A Complicated Benefit Of Working In Your 60's

This is shaping up to be an insane weekend coming after Friday's fallout, the chatter being driven by the release of more (all the remaining?) Epstein files and Bitcoin is cascading lower flirting with Strategy's (MSTR) break even price as I write this on Saturday afternoon. I'll give all of that another day to "breathe" so that we can look at some HSA/Medicare/Social Security retirement stuff.

Barron's kicked it off with Healthcare Inflation Can Be A Runaway Train In Retirement. They pegged CPI running at 2.8% and that official numbers for healthcare expenses are inflating at 3.5%. To Barron's credit they called BS on 3.5% in the next sentence. I have no idea what the inflation rate is for actual medical services but there are countless anecdotes and news stories about people being forced to pay much more for health insurance. 

A few weeks ago we looked at a scenario where Healthcare.gov subsidies stopped at $84,000 of family income being the difference between paying almost nothing and jumping up to twenty something thousand/yr. Maybe there are enough alternatives out there, I don't know but where is a family making $90,000-$100,000 supposed to get $20,000 for health insurance this year after paying nothing last year? 

The criticism that a well structured healthcare system shouldn't need subsidies like the ones that just expired (is it too late to reinstate them for 2026?). That's true but the answer isn't just ending them, leaving people stuck.

A little further down in the article, they cited 5.8% as being the average annual increase of healthcare costs throughout retirement according to a report coming soon. I'm not sure I believe the 5.8% number either. Actually, I am sure. I don't believe that number. 

The Barron's article then drifted into income levels where IRMAA kicks in which as we looked at last week is $109,000 for single filers and $218,000 for married filing jointly. Up to $274,000 IRMAA is an additional $81 per person per month for Medicare Part B. Up to $342,000 of income and Part B is a total of $405 per person per month. 

Of course health savings account entered the discussion. Starting quite a few years ago, having an HSA eligible plan rarely has made sense for us being self employed. Our insurance guy said something about certain things have to be covered that insurance companies don't want to cover so they make the plans more expensive. Awful if accurate but either way we've only had an HSA eligible plan in the 2020's. We were very diligent putting money in every year when they did make sense for us without needing to take any out.

I asked Copilot what the median HSA balance is for families making at least $150,000. I got an absurdly low number so I pushed back a little bit and it came up with $19,000 plus or minus a couple of thousand. If that number is correct, then it wouldn't be enough to pay for something expensive that insurance won't cover but there are expenses where it could cover including paying for Medicare. 

It's a little tricky. Part B premiums are deducted from our Social Security payment. But it is valid to reimburse yourself that expense out of your HSA. The reimbursement can go to your bank account to be spent however you like including Part G Medicare. Technically, you can't use HSA money to pay for Part G but once the reimbursement hits your account you can spend it as you wish. This was per Copilot and corroborated by Grok.

The table from Copilot shows what it believes are averages for Part G per person.

Copilot thinks Part G is inflating by as much as 8-15% per year.

We'll all have Part B to contend with. How likely are you to be subject to IRMAA? Copilot estimates that 7% of people on Medicare pay the IRMAA surcharge. Depending on how long I work, there's a chance we'll have to pay it. I don't know the odds but between various streams of income, it seems plausible. We are all entitled to our own opinions but an extra $160/mo will not be at the top of my list of things to be worried about. 

Somewhat more concerning is the visibility for Medicare to eat up an ever bigger piece of Social Security checks.

That leads us to another article from Barron's (used a gift link for this one) that was not easy to understand, I may not understand it but it got into the minutia of how Social Security is calculated and what seems like a reward for working beyond 60 at your maximum income level. 

Starting at age 60, the calculation stops adjusting wages for inflation which apparently can be a positive. The key is that you're making the most you've ever made in your 60's. The example Copilot gave was someone making $150,000/yr in their 60's would benefit if their $50,000 income at age 30 was only adjusted for inflation up to $120,000. In this simplified example, $150,000 at age 62 would replace inflation adjusted $120,000 from age 30. 

