Thank you for writing this Rudy and look forward to speaking tomorrow on The Contrarian Capitalist podcast. it is going to be an excellent conversation!
Re: the Collateral Murder film, which is just horrific to watch, then to hear Mark Kelly say, "we're America, we don't commit war crimes." We have a long and distinguished history of committing war crimes; Hegseth is just carrying on the tradition.
At least if you have a 50 year mortgage, you'd have a chance outliving it... but a 100 year bond, that's next level stupidity (to buy).
If people really pick up 50 year mortgages should they be offered, they'll probably half their inheritance. Their next of kin have a very high statistical chance of "inheriting the rest of the outstanding payments". Already a close one with 30 years depending on how stressed you are making those monthly payments.
If institutions let their bond traders buy 100-year-bonds that's classic "it'll be the other guys problems" thinking while raking in negative interest, very close to being a politician offering the selfsame to buy - however, the politician can at least claim they're royally screwing someone while dealing in unhealthy financing and deficits.
Re. the hedging for "disaster insurance" in portfolios:
- as a retail investor: definitely think about adding some long-dated puts (OTM for about 30-50% even for something like S&P, NASDAQ). These come cheaper as vol. is to the "upside", when delta rips higher instead of lower - everyone wants to get long and hence puts sell cheap(er). You can also be sure you're giving money to someone who thinks themselves "very smart" (mostly institutions or banks selling you a hedge for premium or to get delta neutral). Since the writing side is considered smart money... and they never calculate with the probability of a black swan, ie a high velocity, high volatility event by 1-2 magnitudes/STD. This is when a cheap hedge pays you in the way of making up for some of the losses.
The buyer of insurance mostly just pays the premium (in markets like even the current one) - it's a 95% it's losing position, costing you alpha for premiums... but in the rare 5% event once the feces hit the windmill... they usually pay off more than what you paid for. Hedging is usually frowned upon (or not in people's position thinking), and it'll cost you performance.
Note that you should hedge the position you are long in - ie if you're heavy in NASDAQ, don't hedge SPX... and so on and so forth. It doesn't usually pay to hedge for single stocks - unless you know what you're doing - or you have a Spidey Sense for when that stock might run into trouble.
Time decay will eat you alive on hedges.
The math behind hedging (to stay neutral) is a bit more complex than the space for a comment (or a reader's attention span likely) is ;-) - but having a put when you're heavily long but expect vol. events is better than watching your positions drown if you kept them.
And: I am not a personal advisor, so take it as my layman's take - there's some good reading on hedging to be found on investopedia for ex.
The amazing thing about the 100-year bond buyers is that they were buying at the all-time historical low of rates. I found it insane at time. As for hedging, I generally don’t hedge (other than via the weird stuff I own), and I am an option novice, so I gave a really simplistic example, since somebody asked. Dredge of course could explain the right way to do it, but he doesn’t deal with individual investors.
I am still baffled the below-zero income era even had any successful government debt sales - goes to show how far you can bend the hand of others, being a regulatory body and making institutions "mandated" to hold your bonds until they bleed everyone dry. You just didn't get any income on CDs in ca 2010-2020, so how'd anyone get "secure income" is a mystery - outside junk bond level you'd basically needed to accept net negative "income" - a joke in itself still to me since the wording was used to describe losing money you literally credited your bank (which they could use to lever up and lend with).
Options are only a good way to place bets if you can live with the extremely leveraged volatility anyway - but they are a legit method to boost your income and performance if used sparingly with good risk management.
Hedging usually is not a thing retail would do I imagine - I don't do it because of the high cost involved. Basically you can hedge vs "the market" by placing single options in both directions on whatever instrument you think is a good hedge against a "high probability" scenario (upside/downside). Options these days are usually used for YOLO trading (mostly long calls) - same as levered ETFs - but with a more slot machine feel to them which I guess makes them popular amongst the hip young "investors"?
Problem is you need to have a good idea about direction, and my market compass is at the shop.
Been watching NLLV on YouTube. VICI properties gobbles up the land under the resorts for say $1.6 B. Saddles the property with $160M/yr rent (Stay with me I don't have the receipt). Owners piss the money away on whatever and struggle to pay. When foreclosures start, they can duck personal liability through bankruptcy, as if there was any anyway, and give the resort back ti VICI, who will then house US citizens arrested by ICE. We then pay those rates for "room service."
Watched two PBS documentaries recently: Born Poor (2025), and Two American Families (2024). Would highly recommend them re: economic fragility of the middle class. Both are available on Youtube. Per your Marc Cohodes quote, drilling into a few specific stories (though undoubtedly biased) might be useful for putting some context behind the data writ large.
Loved the Porta Pottie piece. In 2004 during the Shale Drilling boom in Texas, an oil patch driller friend had trouble finding enough PP's for his rigs. Seizing on this investment opportunity, he started a big PP business to compete with the area Mom and Pop poop pumpers, and quickly flooded the market with portable s*it houses. He found out that that if poop pumpers do not have a bottom line incentive to go out and pump sh*t every day, it is really hard to find hourly workers legal or illegals, who will do this job. He could not wait to dump the PP business! I had to chuckle that the Wall Street and PE guys thought that they could make a killing in this sh*ty business.
