HEDGEFUNDIE's excellent adventure Part II: The next journey

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
GodzillaBorland
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by GodzillaBorland » Sat Mar 28, 2020 3:05 pm

guyinlaw wrote:
Wed Mar 25, 2020 1:12 am
Please be careful with this strategy.

1. TMF will not provide the buffer as expected..

The upside for TMF from $41 is IMO maximum up to $60, in the near term. The recent peak of TMF -$58.3 happened when 30Y yield dropped below 0.9%, which is very unlikely. So IMO TMF has maximum upside of 50% in the near term

Currently UPRO is @ $23. When S&P500 was at ~1600 (50% decline from peak) UPRO was ~$9.6 in June 2013. (The all time low for UPRO was $2.03 in July 2009.)

2. In 2019 investors were "living the dream." Stocks were up 30% and US Govt bonds, the risk-free asset, were also up. (EVD up 17%, TMF up 39%). This was not normal. So don't look at the last 1 year performance to stick with this..

Many experts are calling the COVID crash to be worse than GFC.

viewtopic.php?f=10&t=309310
.
Is SPY is going to go down to 2174 from here the recent low? It held that very well, UPRO was I think around $18. I might start selling UPRO $18 puts. Due to high volatility they are giving $1.55 for May $18 puts, essentially you are buying UPRO at $16.3!

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

Post by privatefarmer » Sat Mar 28, 2020 3:25 pm

Maybe someone a lot smarter than me can explain why :

1) vanguard long term treasury fund VUSTX has been relatively a straight line up and to the right over the last 33+ years even though yields have fallen from ~9% to 1.4%. If it’s explained because of capital appreciation and not the dividend yield then why would we expect that to suddenly stop even at negative yields? Id add a screen shot but can’t figure out how...

2) how could we then expect LTTs to suddenly “hit a wall” when they get to 0% yield? Why would the market allow a risky asset to have no expected return? Nobody would buy it.

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

Post by Lee_WSP » Sat Mar 28, 2020 3:45 pm

privatefarmer wrote:
Sat Mar 28, 2020 3:25 pm
Maybe someone a lot smarter than me can explain why :

1) vanguard long term treasury fund VUSTX has been relatively a straight line up and to the right over the last 33+ years even though yields have fallen from ~9% to 1.4%. If it’s explained because of capital appreciation and not the dividend yield then why would we expect that to suddenly stop even at negative yields? Id add a screen shot but can’t figure out how...

2) how could we then expect LTTs to suddenly “hit a wall” when they get to 0% yield? Why would the market allow a risky asset to have no expected return? Nobody would buy it.
LTTs sure are an interesting asset. It’s like the people investing in them are somehow betting on things getting worse. Ie deflation or no flation .

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

Post by LittleBitMore » Sat Mar 28, 2020 4:43 pm

GodzillaBorland wrote:
Sat Mar 28, 2020 3:05 pm
guyinlaw wrote:
Wed Mar 25, 2020 1:12 am
Please be careful with this strategy.

1. TMF will not provide the buffer as expected..

The upside for TMF from $41 is IMO maximum up to $60, in the near term. The recent peak of TMF -$58.3 happened when 30Y yield dropped below 0.9%, which is very unlikely. So IMO TMF has maximum upside of 50% in the near term

Currently UPRO is @ $23. When S&P500 was at ~1600 (50% decline from peak) UPRO was ~$9.6 in June 2013. (The all time low for UPRO was $2.03 in July 2009.)

2. In 2019 investors were "living the dream." Stocks were up 30% and US Govt bonds, the risk-free asset, were also up. (EVD up 17%, TMF up 39%). This was not normal. So don't look at the last 1 year performance to stick with this..

Many experts are calling the COVID crash to be worse than GFC.

viewtopic.php?f=10&t=309310
.
Is SPY is going to go down to 2174 from here the recent low? It held that very well, UPRO was I think around $18. I might start selling UPRO $18 puts. Due to high volatility they are giving $1.55 for May $18 puts, essentially you are buying UPRO at $16.3!
FED stress test assumes 9.9% GDP contraction & 6.1% unemployment......current estimates are 15-25% GDP contraction and 10-20% unemployment. How can we not go lower than 2174, save for the FED buying the S&P (and I'm not sure that prevents it)?

UPRO isn't the kind of thing to think about "buying cheap" -- a flat but volatile market fundamentally lowers it's value unlike a traditional stock. Stay the course and be patient. The crisis is going to get a lot worse before it gets better (irrespective of what the market does)

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

Post by dspencer » Sat Mar 28, 2020 9:51 pm

privatefarmer wrote:
Sat Mar 28, 2020 3:25 pm
Maybe someone a lot smarter than me can explain why :

1) vanguard long term treasury fund VUSTX has been relatively a straight line up and to the right over the last 33+ years even though yields have fallen from ~9% to 1.4%. If it’s explained because of capital appreciation and not the dividend yield then why would we expect that to suddenly stop even at negative yields? Id add a screen shot but can’t figure out how...

2) how could we then expect LTTs to suddenly “hit a wall” when they get to 0% yield? Why would the market allow a risky asset to have no expected return? Nobody would buy it.
I understand that yields can and do go below 0%. However, I don't think it's irrational to question why people would pay $100 now for the right to $99 later instead of just keeping the $100. I don't think it's a hard limit, but I also don't think it's a meaningless number.

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

Post by ribeyesteaks » Sat Mar 28, 2020 11:51 pm

GodzillaBorland wrote:
Sat Mar 28, 2020 3:05 pm
guyinlaw wrote:
Wed Mar 25, 2020 1:12 am
Please be careful with this strategy.

1. TMF will not provide the buffer as expected..

The upside for TMF from $41 is IMO maximum up to $60, in the near term. The recent peak of TMF -$58.3 happened when 30Y yield dropped below 0.9%, which is very unlikely. So IMO TMF has maximum upside of 50% in the near term

Currently UPRO is @ $23. When S&P500 was at ~1600 (50% decline from peak) UPRO was ~$9.6 in June 2013. (The all time low for UPRO was $2.03 in July 2009.)

2. In 2019 investors were "living the dream." Stocks were up 30% and US Govt bonds, the risk-free asset, were also up. (EVD up 17%, TMF up 39%). This was not normal. So don't look at the last 1 year performance to stick with this..

Many experts are calling the COVID crash to be worse than GFC.

viewtopic.php?f=10&t=309310
.
Is SPY is going to go down to 2174 from here the recent low? It held that very well, UPRO was I think around $18. I might start selling UPRO $18 puts. Due to high volatility they are giving $1.55 for May $18 puts, essentially you are buying UPRO at $16.3!
That's a good way to get into a long trade.

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

Post by ribeyesteaks » Sat Mar 28, 2020 11:56 pm

privatefarmer wrote:
Sat Mar 28, 2020 3:25 pm
Maybe someone a lot smarter than me can explain why :

1) vanguard long term treasury fund VUSTX has been relatively a straight line up and to the right over the last 33+ years even though yields have fallen from ~9% to 1.4%. If it’s explained because of capital appreciation and not the dividend yield then why would we expect that to suddenly stop even at negative yields? Id add a screen shot but can’t figure out how...

