As long as stocks and bonds return > the borrowing rate and have a correlation < 1.000000000, this strategy (or a variation of it) will make sense. Higher volatility could mean less leverage is more optimal. But broadly speaking taking some level of leverage with stocks and bonds is always going to increase CAGR. Maybe not all the way to 3x.000 wrote: ↑Thu May 05, 2022 7:15 pmBacktests don't matter here because today's markets are not like 1955. The velocity with which things get incorporated into these markets is different. Liquidity and index funds also make it easier to hit the "sell everything" button, which many algos do.skierincolorado wrote: ↑Thu May 05, 2022 7:06 pm This isn't a momentum strategy. It's MPT. HFEA has sustained well since 1955. mHFEA even better. There more variance so you need to shift more conservative with age.
To be clear I doubt this is the end of HFEA. More like foreshadowing what the end will look like when the Fed can't reverse course on QT.
Markets have done all sorts of crazy things since 1955. Including bonds and stocks dropping a lot at the same time. There is also a fundamental relationship between volatility and returns which can be arbitraged if it swings too far one way or the other.
This latest drop barely shows up at all on a log graph of HFEA since 1955.