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Speaker 1: Welcome to trillions. I'm Joel Webber and I'm Eric bel Tunis.

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Speaker 1: Markets go up, and they've been going up for a

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Speaker 1: long time, but they also went down recently and then

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Speaker 1: they started going back up. Who knew? I knew. I

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Speaker 1: was sure they'd never go down. But looks like, yeah,

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Speaker 1: every once in a while I read books that they do.

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Speaker 1: But you know, now we know, and now you see

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Speaker 1: some red. Sometimes you also still see some green. But

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Speaker 1: what the red reminded people is that there isn't something

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Speaker 1: that you can do as an investor that can protect

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Speaker 1: you a little bit. Yeah, as an analyst in E

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Speaker 1: t F an else, I'm asked a lot by people

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Speaker 1: who just know me as the E t F guy. Hey,

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Speaker 1: how can I hedge the market? Or how can I

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Speaker 1: actually like put money in something that would go uphen

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Speaker 1: the market goes down. This is a popular question that

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Speaker 1: I got even before the drawdout. I get this question

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Speaker 1: quite a bit. So I recently wrote a primer on

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Speaker 1: how to hedge your portfolio with E t F s

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Speaker 1: and got a lot of reads. So what we're actually

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Speaker 1: gonna be spending this episode talking about is hedging. And

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Speaker 1: because Eric and I don't actually manage money or give

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Speaker 1: investment advice or give investment advice. We're bringing in someone

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Speaker 1: who can do both. Mike Venudo at Toroso Investments, where

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Speaker 1: he's the co founder and c I O, and he

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Speaker 1: knows this stuff backwards and forwards. And Mike just I've

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Speaker 1: met Mike several times on the circuit. As I like

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Speaker 1: to say, that's for Todd, Rose and Bluth and I

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Speaker 1: hang out. Mike is I thought that was the hot

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Speaker 1: tub that's come on. That was an awfor discussion. Mike

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Speaker 1: is what I considered to be an E t F

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Speaker 1: sort of Jedi master. He isn't all E t F

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Speaker 1: using advisor. There's people like this around that are so good.

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Speaker 1: They sniffed through the whole toolbox and so they're great

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Speaker 1: that I interview these people from my book and they

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Speaker 1: were very good because you could throw any ticker at

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Speaker 1: them and they have an opinion on it. But not

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Speaker 1: only that, they have an opinion on it because they

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Speaker 1: have money on the line. So there are really a

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Speaker 1: twofer in terms of commenting on this kind of stuff.

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Speaker 1: And to be clear, some of the stuff that we're

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Speaker 1: gonna talk about is going to be a little bit

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Speaker 1: more technical then most people might be accustomed to. But

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Speaker 1: we're gonna try and keep it really simple. And to

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Speaker 1: go back to that, you know, the Walmart superstore that

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Speaker 1: Eric's the manager of. Maybe maybe this is when you

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Speaker 1: when you get to the home depot on Saturday, instead

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Speaker 1: of getting the you know, the normal shopping cart, you

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Speaker 1: get the other kind that's a little bit more heavy duty,

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Speaker 1: the flat one with with still with the broken wheels

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Speaker 1: that go. But but this is the best version of

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Speaker 1: the broken wheel, so good for you on that. And

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Speaker 1: the other thing is, yes, this is and when you

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Speaker 1: talk about that aisle where you need that cart, normally

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Speaker 1: that's the place where you have to ask the guy

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Speaker 1: from Home Depot like what's up because you don't know

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Speaker 1: what you're doing. So I think that's a good metaphor

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Speaker 1: for this. And also not all of the ETFs we're

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Speaker 1: gonna go over today are are that hard to understand.

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Speaker 1: But the first ones will be where we decided to

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Speaker 1: start with the really hardcore exotic stuff that's been in

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Speaker 1: the news lately, and then we're gonna kind of like

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Speaker 1: slowly go to the more safe plane vanilla stuff that

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Speaker 1: most people using their portfolio. So keep in mind we're

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Speaker 1: going from like if this were a music store, We're

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Speaker 1: gonna start with n W A and then we'll end

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Speaker 1: with the parts family. On this episode of trial, how

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Speaker 1: to hedge a portfolio? Okay, Mike, how did you find

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Speaker 1: the E t F and what was that first trade? Like?

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Speaker 1: I found ets because I saw it as a disruption

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Speaker 1: to buying individual stocks, which is what we did at

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Speaker 1: Horizon Kinetics, where where I learned about investing. The first

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Speaker 1: trade ever we did into an e t F was

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Speaker 1: buying t I P, which is a Treasury inflation protected

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Speaker 1: U e t F, and we sold calls off of it.

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Speaker 1: I think we're gonna get into some of that type

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Speaker 1: of thing later. And we did it because it was

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Speaker 1: a way to diversify away and protect or hedge the

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Speaker 1: rest of our portfolio. And this was not that long

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Speaker 1: ago two eight so that was what you did. What

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Speaker 1: do you do now? So four or five years later,

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Speaker 1: I guess it was two thousand twelve, I started to

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Speaker 1: Rosto Investments. The core idea was to have an E

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Speaker 1: t F research company and use that E t F

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Speaker 1: research for a primary portfolio that's based on protection. We

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Speaker 1: use the acid algy Sha model of the permanent portfolio

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Speaker 1: and we fill it in with intelligent et F choices.