2) how could we then expect LTTs to suddenly “hit a wall” when they get to 0% yield? Why would the market allow a risky asset to have no expected return? Nobody would buy it.
People don't understand this, but over the last 40 years now, 30 yr Treasuries have outperformed the S&P 500. In fact, on a risk adjusted basis, it has FAR outperformed S&P. And, if you rolled over duration YOY, your CAGR is something like 20+% returns. Is this trade done? I don't think so, but we're getting close. I see rates and yields going negative in the coming years.

And after reading this thread, and your comment 2), I realized that people should rethink the risk parity trade. Not as a form of asset allocation model, since it likely will break down going forward. But, as a hedge. If you don't understand that last sentence, then it's no wonder you don't understand your second point.

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

Post by ribeyesteaks » Sat Mar 28, 2020 11:58 pm

As an aside, Proshares announces several more ETF liquidations:

https://www.proshares.com/news/proshare ... 31220.html

It's a risk you folks need to think about, and maybe need to start thinking about doing this with futures or margins on your own.

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

Post by LEVERAGED INVESTOR » Sun Mar 29, 2020 3:54 am

Treasuries are by far the best hedge against equities. It makes no difference what they yield or if we are in raising rate environment. Investors and traders use it as a defensive hedge. Always have, and always will. Equities fall, traders flood Treasuries with Billions and visa versa. 2 weeks ago Treasuries fell, while stocks fell, this was caused by hedge funds and others unwinding there leveraged positions. They needed cash(money market) to cover margin calls.(Many were leveraged 10-1) There was a lack of liquidity until the Fed stepped in and said they would provide what ever it takes to cover the market. Then Treasuries started acting normal again. (this was a rare event) While Treasuries (TLT. TMF) may out perform Equities, the combination of both gives the best return at lowest volatility. The problem with risk parity strategies is that they use a fix percentage of equities to treasuries. Using something like the following Adaptive Allocation/with Minimum Variance gives you the flexibility to change the % of bonds used for hedging purposes. In the recent market turmoil, this strategy called for up to 75% bonds vs equities. As of today, 3-29-20, this strategy is up 9% for March with 2 days left. At the moment, the mix is 66% bonds/34% equities. I use TECL/TMF, but TQQQ also works. For the last 5 years, TECL has outperformed TQQQ. This works with Monthly or Weekly rebalancing, but weekly lately has given the best return at the lowest volatility. Here is an article from the WSJ. https://www.wsj.com/articles/retreat-fr ... 1585333697

Also, the strategy: https://www.portfoliovisualizer.com/tes ... odWeight=0

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

Post by Valuethinker » Sun Mar 29, 2020 6:31 am

dspencer wrote:
Sat Mar 28, 2020 9:51 pm
privatefarmer wrote:
Sat Mar 28, 2020 3:25 pm
Maybe someone a lot smarter than me can explain why :

1) vanguard long term treasury fund VUSTX has been relatively a straight line up and to the right over the last 33+ years even though yields have fallen from ~9% to 1.4%. If it’s explained because of capital appreciation and not the dividend yield then why would we expect that to suddenly stop even at negative yields? Id add a screen shot but can’t figure out how...

2) how could we then expect LTTs to suddenly “hit a wall” when they get to 0% yield? Why would the market allow a risky asset to have no expected return? Nobody would buy it.
I understand that yields can and do go below 0%. However, I don't think it's irrational to question why people would pay $100 now for the right to $99 later instead of just keeping the $100. I don't think it's a hard limit, but I also don't think it's a meaningless number.
You have to hold some asset.

If you have $100k you put it in an FDIC insured account. Pretty safe. Maybe not as safe as US Treasuries, but pretty safe.

You have $1 billion. You deposit it with JP Morgan? Not safe. So you buy US Treasury securities.

You are not irrational if you think interest rates may fall even further, or that we are going to experience deflation.

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

Post by rascott » Sun Mar 29, 2020 9:24 am

How are folks doing though this?....I didn't pay much attention to this portfolio last week.... but checked my futures account and back to basically even from where I started in early Sept.

Miles better off than my traditional 100% equity portfolio.

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

Post by Crushtheturtle » Sun Mar 29, 2020 10:28 am

LEVERAGED INVESTOR wrote:
Sun Mar 29, 2020 3:54 am
Treasuries are by far the best hedge against equities. It makes no difference what they yield or if we are in raising rate environment. Investors and traders use it as a defensive hedge. Always have, and always will. Equities fall, traders flood Treasuries with Billions and visa versa. 2 weeks ago Treasuries fell, while stocks fell, this was caused by hedge funds and others unwinding there leveraged positions. They needed cash(money market) to cover margin calls.(Many were leveraged 10-1) There was a lack of liquidity until the Fed stepped in and said they would provide what ever it takes to cover the market. Then Treasuries started acting normal again. (this was a rare event) While Treasuries (TLT. TMF) may out perform Equities, the combination of both gives the best return at lowest volatility. The problem with risk parity strategies is that they use a fix percentage of equities to treasuries. Using something like the following Adaptive Allocation/with Minimum Variance gives you the flexibility to change the % of bonds used for hedging purposes. In the recent market turmoil, this strategy called for up to 75% bonds vs equities. As of today, 3-29-20, this strategy is up 9% for March with 2 days left. At the moment, the mix is 66% bonds/34% equities. I use TECL/TMF, but TQQQ also works. For the last 5 years, TECL has outperformed TQQQ. This works with Monthly or Weekly rebalancing, but weekly lately has given the best return at the lowest volatility. Here is an article from the WSJ.
Thank you for sharing.

What is meant by "Minimum Variance?" Is it just whatever mix of the 2 assets that would have produced the lowest volatility over the previous 21 days?

Edit: So the strategy considers the full price range of each underlying over the previous 10 months (210 sessions) and uses that price range to determine the average 21 day volatility? Then wouldn't the Min Variance allocation simply be 100% of whatever LETF moved the least?
Maybe I need more coffee :happy
Last edited by Crushtheturtle on Sun Mar 29, 2020 10:44 am, edited 1 time in total.
“The mass of men lead lives of quiet desperation.” - Henry David Thoreau

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

Post by HawkeyePierce » Sun Mar 29, 2020 10:33 am

rascott wrote:
Sun Mar 29, 2020 9:24 am
How are folks doing though this?....I didn't pay much attention to this portfolio last week.... but checked my futures account and back to basically even from where I started in early Sept.

Miles better off than my traditional 100% equity portfolio.
I'm down 10% YTD. No concerns here.

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

Post by HedgeFundMillionaire » Sun Mar 29, 2020 12:17 pm

Currently implementing this strategy but with a TLT equivalent instead of TMF as TMF doesn't exist where I live.

It worries me how exposed this strategy will be to the movement of equities after the next rebalance. I'll be selling a lot of treasuries and moving that money over to the leveraged equities. If equities stage a rebound the portfolio will rise significantly, but a major leg down will mean the porfolio may take many years to recover.

