see a 60.8% probability of 1 or fewer hikes.
I was looking at it as: 1 rate hike is most probable (42%) and 2 rate hikes is more likely than none at all (29% vs. 21%). Either way, there's a lot more pessimism priced in right now than I was expecting.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Afrofreak wrote: Sun Nov 21, 2021 6:41 pm
skierincolorado wrote: Sun Nov 21, 2021 6:33 pm I think it is 1 fewer hike than you are reading for July but your numbers look correct for early 2023 (2-3 hikes). By July I see a 60.8% probability of 1 or fewer hikes.
I was looking at it as: 1 rate hike is most probable (42%) and 2 rate hikes is more likely than none at all (29% vs. 21%). Either way, there's a lot more pessimism priced in right now than I was expecting.
Like I said though, keep in mind these probabilities assume zero profit for the contract owners.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

Perhaps it’s easier to consider absolute values of the rate instead of the number of the hikes, which the tool doesn’t attempt to calculate anyway? The dot plot makes the discrepancy between what the FOMC predicts and what the market thinks very clear.

Also what do you think equities will do in the kind of situation where the hikes happen more often than the FOMC wanted?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

Hfearless wrote: Sun Nov 21, 2021 6:47 pm Perhaps it’s easier to consider absolute values of the rate instead of the number of the hikes, which the tool doesn’t attempt to calculate anyway? The dot plot makes the discrepancy between what the FOMC predicts and what the market thinks very clear.

Also what do you think equities will do in the kind of situation where the hikes happen more often than the FOMC wanted?
You're welcome to calculate the absolute values for both, I'm just too lazy!

As for what will happen with equities, I think all will drop, including value, low P/E stocks because it shows the Fed doesn't have things under control after all, which the market is banking on. Of course tech, high growth, high P/E stocks are going to be in the gutter. I'm betting my entire NW that the Fed knows what they are doing. That's why I'm glad to see that the market doesn't seem to have particularly high hopes that the Fed will be able to follow through and execute as planned. Downside is somewhat capped and upside is large.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

Afrofreak wrote: Sun Nov 21, 2021 6:51 pm You're welcome to calculate the absolute values for both, I'm just too lazy!
Just subtract the price from 100.
Afrofreak wrote: Sun Nov 21, 2021 6:51 pm I'm betting my entire NW that the Fed knows what they are doing. That's why I'm glad to see that the market doesn't seem to have particularly high hopes that the Fed will be able to follow through and execute as planned.
Everywhere else, betting against the market isn’t recommended?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

Hfearless wrote: Sun Nov 21, 2021 6:58 pm
Afrofreak wrote: Sun Nov 21, 2021 6:51 pm You're welcome to calculate the absolute values for both, I'm just too lazy!
Just subtract the price from 100.
Afrofreak wrote: Sun Nov 21, 2021 6:51 pm I'm betting my entire NW that the Fed knows what they are doing. That's why I'm glad to see that the market doesn't seem to have particularly high hopes that the Fed will be able to follow through and execute as planned.
Everywhere else, betting against the market isn’t recommended?
I think I'm misunderstanding what you mean by absolute value. To me absolute value means expected value a.k.a the sum of all probable outcomes multiplied by their probability, so for the dot plot if there's 5 Fed chairs, 2 expect 1 rate hike (to 0.5), 2 expect 2 rate hikes (to 0.75) and 1 expects 3 rate hikes (to 1.0) then the absolute value is: 0.5 * 0.4 + 0.75 * 0.4 + 1.0 * 0.2 = 0.2 + 0.3 + 0.2 = 0.7.

To your second part I would give a resounding "yes".
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

Afrofreak wrote: Sun Nov 21, 2021 7:08 pm I think I'm misunderstanding what you mean by absolute value.
Sorry for being vague. I mean the exact value that the market thinks the rate will take, for example, 0.875%, as opposed to counting the number of hikes.
Afrofreak wrote: Sun Nov 21, 2021 7:08 pm To your second part I would give a resounding "yes".
Yet you’re betting a great amount of money on the market being wrong?
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