Our Social Security payments are based on our highest 35 years of earnings so however many years you work in your 60's at your highest income level are replacing your lowest earnings years from when you were a kid. 

When I first read the article, I thought it was saying that your whole year by year scale moves up but Copilot said not exactly but that your "primary insurance amount" PIA is moving up. I'm not entirely sure what the difference is. If you log in to your SS online account you can see your year by year earnings record adjusted for inflation. For example, I worked at Charles Schwab for a year before going to college, I made $11,000 or $12,000 from July to July but when I last looked a few years ago, that $11 or $12 had been inflation adjusted up into the high $20,000's combined if I recall correctly. At this point, whatever the correct inflation adjusted number was from 1984/85 has since been replaced in my calculation.

If I continue to work as I plan on doing then I would be able to replace most of the years from ages 23-33 which were my lowest post-college earnings years. 

A logical question is what if SS gets cut in 7-9 years? If you're going to get $4000/mo but that gets cut to $3000/mo, then working through your 60's as described above can be thought of reducing your $1000 haircut by a few hundred dollars. If that's not worth it to you then by all means, don't do it. 

A couple of final administrative points to make. Copilot couldn't read a gift link, I had to past the text in to get help with it which surprised me. I couldn't work it in easily above but I'll include my standard lift weights/cut carbs recommendation as a way to keep healthcare costs down. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

"Braking News," Gold & Silver Markets Are Broken

The title of this post is a nod to a satirical account on Twitter I follow who always Tweets about braking news. While I think the title is amusing (to me if no one else), the markets for gold and silver have broken. It's not like the metals are going to disappear but this sort of panic down is a broken market. 

The broken market will repair itself and normalize tomorrow, or next week or some other time but this is the sort of event where people panic. Gold panicked higher Wednesday night and then panicked lower shortly after the stock market opened on Thursday. Silver has been on a similar journey and Bitcoin also seems to going along for part of the ride. 

All the hype over the last few days or weeks about the debasement trade lifting gold and silver, even if not Bitcoin, and then...

Thursday was a big decline and then Friday literally broke records for the size of the declines. 

Long time readers might recall what a bad idea I think enormous allocations to things like gold are and this event is exactly why. Where gold and silver are concerned this week, risk happened fast as Mark Yusko might say.

I have zero concern about gold and silver (and whatever else) sorting themselves out, crude oil was negative $50 after all, but who panic bought Wednesday and then panic sold at a big loss with far too big of a trade in relation to their account size? Realizing, there is no way to know when this ends, this has been a behavioral festival. 

I mentioned last year that I started subadvising for a couple of other advisors (they outsource portfolio management to me). One of the advisor's client base came with a larger position in GLD than I would probably want but I took no action because the market had been orderly as it was moving higher. With the disorderly, parabolic move lately, a portion of his accounts were now at more than 10% in gold which I think is too much. I built out a trade Wednesday night to execute Thursday morning to take that portion of his client base down to 7% in GLD.

The share quantity is fuzzed out. I executed the trade a minute or three into the trading day. There have been a couple of other times over the years where there has been some sort of similar panic where it made sense to go the other way. I told the advisor, don't focus on the result because it was lucky, focus on the process. Selling into upside hysteria is going to be the right trade more often than not, regardless of what happens next. 

My clients started at 2-3% of just their equity allocation in gold last February so they were up to 4-6% or so which is not a position sizes that concerns me even with the overlap in materials stocks and managed futures. I actually reduced materials by about 20% a couple of weeks ago so sized correctly, this event is in the realm of normal volatility. This is about a process that I think is repeatable. 

Personally, I bought a few shares of the iShares Silver ETF at about $82 on the way down to $70 before closing at $75. The trade amounts to catching a falling knife so I didn't step in for clients, it doesn't seem like a good fit that way but it is the same trade as selling upside hysteria, I bought a little bit of downside hysteria. Maybe silver will go to $50 and live there for a while or maybe it will go back to $90 or $100 quickly and then mellow out but it is down 30% in a couple of days and even if the result ends up being terrible, buying something that cannot go to zero after a 30% whoosh will work out more often than not. 