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

Post by ribeyesteaks » Sun Mar 29, 2020 12:21 pm

Again, I think we're heading towards inflation:

https://www.barrons.com/articles/expect ... t_editions

More like stagflation. It's coming. Even Alan Greenspan, who actually thinks we're overcapturing inflationary metrics thinks it is coming. In a stagflationary environment, this trade will get killed. Equities did poorly in the 70's and bond prices were killed as well. It's about time too. Interest rates were set to reset in the long term debt cycle. And I believe we'll be hitting that in the next decade or two.

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

Post by LittleBitMore » Sun Mar 29, 2020 12:54 pm

ribeyesteaks wrote:
Sun Mar 29, 2020 12:21 pm
Again, I think we're heading towards inflation:

https://www.barrons.com/articles/expect ... t_editions

More like stagflation. It's coming. Even Alan Greenspan, who actually thinks we're overcapturing inflationary metrics thinks it is coming. In a stagflationary environment, this trade will get killed. Equities did poorly in the 70's and bond prices were killed as well. It's about time too. Interest rates were set to reset in the long term debt cycle. And I believe we'll be hitting that in the next decade or two.
And that's why I'm going to keep holding this investment. I spent the last 10 years "knowing" interest rates would go up and I missed the boat on a cheap mortgage. I also was certain stock market returns would flat line as the reckoning came for low interest. Had I acted on either of those thoughts I'd be well behind.

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

Post by Crushtheturtle » Sun Mar 29, 2020 12:58 pm

ribeyesteaks wrote:
Sun Mar 29, 2020 12:21 pm
Again, I think we're heading towards inflation:

https://www.barrons.com/articles/expect ... t_editions

More like stagflation. It's coming. Even Alan Greenspan, who actually thinks we're overcapturing inflationary metrics thinks it is coming. In a stagflationary environment, this trade will get killed. Equities did poorly in the 70's and bond prices were killed as well. It's about time too. Interest rates were set to reset in the long term debt cycle. And I believe we'll be hitting that in the next decade or two.
I would think such fears, to the extent they are valid, are already largely priced in. Efficient Market, and all that.

Maybe consistent with the notion that bond prices don't necessarily fall when yields rise, but rather when yields rise faster than the bond market expects.
“The mass of men lead lives of quiet desperation.” - Henry David Thoreau

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

Post by ribeyesteaks » Sun Mar 29, 2020 2:23 pm

Crushtheturtle wrote:
Sun Mar 29, 2020 12:58 pm
ribeyesteaks wrote:
Sun Mar 29, 2020 12:21 pm
Again, I think we're heading towards inflation:

https://www.barrons.com/articles/expect ... t_editions

More like stagflation. It's coming. Even Alan Greenspan, who actually thinks we're overcapturing inflationary metrics thinks it is coming. In a stagflationary environment, this trade will get killed. Equities did poorly in the 70's and bond prices were killed as well. It's about time too. Interest rates were set to reset in the long term debt cycle. And I believe we'll be hitting that in the next decade or two.
I would think such fears, to the extent they are valid, are already largely priced in. Efficient Market, and all that.

Maybe consistent with the notion that bond prices don't necessarily fall when yields rise, but rather when yields rise faster than the bond market expects.
You're delusional if you believe there is an efficient market, given what the Feds are currently doing. You know, the Invisible Hand and all that.

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

Post by privatefarmer » Sun Mar 29, 2020 2:26 pm

ribeyesteaks wrote:
Sun Mar 29, 2020 2:23 pm
Crushtheturtle wrote:
Sun Mar 29, 2020 12:58 pm
ribeyesteaks wrote:
Sun Mar 29, 2020 12:21 pm
Again, I think we're heading towards inflation:

https://www.barrons.com/articles/expect ... t_editions

More like stagflation. It's coming. Even Alan Greenspan, who actually thinks we're overcapturing inflationary metrics thinks it is coming. In a stagflationary environment, this trade will get killed. Equities did poorly in the 70's and bond prices were killed as well. It's about time too. Interest rates were set to reset in the long term debt cycle. And I believe we'll be hitting that in the next decade or two.
I would think such fears, to the extent they are valid, are already largely priced in. Efficient Market, and all that.

Maybe consistent with the notion that bond prices don't necessarily fall when yields rise, but rather when yields rise faster than the bond market expects.
You're delusional if you believe there is an efficient market, given what the Feds are currently doing. You know, the Invisible Hand and all that.
What he’s saying is that everything you know and everything you think you know is already known and priced into market by institutions with a LOT more money than us. Speculating what inflation will do is foolish. Of course all that speculation is already baked into today’s prices across stocks, bonds and commodities.

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

Post by drk » Sun Mar 29, 2020 2:40 pm

ribeyesteaks wrote:
Sun Mar 29, 2020 12:21 pm
Again, I think we're heading towards inflation:

https://www.barrons.com/articles/expect ... t_editions

More like stagflation. It's coming. Even Alan Greenspan, who actually thinks we're overcapturing inflationary metrics thinks it is coming. In a stagflationary environment, this trade will get killed. Equities did poorly in the 70's and bond prices were killed as well. It's about time too. Interest rates were set to reset in the long term debt cycle. And I believe we'll be hitting that in the next decade or two.
Nice. Back pumping the same nonsense. Why should anyone give credence to what you believe?

As for Mr. Forsyth, I see similar articles warning about impending inflation from 2011, 2017, and 2018. But, yeah, maybe he's right this time.

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

Post by rascott » Sun Mar 29, 2020 2:44 pm

ribeyesteaks wrote:
Sun Mar 29, 2020 12:21 pm
Again, I think we're heading towards inflation:

https://www.barrons.com/articles/expect ... t_editions

More like stagflation. It's coming. Even Alan Greenspan, who actually thinks we're overcapturing inflationary metrics thinks it is coming. In a stagflationary environment, this trade will get killed. Equities did poorly in the 70's and bond prices were killed as well. It's about time too. Interest rates were set to reset in the long term debt cycle. And I believe we'll be hitting that in the next decade or two.

Nonsense. People continue to not understand where inflation comes from. Referencing the 70s also shows you don't.

Do you understand the macro events that require stag-flation?

The biggest macro threat I see by far is deflation.

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

Post by mjmcleod » Sun Mar 29, 2020 4:11 pm

Hi everyone. I have been reading up on this strategy for a while and would love some opinions and jumping in now that we are on a downswing. Given the volatility of the market, what are everyones thoughts on someone averaging into this position over the next few weeks? My thoughts are putting in a weekly sum of money into the 55:45 position (say 5000/week), and each week the new 5000 can be used to redistribute the portfolio back up to the target 55:45 - which should help with the volatility. If during the week there is a huge gain in the market, selling off the weekly addition for gains to only be put back into it the following week once there is a local minimum for short term gains,but ultimately the goal is to have about 30k in for a longer term hold.

If I am missing something please let me know! I really enjoyed reading through all the discussion.