Thank you bringing up using Dredge's strategies and suggesting an idea.
Yes, you are buying convexity, but only one side and only equity.
The best example I saw of buying upside equity was Dylan Grice suggesting to buy 10 yr, 20,000 strike Nikkei call options with the index down at about 9,000 as an inflation hedge.
The price was something like a teeny or a penny.
So, something like 20,000 points in the money now.
The other point is, Buffet made money selling long dated OTM puts.
Simplify has 2 interest rate products that use long dated options to provide convexity to movements there and possibly, things where their pricing is based on interest rates.
The way Bassman explains it, the yield curve allows the funds, PFIX & RFIX to own backspreads(smile faces) and for them to pay you a small amount for owning the convexity.
My personal experience is that PFIX was a winner when the US freed itself from the low interest rate environment.
If you really like pictures, I think you could create a butterfly using their short convexity MTBA product.
Thanks. I'm a real novice on options - intentionally - so I gave a very simplistic example. You, Mike Green, Dredge etc. are far better at this stuff, which is why I often quote them.
John Mauldin just wrote up a salutary piece on investing in the wonderful world of Private Equity.
Funny how he didn’t mention “continuation funds” or how PE principals dividend up any amount of money they can and how Private Equity drives businesses into short term planning with no capital reserves, no long term research spending. Funny, no mention about the egregious “Carried Interest “ tax rule that allows people like Josh Harris to own six different professional sports teams.
In Oz going out for breakfast has become EXPENSIVE vis a vis dinner. Mental note to avoid Vegas on my yet unplanned probably never going to happen visit to America - I have super fond memories of IHOP though. Fascinating to see insurer's investing in the UK - was just after their recent budget :)
"......because you’re not going to have any people who are going to be able to wipe.....etc:
That will never happen. The US has immigration & many are eager to come here, despite all its problems. So, there will always be plenty of highly paid asset or home buyers. The rest of the world does all the dirty work of the US like changing dirty diapers & raising kidos, working with polluting industries, fighting geopolitical rivals etc.
The collateral murder video was sickening! I know we did things like that but seeing the heartless way that they were gunned down was something else. I could see that a couple of them were carrying briefcases not weapons! 😡
My wife is a genius. Owns NVDA at some great profit. On paper. Won't put in a trailing stop of 15%. Me? "buying long-dated deep out of the money puts as disaster insurance." We met May 7, 1981...
Thank you for writing this Rudy and look forward to speaking tomorrow on The Contrarian Capitalist podcast. it is going to be an excellent conversation!
Private Equity destroys businesses from Toys-R-US to Portable toilets. Metaphors abound.
Re: the Collateral Murder film, which is just horrific to watch, then to hear Mark Kelly say, "we're America, we don't commit war crimes." We have a long and distinguished history of committing war crimes; Hegseth is just carrying on the tradition.
At least if you have a 50 year mortgage, you'd have a chance outliving it... but a 100 year bond, that's next level stupidity (to buy).
If people really pick up 50 year mortgages should they be offered, they'll probably half their inheritance. Their next of kin have a very high statistical chance of "inheriting the rest of the outstanding payments". Already a close one with 30 years depending on how stressed you are making those monthly payments.
If institutions let their bond traders buy 100-year-bonds that's classic "it'll be the other guys problems" thinking while raking in negative interest, very close to being a politician offering the selfsame to buy - however, the politician can at least claim they're royally screwing someone while dealing in unhealthy financing and deficits.
Re. the hedging for "disaster insurance" in portfolios:
- as a retail investor: definitely think about adding some long-dated puts (OTM for about 30-50% even for something like S&P, NASDAQ). These come cheaper as vol. is to the "upside", when delta rips higher instead of lower - everyone wants to get long and hence puts sell cheap(er). You can also be sure you're giving money to someone who thinks themselves "very smart" (mostly institutions or banks selling you a hedge for premium or to get delta neutral). Since the writing side is considered smart money... and they never calculate with the probability of a black swan, ie a high velocity, high volatility event by 1-2 magnitudes/STD. This is when a cheap hedge pays you in the way of making up for some of the losses.
The buyer of insurance mostly just pays the premium (in markets like even the current one) - it's a 95% it's losing position, costing you alpha for premiums... but in the rare 5% event once the feces hit the windmill... they usually pay off more than what you paid for. Hedging is usually frowned upon (or not in people's position thinking), and it'll cost you performance.
Note that you should hedge the position you are long in - ie if you're heavy in NASDAQ, don't hedge SPX... and so on and so forth. It doesn't usually pay to hedge for single stocks - unless you know what you're doing - or you have a Spidey Sense for when that stock might run into trouble.
Time decay will eat you alive on hedges.
The math behind hedging (to stay neutral) is a bit more complex than the space for a comment (or a reader's attention span likely) is ;-) - but having a put when you're heavily long but expect vol. events is better than watching your positions drown if you kept them.
And: I am not a personal advisor, so take it as my layman's take - there's some good reading on hedging to be found on investopedia for ex.
