"I Can't Top That"

A satirical account I follow on Twitter will often say "I can't top that" in the face of something truly ludicrous. Today's tariff news and all the rest, I can't top that. Really, that is to say it is all so unanalyzably stupid for how unnecessary it was, the rumor on Monday that this would happen which was denied up, down and sideways but then of course the pause did happen. Aside from being dreadful policy, the fly by the seat of their pants nature of it all is ludicrous. 

If that paragraph seems all over the place, that is what has been going on with policy and all of it is out of our control. What is in our control is how we react, that is how we do not panic in the face of crazy market action caused by even crazier external factors. You put together a strategy you think is best for you and then you stick with it. That's essentially what we are talking about here all the time. I do not think this is over but we have a strategy that I believe "works" far more often than not and so I stick with it. 

Now for a little fun. 

On Tuesday night I Tweeted out the following;

I got quite a few responses with the consensus being that it would square up at quarter end and thanks to Jeff Ptak from Morningstar who went down a bit or rabbit hole to confirm that this is the biggest decline that the fund has ever had. 

James Seyffart from Bloomberg added that the volatility has affected the Greeks of the options in the fund. I thought the options for these types of funds were customized, not traded in the open market so I didn't think the Greeks applied. 

The products seem straightforward but if BALT isn't malfunctioning than it might not be that straightforward. We looked at BALT a few times before things unraveled. I'm glad I don't have to explain what James later called a dislocation to clients. 

AQR crapped on these types of funds a couple of weeks ago and then whammy, malfunctioning or not, we had this with BALT. 

While we're on Twitter

TLT works except for the times it doesn't but at least it's very volatile. 

The idea that TLT and others are sources of unreliable volatility is alive and well. Nothing works 100% of the time but bonds with duration have caused more problems than they've solved for several years now. And if this tariff thing ends up driving the bond market in the same direction as the last couple of days, they will continue to be sources of unreliable disappointment. 

Next, let's check on Trinity, and GAA, and chill.

Both TRTY and GAA have tracked very closely to AOR which I used as a 60/40 proxy because VBAIX paid out a capital gain in March that distorts that chart a little. TRTY and GAA look similar to AOR because, I believe, of their willingness to hold longer term bonds. However, if we are in the "sell what you can" phase of this event then maybe everything looks like AOR.

The prompt to include TRTY and GAA in this post was an email from Cambria that very articulately  made a point I've been trying to fumble with, essentially saying, you did what you thought best ahead of time and now it's time to "sit back and relax." I appreciate there's nothing relaxing about events like these but the point about hedging ahead of time, when you don't need it is the important thing. Not everything will "work" in every event as managed futures is having a dreadful time but getting defensive after a large decline is a terrible strategy. However well your defense is working, what can you learn for next time because this will end and then there will be a next time in the future. 

Speaking of managed futures, here's a long thread from Jeff Malec that tries to diagnose the issues it has been having. As terrific of a diversifier as I believe managed futures to be, I've pushed back very hard on the many calls to have 20% or other high allocations to it. It's not about being right or wrong, it's about avoiding an obvious risk. Clients have a 2-3% weight in one dedicated fund plus pick up a little more in BLNDX which I also own. Bummer it hasn't "worked" in the event but it's not causing anguish in the manner a 20% or larger weighting would cause. 

I made the same observation about MLPs, REITs and gold 20 years ago (told that story 100 times, yes). I predicted nothing, I avoided a risk which is different. If managed futures was working I'd be thrilled with the weighting I have, it's not working for now but it's not painful. 

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