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

Post by Forester » Sun Mar 29, 2020 7:21 pm

Inflationists jinx their position by stating it so strongly. I'm not sure why this is but it's some cosmic law at work. Moderately higher inflation than the 2010s seems most likely because it's the least vocalised prediction.

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

Post by RomeoMustDie » Sun Mar 29, 2020 8:12 pm

guyinlaw wrote:
Fri Mar 27, 2020 11:44 pm
ChrisBenn wrote:
Fri Mar 27, 2020 11:07 pm
guyinlaw wrote:
Fri Mar 27, 2020 10:10 pm
HEDGEFUNDIE wrote:
Fri Mar 27, 2020 10:00 pm
If you started the Excellent Adventure at the beginning of the year with $100, you would have $91 right now.

If you put that money in VTI instead, you'd have $79 right now.

Max drawdown of the Excellent Adventure over these three months is -45% (so far).

Max drawdown of VTI is -35% (so far).

Stay the course my friends.
2019 was very atypical. Stocks were up 30% and US Govt bonds, the risk-free asset, were also up. (EVD up 17%, TMF up 39%). When earning growth was deteriorating, stocks were still rising. Fed (expected) QE was the answer for whole year. That was not normal.

My suggestion is to not look at the 2019 performance of how this will behave. Especially with the Long term rates near it's floor in the near term. (TMF hitting it's limit)
2019 was last year, pretty sure he was talking about 2020 :D :D
Peak of UPRO was Feb 19. The whole premise of UPRO/TMF was they were negatively correlated..

Jan 2 2019- Feb 19 2020
UPRO was up ~137%
TMF was up ~66%

Jan 2 2019- Feb 19 2020
UPRO was up ~16%
TMF was up ~19%

both went up, when they are supposed to be negatively correlated.. This was atypical behavior...

This unusually drop in Long term interest rates has hit a floor and will not continue to drop.. Good luck.
Negative correlation does not mean that the ETF's will diverge every single day.

typical.investor
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by typical.investor » Sun Mar 29, 2020 10:11 pm

rascott wrote:
Sun Mar 29, 2020 2:44 pm
ribeyesteaks wrote:
Sun Mar 29, 2020 12:21 pm
Again, I think we're heading towards inflation:

https://www.barrons.com/articles/expect ... t_editions

More like stagflation. It's coming. Even Alan Greenspan, who actually thinks we're overcapturing inflationary metrics thinks it is coming. In a stagflationary environment, this trade will get killed. Equities did poorly in the 70's and bond prices were killed as well. It's about time too. Interest rates were set to reset in the long term debt cycle. And I believe we'll be hitting that in the next decade or two.

Nonsense. People continue to not understand where inflation comes from. Referencing the 70s also shows you don't.

Do you understand the macro events that require stag-flation?

The biggest macro threat I see by far is deflation.
I agree. The US is in no position to raise rates. Even if the economy recovers, central banks around the world are being aggressive to lower their rates and keep their currencies weak.

Economically speaking, wages in the 70's kept pace with inflation. That was a big driver. Even if globalization scales back somewhat, I don't see that pressure really materializing. And does anyone else see energy becoming as scarce as it was back then? That was another driver. Sure, there will be some short term supply shocks, but I just don't see Coronavirus being a threat to the supply chain two or three years out. And with the USD being so strong now and possible going higher if raising rates attracts yield hungry foreigners the way they have in the past, foreign imports will look even cheaper.

Inflation in the next decade or two, as you suggest, is far off. I've a fair bit in value stocks that I expect will finally do better when inflation starts to come around (due to not having future earnings discounts by inflation ravaging as much a growth stocks).

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

Post by rascott » Sun Mar 29, 2020 11:27 pm

typical.investor wrote:
Sun Mar 29, 2020 10:11 pm
rascott wrote:
Sun Mar 29, 2020 2:44 pm
ribeyesteaks wrote:
Sun Mar 29, 2020 12:21 pm
Again, I think we're heading towards inflation:

https://www.barrons.com/articles/expect ... t_editions

More like stagflation. It's coming. Even Alan Greenspan, who actually thinks we're overcapturing inflationary metrics thinks it is coming. In a stagflationary environment, this trade will get killed. Equities did poorly in the 70's and bond prices were killed as well. It's about time too. Interest rates were set to reset in the long term debt cycle. And I believe we'll be hitting that in the next decade or two.

Nonsense. People continue to not understand where inflation comes from. Referencing the 70s also shows you don't.

Do you understand the macro events that require stag-flation?

The biggest macro threat I see by far is deflation.
I agree. The US is in no position to raise rates. Even if the economy recovers, central banks around the world are being aggressive to lower their rates and keep their currencies weak.

Economically speaking, wages in the 70's kept pace with inflation. That was a big driver. Even if globalization scales back somewhat, I don't see that pressure really materializing. And does anyone else see energy becoming as scarce as it was back then? That was another driver. Sure, there will be some short term supply shocks, but I just don't see Coronavirus being a threat to the supply chain two or three years out. And with the USD being so strong now and possible going higher if raising rates attracts yield hungry foreigners the way they have in the past, foreign imports will look even cheaper.

Inflation in the next decade or two, as you suggest, is far off. I've a fair bit in value stocks that I expect will finally do better when inflation starts to come around (due to not having future earnings discounts by inflation ravaging as much a growth stocks).
Most people don't understand fiat money.. and how it's created/ destroyed... they see the Fed is printing money and they scream "INFLATION"... totally ignoring the deflationary aspects that are rampant in our macro economy. All the Fed is doing is trying to fill a sink hole that's sucking money out of the system every day by shrinking economic activity.

Stagflation only occurs when there are supply side shocks..... when the economy is unable to produce enough due to lack of resources. Sub $20 oil should tell anyone with a brain that its a joke. Wages as you pointed out.... anyone worried about wage growth with 20% unemployment?

Anyone that talks about inflation right now is either trying to sell you something or just doesn't really understand monetary economics.

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

Post by RomeoMustDie » Mon Mar 30, 2020 12:42 am

ProShares just shut down Oil 3x bull and bear ETF's. Is it time to rethink the assumptions that these ETF's are safe from liquidation?

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

Post by LittleBitMore » Mon Mar 30, 2020 10:04 am

RomeoMustDie wrote:
Mon Mar 30, 2020 12:42 am
ProShares just shut down Oil 3x bull and bear ETF's. Is it time to rethink the assumptions that these ETF's are safe from liquidation?
They shut down ETFs that don't make economic sense to run -- i.e. $25m of AUM with hard to rebalance positions that swing heavily. UPRO & TMF have 40x and 15x as many assets and less rebalancing difficulty.

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

Post by badapu » Mon Mar 30, 2020 12:25 pm

Are people already doing this in a brokerage account?

Requesting tips on how would you set this strategy up in Brokerage account (do not have tax advantaged space). I would like to use the current market downturn to invest 100k in 55:45 split. Late 30s with long term time horizon. Would buy in when I can visibly see the strains of the pandemic resolving (agree this involves a component of “market timing” but with a long term time horizon).