The amazing thing about the 100-year bond buyers is that they were buying at the all-time historical low of rates. I found it insane at time. As for hedging, I generally don’t hedge (other than via the weird stuff I own), and I am an option novice, so I gave a really simplistic example, since somebody asked. Dredge of course could explain the right way to do it, but he doesn’t deal with individual investors.
I am still baffled the below-zero income era even had any successful government debt sales - goes to show how far you can bend the hand of others, being a regulatory body and making institutions "mandated" to hold your bonds until they bleed everyone dry. You just didn't get any income on CDs in ca 2010-2020, so how'd anyone get "secure income" is a mystery - outside junk bond level you'd basically needed to accept net negative "income" - a joke in itself still to me since the wording was used to describe losing money you literally credited your bank (which they could use to lever up and lend with).
Options are only a good way to place bets if you can live with the extremely leveraged volatility anyway - but they are a legit method to boost your income and performance if used sparingly with good risk management.
Hedging usually is not a thing retail would do I imagine - I don't do it because of the high cost involved. Basically you can hedge vs "the market" by placing single options in both directions on whatever instrument you think is a good hedge against a "high probability" scenario (upside/downside). Options these days are usually used for YOLO trading (mostly long calls) - same as levered ETFs - but with a more slot machine feel to them which I guess makes them popular amongst the hip young "investors"?
Problem is you need to have a good idea about direction, and my market compass is at the shop.
Been watching NLLV on YouTube. VICI properties gobbles up the land under the resorts for say $1.6 B. Saddles the property with $160M/yr rent (Stay with me I don't have the receipt). Owners piss the money away on whatever and struggle to pay. When foreclosures start, they can duck personal liability through bankruptcy, as if there was any anyway, and give the resort back ti VICI, who will then house US citizens arrested by ICE. We then pay those rates for "room service."
Another great roundup, thanks for sharing.
Watched two PBS documentaries recently: Born Poor (2025), and Two American Families (2024). Would highly recommend them re: economic fragility of the middle class. Both are available on Youtube. Per your Marc Cohodes quote, drilling into a few specific stories (though undoubtedly biased) might be useful for putting some context behind the data writ large.
Loved the Porta Pottie piece. In 2004 during the Shale Drilling boom in Texas, an oil patch driller friend had trouble finding enough PP's for his rigs. Seizing on this investment opportunity, he started a big PP business to compete with the area Mom and Pop poop pumpers, and quickly flooded the market with portable s*it houses. He found out that that if poop pumpers do not have a bottom line incentive to go out and pump sh*t every day, it is really hard to find hourly workers legal or illegals, who will do this job. He could not wait to dump the PP business! I had to chuckle that the Wall Street and PE guys thought that they could make a killing in this sh*ty business.
Thank you bringing up using Dredge's strategies and suggesting an idea.
Yes, you are buying convexity, but only one side and only equity.
The best example I saw of buying upside equity was Dylan Grice suggesting to buy 10 yr, 20,000 strike Nikkei call options with the index down at about 9,000 as an inflation hedge.
The price was something like a teeny or a penny.
So, something like 20,000 points in the money now.
The other point is, Buffet made money selling long dated OTM puts.
Simplify has 2 interest rate products that use long dated options to provide convexity to movements there and possibly, things where their pricing is based on interest rates.
The way Bassman explains it, the yield curve allows the funds, PFIX & RFIX to own backspreads(smile faces) and for them to pay you a small amount for owning the convexity.
My personal experience is that PFIX was a winner when the US freed itself from the low interest rate environment.
If you really like pictures, I think you could create a butterfly using their short convexity MTBA product.
Thanks. I'm a real novice on options - intentionally - so I gave a very simplistic example. You, Mike Green, Dredge etc. are far better at this stuff, which is why I often quote them.
John Mauldin just wrote up a salutary piece on investing in the wonderful world of Private Equity.
Funny how he didn’t mention “continuation funds” or how PE principals dividend up any amount of money they can and how Private Equity drives businesses into short term planning with no capital reserves, no long term research spending. Funny, no mention about the egregious “Carried Interest “ tax rule that allows people like Josh Harris to own six different professional sports teams.
In Oz going out for breakfast has become EXPENSIVE vis a vis dinner. Mental note to avoid Vegas on my yet unplanned probably never going to happen visit to America - I have super fond memories of IHOP though. Fascinating to see insurer's investing in the UK - was just after their recent budget :)
"......because you’re not going to have any people who are going to be able to wipe.....etc:
That will never happen. The US has immigration & many are eager to come here, despite all its problems. So, there will always be plenty of highly paid asset or home buyers. The rest of the world does all the dirty work of the US like changing dirty diapers & raising kidos, working with polluting industries, fighting geopolitical rivals etc.
Good point.
The collateral murder video was sickening! I know we did things like that but seeing the heartless way that they were gunned down was something else. I could see that a couple of them were carrying briefcases not weapons! 😡
My wife is a genius. Owns NVDA at some great profit. On paper. Won't put in a trailing stop of 15%. Me? "buying long-dated deep out of the money puts as disaster insurance." We met May 7, 1981...
Maybe hot dog Dalio can save the day?