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Speaker 1: So I spend my time researching tickers and talking to

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Speaker 1: people like Eric Um all day, all night, and we

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Speaker 1: have to do it for a little while. Uh, So

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Speaker 1: talk about who your clients are. Sure, So we have

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Speaker 1: two types of clients. We have an individuals who come

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Speaker 1: to us and want advice on which ETF to own,

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Speaker 1: whether it's for our asset allocation models or something they're

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Speaker 1: trying to do. Then we deal on the other end

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Speaker 1: with the institutions. And the institutions are two parts, people

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Speaker 1: who want to use ETFs, people who are issuing e

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Speaker 1: t F s, and through our we call our e

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Speaker 1: t F think tank, we connect both and enjoy the conversation. Okay,

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Speaker 1: let's go ahead and talk about hedging. Then, Eric and

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Speaker 1: your primary you talk about vix VIX. Uh this is

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Speaker 1: a very controversial, highly dangerous area. The VIX is an

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Speaker 1: index that measures volatility on options, as known as the

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Speaker 1: fear did right. So if it starts moving a lot,

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Speaker 1: it means people are taking out insurance on their portfolios,

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Speaker 1: which is what they do with options. So if the

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Speaker 1: VIX goes up, it means people are buying insurance, and

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Speaker 1: that means volatility as a foot. So the VIX goes

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Speaker 1: up when people are nervous. Now, there's no et F

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Speaker 1: that tracks the VIX. It's a calculation, it's not a

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Speaker 1: real thing. But there are futures on the VIX. So

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Speaker 1: the e t F s and e t n s

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Speaker 1: track those futures. And these are the bad boys. These

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Speaker 1: are totally the bad boys. Because red lights, oh red lights,

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Speaker 1: but with a score of about ten or thirteen. So

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Speaker 1: there's the n C seventeen on my stop lights system easily.

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Speaker 1: So why people love them even though they lose money

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Speaker 1: year after year and like all of them are down

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Speaker 1: about nine since launching. The reason people love them is

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Speaker 1: jackpot potential because when the market goes down, nothing will

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Speaker 1: come close to the what you get with the VXX

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Speaker 1: or that kind of return. So for example, you look

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Speaker 1: at something like in August, market was down four percent

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Speaker 1: that day v XX was up. Now that's way beyond

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Speaker 1: even a triple leverage in verse SNP. Then you go

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Speaker 1: to a bad month market down eight percent, VIX is

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Speaker 1: up or VXX rather, and then two thou eight when

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Speaker 1: the market was sound thirty eight percent, v XX wasn't around,

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Speaker 1: but the index at tracks was up a d so

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Speaker 1: that jackpot potential is what draws people like a shiny object.

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Speaker 1: The problem is a lot of people if they get

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Speaker 1: too close and hang out there, they lose a lot

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Speaker 1: of money because you have to roll those futures and

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Speaker 1: that can cost you thirty percent a year. So it

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Speaker 1: is an expensive hedge and you could lose a lot

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Speaker 1: of money. But the reason it sticks around and has

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Speaker 1: an audience is because it can pay off big time.

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Speaker 1: Sounds a little bit like when you go fishing and

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Speaker 1: you use that really fancy lure, you know that catches

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Speaker 1: all the light in the water. That's what this sounds

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Speaker 1: like a little bit, right, Yeah, you gotta be careful

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Speaker 1: because you get like might get caught. Absolutely, Yeah, don't

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Speaker 1: take the bait is probably the best advice for almost

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Speaker 1: all investors, except for people who really know what they're doing.

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Speaker 1: And Mike, so, how have you guys been talking about

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Speaker 1: this with clients? So using the VIX is extremely complicated.

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Speaker 1: I totally agree that it is nc SEV, maybe even

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Speaker 1: triple X. I don't even know if they use those

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Speaker 1: any work. But the biggest issue with VXX or T

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Speaker 1: VIX or any of these. Isn't just that you have

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Speaker 1: to know how much you want to hedge. You have

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Speaker 1: to know exactly when, like when to the precise second day,

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Speaker 1: because the decay the cost of this insurance is enormous.

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Speaker 1: And I don't know that, do you know? Do you

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Speaker 1: know that you know when? I don't believe anybody can

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Speaker 1: really know when. I'm sure there are some tactical people

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Speaker 1: out there who think they do. But yeah, look, I

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Speaker 1: mean this is why I use Biff from Back to

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Speaker 1: the Future too. Remember how we got the Guide to

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Speaker 1: the Sports and he and he got he was like

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Speaker 1: the richest guy in the country because he knew the future.

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Speaker 1: Unless you have the guide to what the vix is

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Speaker 1: going to do in the future and your Biff, nobody knows.

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Speaker 1: And I think that's you know, that is Timing is

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Speaker 1: everything with the vix UH and VXX. But like I said,

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Speaker 1: if you have some special insight into the future, or

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Speaker 1: if you really, really really just think tomorrow is going

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Speaker 1: to be horrendous, there's really no problem with holding it

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Speaker 1: for a day. It wouldn't corrode that much in one day.

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Speaker 1: You gotta get out quick. Can you say all what

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Speaker 1: you just said in Biff's voice, come on, McFly, you

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Speaker 1: should say it. Come on, he's the Michael Winslow of

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Speaker 1: the two of us. Okay, so there's another bad boy,

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Speaker 1: maybe on par with Biff inverse. Yeah, So inverse is

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Speaker 1: that's basically saying we're going to short the SP five hundred,

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Speaker 1: either using swaps or futures, and so if the SMP

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Speaker 1: five hundred goes down, say two percent, they should go

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Speaker 1: up to. Then they've got double leveraged short and triple

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Speaker 1: leveraged like a hoverboard. Yeah, but s h is the

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Speaker 1: one I think is interesting because Eric didn't take that bait.

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Speaker 1: Oh sorry, I put the hoverboard out there and you

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Speaker 1: didn't jump on it. That was now I can't even

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Speaker 1: touch that. That's just untouchable owning. This one is like

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Speaker 1: when Biff runs into the manure truck and yeah, it

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Speaker 1: can be run pretty short and stinky. Look, Okay. The

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Speaker 1: one I think is interesting, and I'd like to get

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Speaker 1: Mike's opinion on sh this is inverse SMP five. You

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Speaker 1: have to reset the short position. So there is a

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Speaker 1: volatility drag that and we won't go into the details here,

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Speaker 1: just know that there is there is a corrosion to

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Speaker 1: it's a costly hedge as well, but nowhere near v

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Speaker 1: x x, and essentially if the market goes down to percent,

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Speaker 1: this will go up to Curious what you think whether

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Speaker 1: this is viable? You could you could hold this a

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Speaker 1: little longer without that extreme decay of v xx or

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Speaker 1: would you also put this in don't touch it ever?