Help me understand the implications. I am in the highest tax bracket. The strategy generates approximately 1% in dividends per year (with TMF being qualified dividends). I would pay taxes on that. I feel the 3x UPRO/TMF strategy is better than PSLDX (with its 6% dividend yield) in brokerage.

If rebalancing I would pay taxes on the rebalancing amount (35%). I feel that is still 65% in profits. I would try to buy TMF/UPRO with additional funds (if feasible) rather than rebalance (as long as the funds invested stay <5% of my . The strategy over the 87-18 period would still outperform S&P500 by approximately 4.5% (instead of the 7%) if no additional funds were invested. I would rebalance less frequently. Possibly yearly (with option to rebalance sooner if needed). Anyway to model this in portfolio visualizer?

This is with play money (5% of net worth). More than anything it would be for entertainment value. With bonus of joining the august company of members of this thread.

badapu

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

Post by firebirdparts » Mon Mar 30, 2020 12:29 pm

badapu wrote:
Mon Mar 30, 2020 12:25 pm
Are people already doing this in a brokerage account?

Requesting tips on how would you set this strategy up in Brokerage account (do not have tax advantaged space). I would like to use the current market downturn to invest 100k in 55:45 split. Late 30s with long term time horizon. Would buy in when I can visibly see the strains of the pandemic resolving (agree this involves a component of “market timing” but with a long term time horizon).

Help me understand the implications. I am in the highest tax bracket. The strategy generates approximately 1% in dividends per year (with TMF being qualified dividends). I would pay taxes on that. I feel the 3x UPRO/TMF strategy is better than PSLDX (with its 6% dividend yield) in brokerage.

If rebalancing I would pay taxes on the rebalancing amount (35%). I feel that is still 65% in profits. I would try to buy TMF/UPRO with additional funds (if feasible) rather than rebalance (as long as the funds invested stay <5% of my . The strategy over the 87-18 period would still outperform S&P500 by approximately 4.5% (instead of the 7%) if no additional funds were invested. I would rebalance less frequently. Possibly yearly (with option to rebalance sooner if needed). Anyway to model this in portfolio visualizer?

This is with play money (5% of net worth). More than anything it would be for entertainment value. With bonus of joining the august company of members of this thread.

badapu
For leveraged funds, I think Fidelity will make you sign a form agreeing you're a crazed idiot and deserve what's coming to you. I think the form will present itself the first time you try to buy it.
A fool and your money are soon partners

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

Post by RomeoMustDie » Mon Mar 30, 2020 1:12 pm

firebirdparts wrote:
Mon Mar 30, 2020 12:29 pm
badapu wrote:
Mon Mar 30, 2020 12:25 pm
Are people already doing this in a brokerage account?

Requesting tips on how would you set this strategy up in Brokerage account (do not have tax advantaged space). I would like to use the current market downturn to invest 100k in 55:45 split. Late 30s with long term time horizon. Would buy in when I can visibly see the strains of the pandemic resolving (agree this involves a component of “market timing” but with a long term time horizon).

Help me understand the implications. I am in the highest tax bracket. The strategy generates approximately 1% in dividends per year (with TMF being qualified dividends). I would pay taxes on that. I feel the 3x UPRO/TMF strategy is better than PSLDX (with its 6% dividend yield) in brokerage.

If rebalancing I would pay taxes on the rebalancing amount (35%). I feel that is still 65% in profits. I would try to buy TMF/UPRO with additional funds (if feasible) rather than rebalance (as long as the funds invested stay <5% of my . The strategy over the 87-18 period would still outperform S&P500 by approximately 4.5% (instead of the 7%) if no additional funds were invested. I would rebalance less frequently. Possibly yearly (with option to rebalance sooner if needed). Anyway to model this in portfolio visualizer?

This is with play money (5% of net worth). More than anything it would be for entertainment value. With bonus of joining the august company of members of this thread.

badapu
For leveraged funds, I think Fidelity will make you sign a form agreeing you're a crazed idiot and deserve what's coming to you. I think the form will present itself the first time you try to buy it.
I can confirm this. Just a simple sign off no approvals needed.

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

Post by Freefun » Mon Mar 30, 2020 1:15 pm

firebirdparts wrote:
Mon Mar 30, 2020 12:29 pm
badapu wrote:
Mon Mar 30, 2020 12:25 pm
Are people already doing this in a brokerage account?

Requesting tips on how would you set this strategy up in Brokerage account (do not have tax advantaged space). I would like to use the current market downturn to invest 100k in 55:45 split. Late 30s with long term time horizon. Would buy in when I can visibly see the strains of the pandemic resolving (agree this involves a component of “market timing” but with a long term time horizon).

Help me understand the implications. I am in the highest tax bracket. The strategy generates approximately 1% in dividends per year (with TMF being qualified dividends). I would pay taxes on that. I feel the 3x UPRO/TMF strategy is better than PSLDX (with its 6% dividend yield) in brokerage.

If rebalancing I would pay taxes on the rebalancing amount (35%). I feel that is still 65% in profits. I would try to buy TMF/UPRO with additional funds (if feasible) rather than rebalance (as long as the funds invested stay <5% of my . The strategy over the 87-18 period would still outperform S&P500 by approximately 4.5% (instead of the 7%) if no additional funds were invested. I would rebalance less frequently. Possibly yearly (with option to rebalance sooner if needed). Anyway to model this in portfolio visualizer?

This is with play money (5% of net worth). More than anything it would be for entertainment value. With bonus of joining the august company of members of this thread.

badapu
For leveraged funds, I think Fidelity will make you sign a form agreeing you're a crazed idiot and deserve what's coming to you. I think the form will present itself the first time you try to buy it.
I think everyone does. I know Schwab has me electronically sign their agreement.
Remember when you wanted what you currently have?

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

Post by lexor » Mon Mar 30, 2020 1:37 pm

Freefun wrote:
Mon Mar 30, 2020 1:15 pm
firebirdparts wrote:
Mon Mar 30, 2020 12:29 pm
badapu wrote:
Mon Mar 30, 2020 12:25 pm
Are people already doing this in a brokerage account?

Requesting tips on how would you set this strategy up in Brokerage account (do not have tax advantaged space). I would like to use the current market downturn to invest 100k in 55:45 split. Late 30s with long term time horizon. Would buy in when I can visibly see the strains of the pandemic resolving (agree this involves a component of “market timing” but with a long term time horizon).

Help me understand the implications. I am in the highest tax bracket. The strategy generates approximately 1% in dividends per year (with TMF being qualified dividends). I would pay taxes on that. I feel the 3x UPRO/TMF strategy is better than PSLDX (with its 6% dividend yield) in brokerage.

If rebalancing I would pay taxes on the rebalancing amount (35%). I feel that is still 65% in profits. I would try to buy TMF/UPRO with additional funds (if feasible) rather than rebalance (as long as the funds invested stay <5% of my . The strategy over the 87-18 period would still outperform S&P500 by approximately 4.5% (instead of the 7%) if no additional funds were invested. I would rebalance less frequently. Possibly yearly (with option to rebalance sooner if needed). Anyway to model this in portfolio visualizer?

