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  • Originally posted by xraygoggles View Post
    Speaking of leverage, I'm getting a lot of schadenfreude reading about Archegos' fall from grace. More like plummet.
    (https://www.wsj.com/articles/inside-...wn-11617323530)

    Who would have thought a hedge fund manager who was previously indicted for insider trading would be up to no good? Not me.

    Utilizing massive leverage along with total return swaps to hide their true level of exposure and avoid 13F filings. Keeping multiple counterparty investment banks in the dark with lack of transparency of level of exposure and risk management.

    This dude did everything wrong you could think of - good example of what can happen when ur level of leverage/greed goes bonkers.

    Edit: Btw, this is also almost exactly how Long Term Capital "genius" investors crashed & burned, but instead of falling to bubbly Chinese tech stocks, they got rekt by spreads widening on foreign bonds & Russian currency devaluation.
    I bet next time market really tanks we find out a lot of these offices and funds are more heavily leveraged than they let on

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    • I have been looking at the estimates of the UPRO series prior to inception date (2010).
      It seems the returns are very dependent on short rates (LIBOR) being low.
      I really wonder if it will outperform an unlevered SP if FFR is 1% or above. The return when short rates are low appears very impressive however.

      Comment


      • Originally posted by sweetnpsycho View Post

        My account isn't 100% UPRO. It is a variant of UPRO / TMF, rebalanced every quarter.

        Zaphod has the right idea in that you can't really blow up the account. If UPRO is tanking like a rock, you rebalance TMF into UPRO and take advantage of that. Vice versa when TMF tanks, kind of like what it is doing recently.

        Because it isn't callable, I can wait out the bad times and won't be forced to deleverage when things are down, especially when leverage is controlled and greed doesn't take over. Things can get really hairy if you 3x and then apply excessive margin.
        There is an assumption of unlimited time to wait out bad times. Retirement accounts are designed and required to have withdrawals and an end. Just curious.

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        • Originally posted by Tim View Post

          There is an assumption of unlimited time to wait out bad times. Retirement accounts are designed and required to have withdrawals and an end. Just curious.
          Not for Roth accounts.

          There is a good chance that even if 3x drops in value, during the dip it will still outperform 1x, especially if there is enough time to compound beforehand.

          I don't think this strategy will fail unless the government is willing to allow Wall Street to fail. And historically, the government isn't willing to allow Wall Street to fail.

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          • Originally posted by Dont_know_mind View Post
            I have been looking at the estimates of the UPRO series prior to inception date (2010).
            It seems the returns are very dependent on short rates (LIBOR) being low.
            I really wonder if it will outperform an unlevered SP if FFR is 1% or above. The return when short rates are low appears very impressive however.
            Yes that's true. I believe there was a recent discussion on Bogleheads that went into LIBOR and how it would affect returns in the future.

            Having said that, I'm not sure I would abandon this strategy, just because of that. Lot of unknowns. Cross that bridge when you get there, etc.

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            • Kinda painful to rebalance into TMF right now but I will be thankful it is there if/when the market takes another dump.

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              • Originally posted by Lordosis View Post
                Kinda painful to rebalance into TMF right now but I will be thankful it is there if/when the market takes another dump.
                i dunno, it seems like now might be a good time to rebalance since its a new quarter, but also since there's been a 25% correction to LT Treasuries.

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                • Originally posted by xraygoggles View Post

                  i dunno, it seems like now might be a good time to rebalance since its a new quarter, but also since there's been a 25% correction to LT Treasuries.
                  Yes logically it makes sense but they have been getting spanked for some time now.

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                  • Originally posted by Lordosis View Post

                    Yes logically it makes sense but they have been getting spanked for some time now.
                    Oops, I was looking at EDV, not 3x.

                    That one is down 50% since the peak last April. Not sure why its not 3x the non-levered fund though...

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                    • Originally posted by Lordosis View Post

                      Yes logically it makes sense but they have been getting spanked for some time now.
                      its had quite a drawdown. I'm happy buying at this price. of course, if we get runaway inflation I might have some regrets!

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                      • Originally posted by triad View Post

                        its had quite a drawdown. I'm happy buying at this price. of course, if we get runaway inflation I might have some regrets!
                        Wait so if inflation goes to the moon will TMF suffer big time? I don't understand how treasuries work.

                        FYI I just rebalanced the hedgefundie profile yesterday into TMF.

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                        • Originally posted by triad View Post

                          its had quite a drawdown. I'm happy buying at this price. of course, if we get runaway inflation I might have some regrets!
                          Don't listen to the perma-bears inflation fear-mongering.

                          Here's some straight facts: the expected 10-year inflation rate is currently at 2.34%.

                          https://fred.stlouisfed.org/series/T10YIE

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                          • Originally posted by Jack_Sparrow View Post

                            Wait so if inflation goes to the moon will TMF suffer big time? I don't understand how treasuries work.

                            FYI I just rebalanced the hedgefundie profile yesterday into TMF.
                            Yes, basic rule of thumb that is simple and accurate is that bond fund price will decrease by the amount of rate change, say its 1% muliplied by its average duration. For tlt lets just say its 20Y (its not always exactly the tenor of the fund but for disc purposes), so a 1% increase in rates will translate into a 20% loss in tlt.

                            Now, that doesnt always happen exactly especially with fed controlling shorter and supply/demand and disbelief in longer term inflation etc...but its something to keep in mind.

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                            • Originally posted by Zaphod View Post

                              Yes, basic rule of thumb that is simple and accurate is that bond fund price will decrease by the amount of rate change, say its 1% muliplied by its average duration. For tlt lets just say its 20Y (its not always exactly the tenor of the fund but for disc purposes), so a 1% increase in rates will translate into a 20% loss in tlt.

                              Now, that doesnt always happen exactly especially with fed controlling shorter and supply/demand and disbelief in longer term inflation etc...but its something to keep in mind.

                              CC: Jack_Sparrow

                              While this is technically true, of course, because you are buying a fund containing multiple long-term bonds of varying maturities, the loss you would take is a little more measured since it would be the aggregate maturity date. Additionally, if you hold the bond fund for, say 5 years or more, there will be constant buying & selling of bonds as they mature and more need to be added to maintain the duration strategy, the initial losses you may have gotten from the rising yields are counterbalanced.

                              Basically, if you buy & hold a bond fund over a reasonable period of time (5 years+), the adverse effects of interest rate yields would be mitigated and your principal would recover, and then some. Of course, you would still be getting monthly income based on the coupon (annual yield).

                              Comment


                              • Originally posted by xraygoggles View Post


                                CC: Jack_Sparrow

                                While this is technically true, of course, because you are buying a fund containing multiple long-term bonds of varying maturities, the loss you would take is a little more measured since it would be the aggregate maturity date. Additionally, if you hold the bond fund for, say 5 years or more, there will be constant buying & selling of bonds as they mature and more need to be added to maintain the duration strategy, the initial losses you may have gotten from the rising yields are counterbalanced.

                                Basically, if you buy & hold a bond fund over a reasonable period of time (5 years+), the adverse effects of interest rate yields would be mitigated and your principal would recover, and then some. Of course, you would still be getting monthly income based on the coupon (annual yield).
                                True, the relationship as usually given is for a single bond of one duration and is less exact for a fund. Often funds stated and actual is different. TLT has a weighted maturity of 26 but an effective of 19, still big but not the same (as of 12/31/2020).

                                The easiest way to know what a bond fund will return is the yield, you'll get the yield over said effective duration nearly guaranteed.

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