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Speaker 1: So with v x x, it's all about timing. You

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Speaker 1: have to get the time right with this. With s H,

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Speaker 1: it's not just timing. It's a little less important here,

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Speaker 1: but it's also about the direction of the market. So

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Speaker 1: it's not just down, but is it volatile down? So

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Speaker 1: this reset that you're describing that can cause it to

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Speaker 1: decay is rapidly as v x X. So now you've

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Speaker 1: added yet another element that you've got to get right.

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Speaker 1: And the reset is just to break this down. For

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Speaker 1: anyone out there is leverage ets or inverse ETFs, they

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Speaker 1: have to reset their leverage every day so they account

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Speaker 1: for the new people coming in. You can't do two

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Speaker 1: times from like two years ago, and you have to

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Speaker 1: reset it every day there for people coming in and out.

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Speaker 1: It makes sense, but when you reset at prices that

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Speaker 1: are going all over the place all that it just

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Speaker 1: creates a like a Matthew kind of corrosion because you're

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Speaker 1: resetting all. If it goes up a similar direction, you

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Speaker 1: start resetting higher and higher, and you actually compound a

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Speaker 1: little bit. So you have volatility drag in almost all cases,

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Speaker 1: which can corrode this insurance. But every now and then,

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Speaker 1: if it does go up straight, you get the compounding effect,

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Speaker 1: which can help. So I think you're right. If you

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Speaker 1: have a feeling the market could go down steadily over

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Speaker 1: the next year, s H would make a lot of sense, right, Yes,

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Speaker 1: But as we saw recently, we have one day down

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Speaker 1: at thousand points, one day up at thousand points, one

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Speaker 1: day down thousand points. That is terrible for something like SH.

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Speaker 1: You actually could still lose money even though you're inverse. Tactically,

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Speaker 1: why would someone use this and and how much would they?

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Speaker 1: You know, dial up the volume with it. So people

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Speaker 1: who understand tactical or believe they figured it out, they

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Speaker 1: use this all day long. UM. They may be hedge funds,

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Speaker 1: they may be et F strategists. I mean good Harbor

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Speaker 1: in the old days was known for this. UM. This

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Speaker 1: is not for your average investor to make a strategic allocation.

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Speaker 1: This is the difference between owning something, buying hold and

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Speaker 1: trying to guess when something's going to happen and react.

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Speaker 1: You can't simply buy this and then go to work

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Speaker 1: unless you want to lose your hands. This trades to

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Speaker 1: change saw. It's a change saw. You better be careful.

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Speaker 1: And you know there are people who are like say,

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Speaker 1: like bitcoin investors, people who just love gambling and speculating.

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Speaker 1: Those kind of retail investors are attracted this, but you

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Speaker 1: they are. They're messaging each other on Reddit and they're

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Speaker 1: informed that you can't hold it. What you don't want

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Speaker 1: is somebody who is retail a or even institutional and

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Speaker 1: just doesn't understand that and is sticks and it. You

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Speaker 1: can tell from the trading volume of these like these

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Speaker 1: leverage gtfs and vix ETFs trade about fift their assets

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Speaker 1: every day. That is a humongous turnover. That means they

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Speaker 1: are being used correctly. As hot potatoes. Five six years ago,

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Speaker 1: I think you saw less volume because people were unsure

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Speaker 1: how to use them. But there's a lot of teachable

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Speaker 1: moments since then, so I do think they're probably mostly

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Speaker 1: in the right hands, but they definitely should be labeled

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Speaker 1: just like the vixed products. The labels are all over them, right.

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Speaker 1: If you notice all of these, even in their their name,

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Speaker 1: it says daily like they they have gone out of

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Speaker 1: their way to warn the public. We have created the

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Speaker 1: sharpest knives. And unless you've completed Wolfgang's Pucks TV show

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Speaker 1: or something, don't pick this up. Just like we've been

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Speaker 1: hearing recently. If you're gonna own the vixed products, read

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Speaker 1: every line of of the prospectus with the leverage and

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Speaker 1: inverse it says it in the name, right, I don't

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Speaker 1: think it could be more black and white than night. Okay,

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Speaker 1: So that was the advanced section, hyper advanced. Maybe let's

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Speaker 1: go to that sort of the intermediate territory because put options,

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Speaker 1: for instance, this becomes much more common. Yeah, writing options

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Speaker 1: on your portfolio or buying them is a popular method.

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Speaker 1: If you look at E t F, the E t

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Speaker 1: F s out there have options on them that you

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Speaker 1: know you could trade or buy or sell, and most

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Speaker 1: of those options are in the top ten e t fs,

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Speaker 1: like Spy is basically like half the equity market in

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Speaker 1: option violence, it's a monster. I W M E M

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Speaker 1: and that's a big fertile market. People trade those things

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Speaker 1: and do actual tactical moves. But there are people buying

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Speaker 1: any options for insurance. So a put option would be

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Speaker 1: a way to ensure your portfolio. But again you have

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Speaker 1: to pay for it, and you have it expires, so

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Speaker 1: you'll have to think about Okay, it's expiring, it got

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Speaker 1: to buy another one, and that that affects its price. Yeah,

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Speaker 1: so that is also away again just because now we're

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Speaker 1: dealing with derivatives. I put in the intermediate, but it's

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Speaker 1: not nearly as wild as say the vix or inverse world.

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Speaker 1: And this one is well, you have to get the

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Speaker 1: timing right, but you don't have to commit so much.

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Speaker 1: You daily, daily at a time. Yes, and and the

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Speaker 1: decay of the cost or the actual cost you're gonna

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Speaker 1: put in, you know from day one. Give an example

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Speaker 1: of buying an option like on on s p Y,

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Speaker 1: Like what just take us through that trade. So let's

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Speaker 1: say you think SPY is going to decline, you simply

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Speaker 1: would purchase a put at ten percent below or at

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Speaker 1: the money that that all can get very complicated, but

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Speaker 1: ten percent below it's trading in a hundred today, you

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Speaker 1: would buy it. You would buy a put for ninety

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Speaker 1: buy a put for nine because that would be cheaper.