This is with play money (5% of net worth). More than anything it would be for entertainment value. With bonus of joining the august company of members of this thread.

badapu
For leveraged funds, I think Fidelity will make you sign a form agreeing you're a crazed idiot and deserve what's coming to you. I think the form will present itself the first time you try to buy it.
I think everyone does. I know Schwab has me electronically sign their agreement.
I don't re-call E-Trade making me say I'm a crazed idiot.
“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.” -Mr. John C. Bogle

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sperry8
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by sperry8 » Mon Mar 30, 2020 1:46 pm

rascott wrote:
Sun Mar 29, 2020 11:27 pm
typical.investor wrote:
Sun Mar 29, 2020 10:11 pm
rascott wrote:
Sun Mar 29, 2020 2:44 pm
ribeyesteaks wrote:
Sun Mar 29, 2020 12:21 pm
Again, I think we're heading towards inflation:

https://www.barrons.com/articles/expect ... t_editions

More like stagflation. It's coming. Even Alan Greenspan, who actually thinks we're overcapturing inflationary metrics thinks it is coming. In a stagflationary environment, this trade will get killed. Equities did poorly in the 70's and bond prices were killed as well. It's about time too. Interest rates were set to reset in the long term debt cycle. And I believe we'll be hitting that in the next decade or two.

Nonsense. People continue to not understand where inflation comes from. Referencing the 70s also shows you don't.

Do you understand the macro events that require stag-flation?

The biggest macro threat I see by far is deflation.
I agree. The US is in no position to raise rates. Even if the economy recovers, central banks around the world are being aggressive to lower their rates and keep their currencies weak.

Economically speaking, wages in the 70's kept pace with inflation. That was a big driver. Even if globalization scales back somewhat, I don't see that pressure really materializing. And does anyone else see energy becoming as scarce as it was back then? That was another driver. Sure, there will be some short term supply shocks, but I just don't see Coronavirus being a threat to the supply chain two or three years out. And with the USD being so strong now and possible going higher if raising rates attracts yield hungry foreigners the way they have in the past, foreign imports will look even cheaper.

Inflation in the next decade or two, as you suggest, is far off. I've a fair bit in value stocks that I expect will finally do better when inflation starts to come around (due to not having future earnings discounts by inflation ravaging as much a growth stocks).
Most people don't understand fiat money.. and how it's created/ destroyed... they see the Fed is printing money and they scream "INFLATION"... totally ignoring the deflationary aspects that are rampant in our macro economy. All the Fed is doing is trying to fill a sink hole that's sucking money out of the system every day by shrinking economic activity.

Stagflation only occurs when there are supply side shocks..... when the economy is unable to produce enough due to lack of resources. Sub $20 oil should tell anyone with a brain that its a joke. Wages as you pointed out.... anyone worried about wage growth with 20% unemployment?

Anyone that talks about inflation right now is either trying to sell you something or just doesn't really understand monetary economics.
+1 - I agree with you. No inflation for quite some time. We're trying to head off delation here. Of course the gold bugs will be out in full force after the $2T+ injection screaming otherwise.
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282

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

Post by Dovahkiin » Tue Mar 31, 2020 12:02 am

badapu wrote:
Mon Mar 30, 2020 12:25 pm
Are people already doing this in a brokerage account?

Help me understand the implications. I am in the highest tax bracket. The strategy generates approximately 1% in dividends per year (with TMF being qualified dividends).
I'm doing it in taxable. Pull up my extensive posts on taxes. I've ran extensive simulations with every tax lot method a good broker lets you pick. Lump sum you're looking at 1.2% - 1.5% annual tax drag from quarterly re-balancing of the equity each year. So $100k in your portfolio that's $1,200 - $1,500 in taxes. This is assuming a 15% long term capital gains tax rate and a 30% short term capital gains tax rate.

You also have choices on re-balancing. If you're within +-3% (or whatever number you're comfortable with) then you can probably skip a quarterly re-balance too, and save on tax drag in practice.

If you're doing periodic investments equal to what you lump summed in, say $100k lump sum and $8.3k/mo, the tax drag is down to 0.80% or less, assuming you intelligently add with your periodic investments.

Don't let the tax dog wag it's tail... 1-1.5% tax drag is absolutely worth the 20-30% CAGR.

TMF's dividend yield is 0.62% currently and it's ordinary income. UPRO is 0.78%, qualified dividends. I haven't added that into the above tax drag but I'll let you do so. Guessing the math comes out to 0.15% tax drag from dividends. ((.0062*.45*.30 + .0078*.55*.15) * 100 = 0.14805%)

Don't run PSLDX in taxable. That throws off a ton of income.

This portfolio is absolutely worth doing in taxable, in Roth, and in traditional. Just don't try to split the portfolio across tax-advantaged and taxable as you have huge re-balancing swings, ie putting TMF in traditional and UPRO in taxable. Instead do 55/45 (or whatever ratio you decide on) in every account you want to run it with.

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

Post by HedgeFundMillionaire » Tue Mar 31, 2020 6:51 am

On Bloomberg Businessweek the Fed presidents seemed to be much more afraid of deflation than inflation.

jaj2276
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jaj2276 » Tue Mar 31, 2020 7:18 am

Quarter end rebalance for me today as well as updating the target % of two of my slices. Portfolio is up 55% since I started in Feb '19.

50% of portfolio is in OG 40/60 which has drifted to 15/85.
25% of portfolio is in Tgt 16 vol. This slice is currently at 13/87 and will be going to 6/94 (!).
25% of portfolio is in 21-day RP. This slice is currently at 21/79 and will be going to 39/61.

After the rebalance the entire portfolio will be 30/70.

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

Post by LittleBitMore » Tue Mar 31, 2020 8:57 am

HedgeFundMillionaire wrote:
Tue Mar 31, 2020 6:51 am
On Bloomberg Businessweek the Fed presidents seemed to be much more afraid of deflation than inflation.
Can anyone explain in practical terms the consequences of deflation? I understand that theoretically deflation tends to curb investment and consumption (since you could buy the same thing for less $ in the future) but does anyone have historical examples? What are the main worries as a long term investor?

