Three Things I Think I Think – Transitory Stuff

Further, I am not saying that there aren’t other good inflation hedges. I know that gold and real estate and other real assets are a thing and I am perfectly happy owning those things knowing they can hedge inflation. But I also like to keep things super simple in my actual financial asset portfolio and for that reason I think it’s useful to know that stocks are a very good low cost way to get access to an inflation hedge.

Contango Loss is not Transitory

 There was a very popular tweet going around this week from the founder of CoinBase. Basically, he thought volatility was on the horizon and so he said he was buying UVXY, a leveraged volatility ETF. The smart people of Volatility Twitter rightly dunked on him for this. But Barry got the last laugh as the VIX surged late last week and he earned a tidy 20% in less than a week. MarketWatch even published an article dunking on the dunkers.

I wanna be real clear about something here. Making a bet using a very bad product doesn’t mean it was a smart bet. In this case, UVXY is a horrific way to hedge against market volatility. Not only does it cost 1% in fees, but the fund is a leveraged volatility ETF that incurs a huge drag via leverage and futures roll. Basically, there are huge hidden costs in this fund that mean you will definitely lose money if you hold it long enough. I’m a big fan of ETFs in general, but these are very bad products and I’ve previously explained my view on the dangers of leveraged ETFs. And I don’t think we should applaud a bet that works when it’s implemented using a bad product. I mean, I don’t think you should gamble at all with your savings, but if you wanted to gamble I wouldn’t recommend that you play poker with Doc Holliday. That results in a different type of permanent decay, but it’s a sub-optimal outcome in the long-run compared to other alternatives.

The point is, if you want to gamble, at least be smart about it by using products that aren’t guaranteed to kill your portfolio in the long-run.

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Disclaimer: The content in this article is provided as general information only and should not be taken as investment advice. Article content shall not be construed as a recommendation ...

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