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Speaker 1: Meaning if the SMP goes down what to then you

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Speaker 1: can then guarantee to sell it to that person for nine. Yes,

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Speaker 1: but in the interim, if it moves down at all,

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Speaker 1: the put option would start to move. So it's not

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Speaker 1: that you can be completely hands off with this, but

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Speaker 1: it's a little bit more hands off and you can

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Speaker 1: go the other way, which is called a call. Yes

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Speaker 1: you could. But even more interesting, what et s beautifully

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Speaker 1: do for all of us is they'll take strategies like

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Speaker 1: this and stick it in the wrapper so you don't

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Speaker 1: have to go and do this. So there's by right strategies,

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Speaker 1: there's put right strategies. Um, there's one now that buys

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Speaker 1: treasuries I think it's tail, and then uses the income

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Speaker 1: from those treasuries to buy puts on the SMP. What's

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Speaker 1: a classic one that does what we just the scenario

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Speaker 1: where you're protecting the downside with options inside and ETF

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Speaker 1: what's a good example. Um, I think that tail one

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Speaker 1: that I was just describing is probably the purest example

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Speaker 1: of that, but there's plenty of others that have used

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Speaker 1: options over the years to mitigate volatility. So um, the

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Speaker 1: PDP is a great example. To put right is another

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Speaker 1: great example, p U t W. And then there's funds

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Speaker 1: of option writing funds. So I like this one. Why

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Speaker 1: why why? It's an income fund that's a great ticker

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Speaker 1: yield yield yield. It might be Eric's boy band had

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Speaker 1: when he was in high school. I like that. But

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Speaker 1: all it is is it's a bunch of closes. Inever

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Speaker 1: why y y? It sounds like frosted tip, Eric Bolton.

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Speaker 1: I did use a lot of gel in high school.

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Speaker 1: I'll admit it. I was all over the depth gel. Yeah.

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Speaker 1: That was my jam. That was like a firm hold. Yeah. Anyway, okay,

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Speaker 1: So put options is one that's sort of the intermediate.

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Speaker 1: Let's let's talk about the alternative space because we're talking

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Speaker 1: about rappers here. Uh, there's a lot of hedge fund

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Speaker 1: strategies that have been wrapped up in in the E

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Speaker 1: T F rapper as well. I can talk about that

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Speaker 1: because that's also sort of an intermediate place. Sure, so um,

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Speaker 1: hedge funds are misunderstood. Most people think they're trying to

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Speaker 1: babe ruth the performance and get like return every year.

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Speaker 1: Like Christian Bale on the big short. There are some

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Speaker 1: to do that those are up section, but most of

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Speaker 1: them do what the name says, they hedge. They are

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Speaker 1: trying to find some kind of weird obscure risk premium

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Speaker 1: in the market somewhere, capture it and eliminate market volatility

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Speaker 1: to serve up a low vall risk adjust to return.

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Speaker 1: That's actually it's sometimes some of them are voltile is

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Speaker 1: a bond fund, right, They're very misunderstood. So a lot

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Speaker 1: of the alternatives in that have been wrapped the hedge

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Speaker 1: funds strikes have been wrapped up into et fs. Do

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Speaker 1: that they do merger are their long short, they do

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Speaker 1: managed futures um so it is very complicated area. That's

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Speaker 1: the downside of this. Well, they can do some things

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Speaker 1: that hedge funds do for a lot less than hedge

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Speaker 1: funds charge, so they've democratized hedge fund investing. But they're

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Speaker 1: very complicated. But what they do is they produce a

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Speaker 1: return stream that is not correlated to stocks and bonds,

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Speaker 1: hence alternative. And the reason they're called liquid alternatives is

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Speaker 1: because only hedge funds which have lock ups, which means

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Speaker 1: for multiple years you might be locked out of getting

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Speaker 1: your money back. Correct so ultimately, alternatives is a category

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Speaker 1: that's pretty broad. Hedge funds is one of example of

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Speaker 1: an alternative. But by the way, none of us are

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Speaker 1: going to be able to well, at least the three

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Speaker 1: of us are probably gonna be able to put much

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Speaker 1: money on a hedge fund, which here with the EF. Yeah,

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Speaker 1: I'm I'm still a thousand are Yeah, So I would

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Speaker 1: never qualify for any hedge fund, but the HF, nor

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Speaker 1: would you probably be able to pay for it, which

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Speaker 1: is do you know what I want to go into one?

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Speaker 1: To be honest with you, Um, I'm fine. Look the

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Speaker 1: minds of JP Morgan, Index I Q Goldman Sacks, they've

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Speaker 1: made hedge fund ETFs using actual their brains and doing

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Speaker 1: hedge fund strategies. You can get anything that hedge fund

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Speaker 1: does except for the special star manager, I mean that

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Speaker 1: will always exist, but the general strategies are ETFs. This

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Speaker 1: category is pretty small though, only about two three billion

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Speaker 1: in assets. Um, Mike, do you use any of these? Absolutely?

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Speaker 1: These are the things that I think ets are made

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Speaker 1: for democratizing access to things. So I've been saying for

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Speaker 1: years that hedge funds will just become a call it

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Speaker 1: kindergarten for e T s right. It's where people will

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Speaker 1: grow up ideas um And it's funny because it's kind

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Speaker 1: of what's happened with a lot of these things like

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Speaker 1: leverage and and using volatility in terms of alternatives to

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Speaker 1: use to protect the portfolio. I think what JP Morgan

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Speaker 1: is doing right now to bring out some traditional hedge

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Speaker 1: fund strategies in rappers that are more efficient. The one

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Speaker 1: I have loved forever and you've heard me talk about

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Speaker 1: it on your other show, B T A. L Boy,

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Speaker 1: Thomas Apple, Larry. All this does is it's longfty low

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Speaker 1: risk stocks in the SMP all short the two fifty

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Speaker 1: high risk or high beta. The net result is when

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Speaker 1: the markets go down, this goes up. When the markets

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Speaker 1: go up, it goes down half as much as they've

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Speaker 1: gone up. So you miss out on a little bit

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Speaker 1: of everything. Yes, but with the things we talked about

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Speaker 1: in the first section, the vix and the shorts, there

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Speaker 1: one the one ratios right, you're gonna on the upside,

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Speaker 1: you're gonna lose as much as you're gonna make on

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Speaker 1: the downside. With something like this, the reason it's more

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Speaker 1: strategic and can be held longer is when the markets

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Speaker 1: are growing up, you're really only paying fifty cents for

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Speaker 1: that dollars worth of protection. Now betal in our system

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Speaker 1: does get a yellow Oh yeah, I'm sure it does.