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

Post by dspencer » Tue Mar 31, 2020 9:28 am

LittleBitMore wrote:
Tue Mar 31, 2020 8:57 am
HedgeFundMillionaire wrote:
Tue Mar 31, 2020 6:51 am
On Bloomberg Businessweek the Fed presidents seemed to be much more afraid of deflation than inflation.
Can anyone explain in practical terms the consequences of deflation? I understand that theoretically deflation tends to curb investment and consumption (since you could buy the same thing for less $ in the future) but does anyone have historical examples? What are the main worries as a long term investor?
The Great Depression

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

Post by Ramjet » Tue Mar 31, 2020 9:48 am

LittleBitMore wrote:
Tue Mar 31, 2020 8:57 am
HedgeFundMillionaire wrote:
Tue Mar 31, 2020 6:51 am
On Bloomberg Businessweek the Fed presidents seemed to be much more afraid of deflation than inflation.
Can anyone explain in practical terms the consequences of deflation? I understand that theoretically deflation tends to curb investment and consumption (since you could buy the same thing for less $ in the future) but does anyone have historical examples? What are the main worries as a long term investor?
Enhances the crisis going on. Prices start to fall, manufacturing slows, inventories are sold, demand drops, and unemployment shoots to the moon

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

Post by sterjs » Tue Mar 31, 2020 12:56 pm

privatefarmer wrote:
Sat Mar 28, 2020 3:25 pm
1) vanguard long term treasury fund VUSTX has been relatively a straight line up and to the right over the last 33+ years even though yields have fallen from ~9% to 1.4%. If it’s explained because of capital appreciation and not the dividend yield then why would we expect that to suddenly stop even at negative yields? Id add a screen shot but can’t figure out how...

2) how could we then expect LTTs to suddenly “hit a wall” when they get to 0% yield? Why would the market allow a risky asset to have no expected return? Nobody would buy it.
Treasurys appreciate when yields fall. If 20-year treasury bond yields fall to 0% tomorrow, they will appreciate by ~22%. A $100 20-year treasury bond with 1.1% yield will return $122, so it is equivalent to one with face value $122 at 0.0% yield. A $100 bond with 0% yield would appreciate by 25% if yields fell to -1% overnight.

So, how low can yields drop? Currently 20-year treasury bonds yield 1.1% and 20-year TIPS are yield -0.1%. Thus, the 20-year breakeven inflation rate is 1.2%. The market already forecasts negative real return for 20 years. There is certainly room for yields to fall, but in my amateur opinion, the runway for this strategy is dwindling.

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

Post by timewizard » Tue Mar 31, 2020 1:08 pm

Instead, one could use long-term strips that would provide a sort of leverage (EDV for example); or TMF has an equivalent duration of 50+years. Hence, it can possibly provide a ~50% upside if 20 year rates drop to 0. For EDV, it might be about 25-30%.

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

Post by Walkure » Tue Mar 31, 2020 1:35 pm

Dovahkiin wrote:
Tue Mar 31, 2020 12:02 am
TMF's dividend yield is 0.62% currently and it's ordinary income.
This was briefly mentioned a few months back when some of us were doing our 2019 taxes, and I ventured a guess then but never got any confirmation. It's not clear to me exactly how it works, but it appears that distributions from the swaps are QDI, because the latest annual report from Direxion shows 55.99% of TMF's dividend yield as qualified. Furthermore, the portion of TMF's yield coming from the direct holding of TLT is, according to iShares, income from US government obligations, and so in theory excludable from one's state and local taxes although Direxion does not report this number anywhere. An excerpt from the earlier discussion:
Walkure wrote:
Fri Feb 14, 2020 12:26 pm
pepys wrote:
Fri Feb 14, 2020 11:59 am
Hedgefundiers:

I have a good amount of TMF in my taxable account. Does anyone know if the distributions are state tax exempt? I could not find that information online.
I received my 1099-DIV from M1 and was just trying to figure out the same thing! Each quarter there are two distributions from TMF, one qualified dividend and one unqualified (at least that's how it is shown on the "Details of 2019 Form 1099-DIV" Statement, which clearly states is NOT a substitute for the actual 1099 form on the preceding page.) The UPRO dividends are 100% qualified.

Based on that, I am assuming that the qualified TMF distributions are from the swaps, and the non-qualified TMF distributions are from its underlying holding of TLT, which is an iShares product. I found a pdf on iShares website from tax year 2019 which indicates that TLT's share of income from US government obligations:
https://www.ishares.com/us/literature/t ... 067835.pdf
So I expect we take the info from the 2019 table from iShares for TLT, 99.88%, then multiply that percentage by the non-qualified portion of the TMF distribution to arrive at the amount that is excludable from your state taxes. Any tax gurus out there who can confirm this? It does not appear that Direxion provides this information anywhere, but maybe I'm just missing something.
FWIW, my state treats all dividends as ordinary income and I didn't bother claiming the deduction for income from treasuries in 2019 because it wasn't worth getting audited for <$8, but for future years as that number grows it will be important to get a definitive answer.

Edited to say: Although this may all become a non-issue if LTTs start "paying" negative rates and there are no distributions to tax :twisted:
Last edited by Walkure on Tue Mar 31, 2020 1:41 pm, edited 1 time in total.

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

Post by sterjs » Tue Mar 31, 2020 1:36 pm

timewizard wrote:
Tue Mar 31, 2020 1:08 pm
Instead, one could use long-term strips that would provide a sort of leverage (EDV for example); or TMF has an equivalent duration of 50+years. Hence, it can possibly provide a ~50% upside if 20 year rates drop to 0. For EDV, it might be about 25-30%.
With 20-year at negative real yields, TMF should be expected to provide negative real returns before expenses. Of course, if you are sure that interest rates will fall and/or that we will enter prolonged deflation, then leverage away. At least EDV can be expected to offer a real return of 0.07% for the next 30 years.

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

Post by MoneyMarathon » Tue Mar 31, 2020 5:23 pm

LittleBitMore wrote:
Tue Mar 31, 2020 8:57 am
Can anyone explain in practical terms the consequences of deflation? I understand that theoretically deflation tends to curb investment and consumption (since you could buy the same thing for less $ in the future) but does anyone have historical examples?
Source: https://en.wikipedia.org/wiki/Long_Depression
In 1873, during a decline in the value of silver—exacerbated by the end of the German Empire's production of thaler coins—the US government passed the Coinage Act of 1873 in April. This essentially ended the bimetallic standard of the United States, forcing it for the first time onto a pure gold standard. This measure, referred to by its opponents as "the Crime of 1873" and the topic of William Jennings Bryan's Cross of Gold speech in 1896, forced a contraction of the money supply in the United States. It also drove down silver prices further, even as new silver mines were being established in Nevada, which stimulated mining investment but increased supply as demand was falling.[12] Silver miners arrived at US mints, unaware of the ban on production of silver coins, only to find their product no longer welcome. By September, the US economy was in a crisis, deflation causing banking panics and destabilizing business investment, climaxing in the Panic of 1873.
In the United States, the Long Depression began with the Panic of 1873. The National Bureau of Economic Research dates the contraction following the panic as lasting from October 1873 to March 1879. At 65 months, it is the longest-lasting contraction identified by the NBER, eclipsing the Great Depression's 43 months of contraction.[6][30] Figures from Milton Friedman and Anna Schwartz show net national product increased 3 percent per year from 1869 to 1879 and real national product grew at 6.8 percent per year during that time frame.[31] However, since between 1869 and 1879 the population of the United States increased by over 17.5 percent,[32] per capita NNP growth was lower. Following the end of the episode in 1879, the U.S. economy would remain unstable, experiencing recessions for 114 of the 253 months until January 1901.[33]