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Speaker 1: It's complicated, it's alternative, and but really it's because when

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Speaker 1: you short anything, there is a cost to that. So

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Speaker 1: there's a there is a slate head when in that

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Speaker 1: cost and show up the expense ratio. But you find

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Speaker 1: that appropriate. Not you would pay it anyway if you

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Speaker 1: did it yourself. But what does that cost? Like in

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Speaker 1: betel so something like beatle, because half the portfolio is short,

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Speaker 1: that has a cost to borrow. To short something, you

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Speaker 1: have to borrow the stocks um and that gets passed

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Speaker 1: onto the end investor and it offsets whatever dividends you

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Speaker 1: would be getting from the other side. So the the

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Speaker 1: expense ratios that you'll see in a system will look

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Speaker 1: a little expensive. That said, for a hedge that you

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Speaker 1: can actually buy and hold, I like the concept. Okay,

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Speaker 1: now we're gonna get in a safe the safe zone.

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Speaker 1: And this hedge is one that everyone is actually familiar with.

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Speaker 1: Gold gold they're familiar with it, but boys are controversial.

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Speaker 1: It's like politics. There's gold bugs and there's gold haters

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Speaker 1: who are offended by the mere concept of gold. They

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Speaker 1: say it's just the rock and they don't like it.

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Speaker 1: So I know that it's get heated. So gold though.

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Speaker 1: The pro of using gold as a hedge, something like

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Speaker 1: g l D, which is the biggest gold, is that

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Speaker 1: it isn't correlated to the market at all. It's zero correlation.

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Speaker 1: No one knows why it does what it does. Correct,

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Speaker 1: that's the problem. It's also zero correlated, meaning if the

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Speaker 1: market goes down, gold may or may not go up.

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Speaker 1: It's sort of like a punk rock or it does

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Speaker 1: whatever the hell it wants to do, but that's its beauty.

429
00:21:15,760 --> 00:21:18,879
Speaker 1: You have to appreciate that it's a good diversifier, but

430
00:21:19,080 --> 00:21:21,159
Speaker 1: not a it's a shaky hedge. You do like the

431
00:21:21,200 --> 00:21:24,160
Speaker 1: remoons too? Huh? Yeah, I thought I was a little

432
00:21:25,000 --> 00:21:26,800
Speaker 1: I was a little more of a social distortion kind

433
00:21:26,840 --> 00:21:29,640
Speaker 1: of guy. Yeah, so, but the remains that you can't

434
00:21:29,680 --> 00:21:32,600
Speaker 1: not like, are you a punk rock fan? Mike? Uh no,

435
00:21:33,160 --> 00:21:35,240
Speaker 1: you guys were talking about high school earlier. I was

436
00:21:35,400 --> 00:21:39,240
Speaker 1: the debate champion, chess champion with long hair following the

437
00:21:39,280 --> 00:21:42,160
Speaker 1: Grateful Dead, So I'm definitely are you a gold bug

438
00:21:42,240 --> 00:21:45,280
Speaker 1: or a gold I am definitely a gold bug totally

439
00:21:45,320 --> 00:21:49,680
Speaker 1: have built my acid allocation model on the permanent portfolio,

440
00:21:49,760 --> 00:21:52,760
Speaker 1: which is gold. Now that said, that doesn't mean you

441
00:21:52,880 --> 00:21:55,480
Speaker 1: just buy g l D or B A R I AU.

442
00:21:56,080 --> 00:21:58,520
Speaker 1: There are smart ways to add to own gold like

443
00:21:58,800 --> 00:22:02,080
Speaker 1: um you know. To loop back to the other section

444
00:22:02,119 --> 00:22:04,080
Speaker 1: where we talked about options, one of the things I

445
00:22:04,160 --> 00:22:06,280
Speaker 1: love using is a little E T N called g

446
00:22:06,520 --> 00:22:10,359
Speaker 1: l D I A right so I own gold. It

447
00:22:10,440 --> 00:22:13,320
Speaker 1: sells calls on that gold, which gives me income off

448
00:22:13,400 --> 00:22:15,320
Speaker 1: my gold while I'm waiting for my gold to do

449
00:22:15,800 --> 00:22:19,040
Speaker 1: what we hope it will do. Moving to the mainstream

450
00:22:19,040 --> 00:22:20,760
Speaker 1: gold ETF So you've got g l D S forty

451
00:22:20,800 --> 00:22:23,920
Speaker 1: basis points I use. Then you've got these ones that

452
00:22:24,000 --> 00:22:27,720
Speaker 1: are for like hardcore paranoid gold people like one stores

453
00:22:27,760 --> 00:22:30,600
Speaker 1: it in Switzerland s g o L, and then one

454
00:22:30,840 --> 00:22:34,080
Speaker 1: will deliver you physical coins O U n Z. Where

455
00:22:34,119 --> 00:22:36,800
Speaker 1: do you stand? Do you think that the US would

456
00:22:36,840 --> 00:22:41,080
Speaker 1: ever confiscate gold? Like? Are you it has right? The

457
00:22:41,200 --> 00:22:43,760
Speaker 1: FDR did it? There are people s g O L

458
00:22:43,840 --> 00:22:47,600
Speaker 1: has a billion dollars just because it stores the golden Switzerland,

459
00:22:47,600 --> 00:22:49,760
Speaker 1: whereas g l D and I used store in the States.

460
00:22:49,800 --> 00:22:54,200
Speaker 1: In Canada, so I understand that extreme of the gold bugs,

461
00:22:54,359 --> 00:22:56,960
Speaker 1: and I wish them the best. I'm quite happy with

462
00:22:57,080 --> 00:22:58,800
Speaker 1: an I A U or g l D A B

463
00:22:58,960 --> 00:23:02,840
Speaker 1: A r B because in the scenario where getting that

464
00:23:02,920 --> 00:23:06,080
Speaker 1: physical gold matters, I don't think it matters that you

465
00:23:06,359 --> 00:23:09,400
Speaker 1: own an ETF that claims to have the physical gold. Yeah.

466
00:23:09,440 --> 00:23:13,760
Speaker 1: I mean, look, gold has been around. It survived many civilizations,

467
00:23:13,840 --> 00:23:17,040
Speaker 1: let alone generations, so I I respect it. I'm more agnostic,

468
00:23:17,520 --> 00:23:20,280
Speaker 1: and I do think it isn't it's extra shaky as

469
00:23:20,320 --> 00:23:23,159
Speaker 1: inflation hedge, but I have seen it work as a

470
00:23:23,240 --> 00:23:25,800
Speaker 1: crisis hedge. But in two thousand and eight, for example,

471
00:23:26,280 --> 00:23:28,720
Speaker 1: the market was doundt g l D was only up

472
00:23:28,760 --> 00:23:32,960
Speaker 1: three So again it it didn't go down, but it

473
00:23:33,200 --> 00:23:35,280
Speaker 1: could have gone down. It could have gone up. Who knows?

474
00:23:36,440 --> 00:23:38,879
Speaker 1: Who are these people? I'm just in my Jerry Seinfeld

475
00:23:39,200 --> 00:23:41,719
Speaker 1: emerged into Seinfeld. Sometimes I slowly get there and then

476
00:23:41,760 --> 00:23:44,399
Speaker 1: I end up with who are these people? Um? Just

477
00:23:44,520 --> 00:23:46,320
Speaker 1: to add on with gold one other thing, it gets

478
00:23:46,359 --> 00:23:48,280
Speaker 1: a green lightner system, but it does get a tag

479
00:23:48,359 --> 00:23:50,680
Speaker 1: with with A one. It has one infraction, which is

480
00:23:50,680 --> 00:23:52,720
Speaker 1: alternative tax treatment. If you buy g l D or

481
00:23:52,760 --> 00:23:55,360
Speaker 1: AU you get tax as if you want a collectible.

482
00:23:55,720 --> 00:23:57,359
Speaker 1: And I think that's just something to point out here,

483
00:23:57,400 --> 00:23:59,600
Speaker 1: and that's just one little tiny thing that does mar

484
00:23:59,800 --> 00:24:02,440
Speaker 1: the buying of gold in terms of it being like

485
00:24:02,520 --> 00:24:08,520
Speaker 1: plain vanilla. So the green light hedge's treasuries. Yes, so

486
00:24:08,640 --> 00:24:11,159
Speaker 1: this is what I call the organic aisle. This is

487
00:24:11,240 --> 00:24:17,040
Speaker 1: known unnatural preservatives, no chemicals. Treasuries are classic and they're big.

488
00:24:17,240 --> 00:24:19,280
Speaker 1: They've got billions of dollars in assets. People use them

489
00:24:19,320 --> 00:24:21,240
Speaker 1: all the time. Now, the question is where on the

490
00:24:21,359 --> 00:24:24,240
Speaker 1: curve right do you buy your treasury E t F. Like,

491
00:24:24,320 --> 00:24:27,480
Speaker 1: for example, t L T is a treasury E t F.

492
00:24:27,600 --> 00:24:30,639
Speaker 1: So the pro is it tends to spike up in

493
00:24:30,680 --> 00:24:32,840
Speaker 1: a crisis because there's a flight to safety. In two

494
00:24:32,880 --> 00:24:35,639
Speaker 1: thousand eight, t LT was up the exact amount more

495
00:24:35,720 --> 00:24:37,639
Speaker 1: or less that the market went down. It would have

496
00:24:37,720 --> 00:24:42,359
Speaker 1: completely offset your market losses. However, if rates are going up,

497
00:24:42,440 --> 00:24:44,040
Speaker 1: t LT is going to be hit the hardest. So

498
00:24:44,080 --> 00:24:46,719
Speaker 1: there's an interest rate component that makes t LT sensitive.

499
00:24:47,160 --> 00:24:48,919
Speaker 1: Then you start going down the curve till you get

500
00:24:48,960 --> 00:24:51,880
Speaker 1: to stuff that's closer to quote cash. That stuff will

501
00:24:52,000 --> 00:24:55,880
Speaker 1: buffer and it won't move, and it's it's consistency. It's

502
00:24:55,880 --> 00:24:57,840
Speaker 1: sort of like going under a mattress. So the pro

503
00:24:58,080 --> 00:24:59,840
Speaker 1: is it won't go down, but the con is it

504
00:25:00,160 --> 00:25:02,639
Speaker 1: go up either. So there's even a risk to the

505
00:25:02,800 --> 00:25:05,840
Speaker 1: organic treasuries depending on where you go on the curve. Mike,

506
00:25:05,880 --> 00:25:10,040
Speaker 1: do stuff stuff under your mattress using treasuries absolutely? Um

507
00:25:10,600 --> 00:25:12,920
Speaker 1: In in the short term space, I do use things

508
00:25:13,040 --> 00:25:15,080
Speaker 1: like an s h V, which is a very ultra

509
00:25:15,160 --> 00:25:18,879
Speaker 1: short term treasury index, right, so you're basically buying cash

510
00:25:19,119 --> 00:25:21,920
Speaker 1: instruments um in an e T F rappers so you

511
00:25:21,960 --> 00:25:23,440
Speaker 1: get a little bit more than cash out of it.