The dramatic shift in prices mauled nominal wages - in the United States, nominal wages declined by one-quarter during the 1870s,[13] and as much as one-half in some places, such as Pennsylvania.[34] Although real wages had enjoyed robust growth in the aftermath of the American Civil War, increasing by nearly a quarter between 1865 and 1873, they stagnated until the 1880s, posting no real growth, before resuming their robust rate of expansion in the later 1880s.[35] The collapse of cotton prices devastated the already war-ravaged economy of the southern United States.[16] Although farm prices fell dramatically, American agriculture continued to expand production.[29]

Thousands of American businesses failed, defaulting on more than a billion dollars of debt.[34] One in four laborers in New York were out of work in the winter of 1873–1874[34] and, nationally, a million became unemployed.[34]

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

Post by Sola Scriptura » Tue Mar 31, 2020 10:12 pm

Dovahkiin wrote:
Tue Mar 31, 2020 12:02 am

I'm doing it in taxable. Pull up my extensive posts on taxes. I've ran extensive simulations with every tax lot method a good broker lets you pick. Lump sum you're looking at 1.2% - 1.5% annual tax drag from quarterly re-balancing of the equity each year. So $100k in your portfolio that's $1,200 - $1,500 in taxes. This is assuming a 15% long term capital gains tax rate and a 30% short term capital gains tax rate.

You also have choices on re-balancing. If you're within +-3% (or whatever number you're comfortable with) then you can probably skip a quarterly re-balance too, and save on tax drag in practice.

If you're doing periodic investments equal to what you lump summed in, say $100k lump sum and $8.3k/mo, the tax drag is down to 0.80% or less, assuming you intelligently add with your periodic investments.

Don't let the tax dog wag it's tail... 1-1.5% tax drag is absolutely worth the 20-30% CAGR.

TMF's dividend yield is 0.62% currently and it's ordinary income. UPRO is 0.78%, qualified dividends. I haven't added that into the above tax drag but I'll let you do so. Guessing the math comes out to 0.15% tax drag from dividends. ((.0062*.45*.30 + .0078*.55*.15) * 100 = 0.14805%)

Don't run PSLDX in taxable. That throws off a ton of income.

This portfolio is absolutely worth doing in taxable, in Roth, and in traditional. Just don't try to split the portfolio across tax-advantaged and taxable as you have huge re-balancing swings, ie putting TMF in traditional and UPRO in taxable. Instead do 55/45 (or whatever ratio you decide on) in every account you want to run it with.
Definitely good to read that the tax drag in your simulations is not as bad as I expected it to be, as I'm running the 55/45 UPRO/TMF in taxable as well. I was wondering if the drag would eventually become so bad that it would force me out, even with the potential CAGR as high as you state.

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

Post by MotoTrojan » Tue Mar 31, 2020 10:13 pm

Kbg wrote:
Fri Mar 27, 2020 10:45 pm
Nicolas Perrault wrote:
Fri Mar 27, 2020 9:07 am
Kbg wrote:
Fri Mar 27, 2020 8:13 am
I have UGLD in my mix and this whole thing has been a non-event...my mix does not generate the overall returns of the main one proposed here but it does just fine in the 70s, way better in fact.
That's assuming your 3X gold ETN does not fail.
And TMF and UPRO. Everyone is rolling the dice on this aspect of things. I think the risk is about the same as the rest.
Both are ETFs. If the funds go bust you’ll be left with the underlying holdings, unlike an ETN.

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

Post by MotoTrojan » Tue Mar 31, 2020 10:14 pm

sterjs wrote:
Tue Mar 31, 2020 1:36 pm
timewizard wrote:
Tue Mar 31, 2020 1:08 pm
Instead, one could use long-term strips that would provide a sort of leverage (EDV for example); or TMF has an equivalent duration of 50+years. Hence, it can possibly provide a ~50% upside if 20 year rates drop to 0. For EDV, it might be about 25-30%.
With 20-year at negative real yields, TMF should be expected to provide negative real returns before expenses. Of course, if you are sure that interest rates will fall and/or that we will enter prolonged deflation, then leverage away. At least EDV can be expected to offer a real return of 0.07% for the next 30 years.
+ 1 million

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lock.that.stock
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lock.that.stock » Tue Mar 31, 2020 10:34 pm

MotoTrojan wrote:
Tue Mar 31, 2020 10:14 pm
sterjs wrote:
Tue Mar 31, 2020 1:36 pm
timewizard wrote:
Tue Mar 31, 2020 1:08 pm
Instead, one could use long-term strips that would provide a sort of leverage (EDV for example); or TMF has an equivalent duration of 50+years. Hence, it can possibly provide a ~50% upside if 20 year rates drop to 0. For EDV, it might be about 25-30%.
With 20-year at negative real yields, TMF should be expected to provide negative real returns before expenses. Of course, if you are sure that interest rates will fall and/or that we will enter prolonged deflation, then leverage away. At least EDV can be expected to offer a real return of 0.07% for the next 30 years.
+ 1 million
TMF’s value will almost double if the LTT yields work their way from current 1.3% down to 0 and may continue to increase in value as we move into negative territory.

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

Post by mrspock » Wed Apr 01, 2020 3:08 am

FYI there was a new "risk" added to the TMF prospectus:
Effective immediately, the following risk is added to the Summary Prospectuses and summary section of the Prospectus
for each series of the Trust:

Market Disruption Risk – Geopolitical and other events, including public health crises and natural disasters, have recently led
to increased market volatility and significant market losses. Significant market volatility and market downturns may limit the
Fund’s ability to sell securities and obtain short exposure to securities, and the Fund’s sales and short exposures may exacerbate
the market volatility and downturn. Under such circumstances, the Fund may have difficulty achieving its investment objective
for one or more trading days, which may adversely impact the Fund’s returns on those days and periods inclusive of those days.
Alternatively, the Fund may incur higher costs (including swap financing costs) in order to achieve its investment objective and
may be forced to purchase and sell securities (including other ETFs’ shares) at market prices that do not represent their fair
value (including in the case of an ETF, its NAV) or at times that result in differences between the price the Fund receives for
the security or the value of the swap exposure and the market closing price of the security or the market closing value of the
swap exposure. Under those circumstances, the Fund’s ability to track its Index is likely to be adversely affected, the market
price of Fund shares may reflect a greater premium or discount to NAV and bid-ask spreads in the Fund’s shares may widen,
resulting in increased transaction costs for secondary market purchasers and sellers. The Fund may also incur additional tracking
error due to the use of futures contracts or other securities that are not perfectly correlated to the Fund’s Index.
The recent pandemic spread of the novel coronavirus known as COVID-19 has proven to be a market disrupting event.

The impact of this virus, like other pandemics that may arise in the future, has negatively affected and may continue to negatively
affect the economies of many nations, companies and the global securities and commodities markets, including by reducing
liquidity in the markets. Adverse effects may be more pronounced for developing or emerging market countries that have less
established health care systems. How long such events will last and whether they will continue or recur cannot be predicted.
Sounds like they are warning they may not be able to hold up their end of the deal under these market conditions. That said, they did a fairly good job so far through this crisis, but maybe they are having trouble getting folks to take the other side of the bet?

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