512
00:25:23,920 --> 00:25:26,320
Speaker 1: Is SHV the same thing as a money market fund?

513
00:25:26,359 --> 00:25:28,760
Speaker 1: Because I know some people probably use those. What's the difference?

514
00:25:28,760 --> 00:25:30,520
Speaker 1: And can you replace some money market fund with an

515
00:25:30,640 --> 00:25:33,639
Speaker 1: sh V? No, they are not the same thing. They

516
00:25:33,680 --> 00:25:36,879
Speaker 1: are very very very close, but you don't have that

517
00:25:37,000 --> 00:25:40,840
Speaker 1: guarantee of the dollar staying the exact same price. But

518
00:25:41,520 --> 00:25:43,200
Speaker 1: the amount of risk you're taking to get a little

519
00:25:43,200 --> 00:25:45,639
Speaker 1: bit more reward is probably worth it. What's the more

520
00:25:45,720 --> 00:25:48,240
Speaker 1: reward with sh V A few more basis points are

521
00:25:48,240 --> 00:25:51,399
Speaker 1: a few more per cents of a percent of yield

522
00:25:51,680 --> 00:25:55,080
Speaker 1: um and uh. I do think though, in that space,

523
00:25:55,119 --> 00:25:57,639
Speaker 1: if you want to stuff money under the mattress. If

524
00:25:57,720 --> 00:25:59,920
Speaker 1: that's the way you want to protect, which I add

525
00:26:00,000 --> 00:26:03,280
Speaker 1: resolutely advocate have some money on the side. Some cash

526
00:26:03,680 --> 00:26:06,000
Speaker 1: cash is good, but you can go to some of

527
00:26:06,040 --> 00:26:09,320
Speaker 1: the more interesting ones to get a little bit more yield.

528
00:26:09,400 --> 00:26:11,840
Speaker 1: Like I think First Trust does a great job with

529
00:26:12,200 --> 00:26:15,640
Speaker 1: f t SM. It's a short term fixed income fun

530
00:26:15,760 --> 00:26:18,920
Speaker 1: and it's actively managed, especially with these short term things.

531
00:26:19,080 --> 00:26:22,080
Speaker 1: I do think active management in fixed income makes a

532
00:26:22,119 --> 00:26:25,920
Speaker 1: big difference. But before I I get too far down

533
00:26:25,960 --> 00:26:29,160
Speaker 1: the line on the short term stuff, the long term stuff,

534
00:26:29,200 --> 00:26:33,159
Speaker 1: the t l t s, those can be painful. Um

535
00:26:33,440 --> 00:26:36,360
Speaker 1: So you know this year, for example, it's down, It's

536
00:26:36,440 --> 00:26:39,119
Speaker 1: down a lot. It's down almost six or seven percent

537
00:26:39,680 --> 00:26:41,960
Speaker 1: over the first couple of months of the year. In

538
00:26:42,080 --> 00:26:45,840
Speaker 1: two thousand fourteen fifteen, you had moves in these things

539
00:26:45,920 --> 00:26:50,800
Speaker 1: that are up in long term treasuries. People get confused

540
00:26:50,840 --> 00:26:52,919
Speaker 1: by that this is long term treasuries and it can move.

541
00:26:54,000 --> 00:26:55,960
Speaker 1: It can go the other way as well. I don't

542
00:26:56,000 --> 00:26:58,120
Speaker 1: want anybody to wake up one day going I thought

543
00:26:58,160 --> 00:27:01,120
Speaker 1: I had long term treasuries and I lost four that's

544
00:27:01,160 --> 00:27:04,680
Speaker 1: actually possible. The the the organic part comes from the

545
00:27:04,760 --> 00:27:07,280
Speaker 1: fact that it's just treasury bills there's nothing else going

546
00:27:07,359 --> 00:27:09,080
Speaker 1: on in that fun it's a it's a green light

547
00:27:09,200 --> 00:27:11,600
Speaker 1: zero for us, but I agree, and there's ones to

548
00:27:11,680 --> 00:27:13,960
Speaker 1: even go further out in the curve. But I agree

549
00:27:14,000 --> 00:27:16,000
Speaker 1: that there's a volatility level of deal. How can you

550
00:27:16,080 --> 00:27:20,000
Speaker 1: give that a green light? Well, because our system is

551
00:27:20,040 --> 00:27:23,200
Speaker 1: not passing judgment on the user or their motivation. It's

552
00:27:23,240 --> 00:27:25,080
Speaker 1: just saying, is there anything in this et F the

553
00:27:25,119 --> 00:27:27,920
Speaker 1: packaging of it that might be a surprise to me?

554
00:27:28,640 --> 00:27:31,159
Speaker 1: And in the case of treasuries, we're assuming you know

555
00:27:31,359 --> 00:27:33,320
Speaker 1: that these are twenty plus your treasuries and they have

556
00:27:33,400 --> 00:27:35,800
Speaker 1: great risk. If you don't know that, maybe our system

557
00:27:35,840 --> 00:27:37,280
Speaker 1: will worked out. Well. We're not saying it's gonna go

558
00:27:37,359 --> 00:27:40,240
Speaker 1: up or down. We're just saying that that's what you're buying.

559
00:27:40,560 --> 00:27:43,000
Speaker 1: There's nothing, there's no weird action in it, there's no derivatives,

560
00:27:43,000 --> 00:27:45,480
Speaker 1: there's no hidden costs. It is what it is. Yeah,

561
00:27:45,480 --> 00:27:47,159
Speaker 1: I would totally agree with the green light on this,

562
00:27:47,560 --> 00:27:50,520
Speaker 1: but I would caution all your listeners to know when

563
00:27:50,560 --> 00:27:53,000
Speaker 1: you take bonds and put them into an ETF, you

564
00:27:53,119 --> 00:27:55,520
Speaker 1: lose one of the most important covenants of a bond,

565
00:27:55,600 --> 00:27:58,240
Speaker 1: which is a maturity date, a date when you get

566
00:27:58,280 --> 00:28:01,040
Speaker 1: your money back. That doesn't happen in in T L T.

567
00:28:01,600 --> 00:28:05,720
Speaker 1: It is perpetually extending that maturity. And because of that,

568
00:28:06,080 --> 00:28:08,600
Speaker 1: understand that although you're gonna get returns like a bond,

569
00:28:09,040 --> 00:28:12,399
Speaker 1: you're not guaranteed to get your money back someday. Okay,

570
00:28:12,480 --> 00:28:17,000
Speaker 1: bottom line, Mike, how should the average person approach hedging?

571
00:28:17,920 --> 00:28:21,800
Speaker 1: So bottom line, don't try and time it. Be aware

572
00:28:21,880 --> 00:28:25,280
Speaker 1: that time in matters way more than timing time in time.

573
00:28:25,359 --> 00:28:29,560
Speaker 1: In the longer you're in, the less it matters about hedging. Right,

574
00:28:29,680 --> 00:28:33,359
Speaker 1: So I love this idea of having some sh V

575
00:28:33,600 --> 00:28:36,320
Speaker 1: or some cash of some alternative like assets like a

576
00:28:36,960 --> 00:28:39,520
Speaker 1: g l D or a bar. All of those things

577
00:28:39,640 --> 00:28:42,920
Speaker 1: matter over the long time, but in the short time,

578
00:28:43,840 --> 00:28:46,640
Speaker 1: don't freak out. Right, if you have the right plan,

579
00:28:46,720 --> 00:28:49,160
Speaker 1: everything will be fine. In other words, the ultimate hedge

580
00:28:49,200 --> 00:28:52,720
Speaker 1: is patients. I love that. What's your favorite ticker? Well,

581
00:28:52,760 --> 00:28:56,440
Speaker 1: I have to go with my own, so cheating, Well,

582
00:28:56,960 --> 00:29:00,680
Speaker 1: it's t t F right, So as E t F

583
00:29:00,880 --> 00:29:02,720
Speaker 1: T E t F it is the E t F

584
00:29:02,840 --> 00:29:04,800
Speaker 1: that tracks the growth of the E t F industry.

585
00:29:05,080 --> 00:29:09,800
Speaker 1: That's the ticker should have been meta, Yeah, you know what,

586
00:29:09,960 --> 00:29:13,440
Speaker 1: we might change it, so I uh We've talked about

587
00:29:13,440 --> 00:29:18,320
Speaker 1: the cyril metaphor before. I think and actually this was Eric.

588
00:29:19,760 --> 00:29:23,360
Speaker 1: I think you are we're all done eating the cereal.

589
00:29:23,920 --> 00:29:26,800
Speaker 1: You're the milk, the cereal milk at the bottom of

590
00:29:26,880 --> 00:29:29,640
Speaker 1: the bowl. I don't know that I ever want to

591
00:29:29,680 --> 00:29:32,440
Speaker 1: come up with that analogy. Um, you're welcome, But you

592
00:29:32,520 --> 00:29:35,240
Speaker 1: know it's it's pretty straightforward and simple. We wanted to

593
00:29:35,320 --> 00:29:37,800
Speaker 1: know all about the ETFs. In order to know about them,

594
00:29:37,840 --> 00:29:39,920
Speaker 1: you have to know about the industry for creating them.

595
00:29:40,080 --> 00:29:43,520
Speaker 1: So we created an index and it certainly does a

596
00:29:43,600 --> 00:29:46,360
Speaker 1: lot better than the financials alone. You know what I

597
00:29:46,400 --> 00:29:48,440
Speaker 1: like about t e t F not to like plug Mike,

598
00:29:48,560 --> 00:29:51,040
Speaker 1: but the the stocks at hold. It's like black Rock

599
00:29:51,080 --> 00:29:53,880
Speaker 1: States treat the index makers. So here you have an

600
00:29:53,920 --> 00:29:58,600
Speaker 1: index that's essentially most of the passive companies X the

601
00:29:58,720 --> 00:30:01,280
Speaker 1: ones that are all in no active and so I

602
00:30:01,360 --> 00:30:04,680
Speaker 1: think some of that active as the trend continues, could

603
00:30:04,720 --> 00:30:06,960
Speaker 1: weigh those down. So it's an interesting e t F

604
00:30:07,120 --> 00:30:09,640
Speaker 1: that I think some people are confused by. They think

605
00:30:09,680 --> 00:30:11,120
Speaker 1: it's an ETF that holds other e t s, but

606
00:30:11,200 --> 00:30:13,800
Speaker 1: it actually just it's basically like the passive side of

607
00:30:13,840 --> 00:30:18,480
Speaker 1: the financials. And next Mike, it's been a pleasure talking hedging,

608
00:30:18,960 --> 00:30:22,920
Speaker 1: Biff Manure and Eric's amazing high school jail with you.

609
00:30:24,280 --> 00:30:26,680
Speaker 1: This has been an experience I won't soon forget. Thank

610
00:30:26,760 --> 00:30:29,760
Speaker 1: you for having me. I guess that's good time. Yeah, no,

611
00:30:29,960 --> 00:30:34,840
Speaker 1: Mike had no ideas anymore. Thanks for listening New Trillions

612
00:30:35,080 --> 00:30:37,480
Speaker 1: until next time. You can find us on the Bloomberg Terminal,

613
00:30:37,720 --> 00:30:41,680
Speaker 1: Bloomberg dot com, Apple Podcast, pocket Cast, and a bunch

614
00:30:41,720 --> 00:30:44,560
Speaker 1: of other places I probably haven't heard about yet. We'd

615
00:30:44,560 --> 00:30:46,920
Speaker 1: love to hear from you on Twitter. I'm at Joel

616
00:30:46,960 --> 00:30:54,000
Speaker 1: Webber Show, Eric's at Eric Baltunas, Mike's at Michael Underscore.

617
00:30:54,200 --> 00:30:59,760
Speaker 1: The Noodoh with an E. Trillions is produced by Magnus Hendrickson.

618
00:31:00,280 --> 00:31:03,240
Speaker 1: Francesca Levie is the head of Bloomberg podcast Pipe