There's no huge barrier to entry here for the psychology. I think most people can train themselves to trade against panic, regardless of the direction, in something they understand. I certainly wouldn't buy a lottery ticket biotech that I'd never heard of before cutting in half on an adverse FDA ruling for example. 

Even if you are not buying this panic down, again it might turn out to be a terrible trade, if you can avoid panicking, that is far more important. Sized correctly, there is no reason to sell gold or silver into this decline. 

AGQ is 2x levered silver. Oof.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Accessing & Harnessing Sophisticated Strategies

The excitement over providing retail access to private equity seems to have turned with more skepticism. Cliff Asness introduced the term volatility laundering which no doubt raised awareness of the drawbacks. Check out Jeff Ptak on Twitter for what I would call investigative finance journalism trying to dissect how the XOVR ETF is carrying its position in SpaceX. 

As aforementioned excitement built, we talked frequently about not getting wrapped up with illiquid vehicles offering private equity. I have been skeptical about the need for any of it in a typical retail-sized account. My thought has been that if you think you need to have some sort of private equity in your account, it would make more sense to own one of the companies generating the fees, which tend to be high, instead of paying the fees. 

We've talked most frequently about Blackstone (BX) in this context. I should be clear that I've never owned Blackstone for clients, I've never even considered it, I am saying for anyone who thinks they should have private equity, a company like BX probably captures the effect for better or for worse. 

From it's inception into year end 2024 BX compounded at about 15% versus 10% for the S&P 500 but the drawdowns are typically much larger than the index. Here's the last year plus. It did much worse last April and maybe the negatively biased lingering has been because of the increased skepticism I mentioned above, or not but either way, as a proxy for private equity, when times are good, they are great and when times are bad, it's a very rough hold. In 2022, BX was down 39% versus 18% for the S&P 500. 

From the top down, I think it makes more sense to add long volatility from the tech and discretionary sectors. Extremely volatile financials seem prone to blowing up entirely in ways that no one saw coming due, I believe, to the extreme complexity of the business models. 

Now to trying to harness short volatility. 

I have no interest in any of those funds but it is interesting that they talk about harnessing volatility in their marketing. Most clients own Princeton Premier Income (PPFIX) which sells index puts in such a way that the fund is an absolute return vehicle with very little volatility. 

YSPY sells put spreads on SPXL so a little different underlying but they both sell puts in very different ways. PPFIX is like a T-bill with a slightly higher return as you can see. 

Most of the derivative income funds that have launched in the last couple of years have been crazy high yielders like YSPY whose website says it "yields" 48%. I've been saying there will be more of these and that the niche will evolve. Here's a filing for Worth Charting Options Income ETF (WRTH) that will sell straddles on individual stocks. It's not clear to me whether it will be a crazy high yielder or not. 

Crazy high yielders don't really make sense to me. There is no way the NAV of a fund will keep up with a 48% distribution rate. YSPY pays weekly and on many of the payouts, 90 plus percent of them are returns of capital (ROC). ROC has favorable tax status and using it to round off a distribution, sure why not but often the crazy high yielders pay mostly ROC. Why not just have a lower distribution?

We've outlined using an extreme drawdown strategy where the question is what will deplete faster, just taking uninvested money out of an account until it's gone or a fund like YSPY eroding very quickly paying out an obviously unsustainable distribution? The answer is path dependent so there's no way to know going forward.

I've very pleased with PPFIX, an improvement in my eyes would be something that yielded 7-8% and managed to trade horizontally after the distribution. My hunch is that WRTH is not seeking such a plain vanilla outcome. The path to that result is probably with an option combo involving put options more than call option. 

PPFIX sells puts so far out of the money that the occasional dips you see on the chart are actually because of the process they have to adhere to of marking to market. Often the one day dips get reversed within a day or two, they haven't run into trouble with the puts they sell. A little closer to the money would still be very far out of the money and might nudge the return up. PPFIX doesn't want to do that but someone else might or someone else might create the effect I'm talking about with a different strategy. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Duration Is Just Another Alt

In promoting his latest podcast with Michael Batnick, Ben Carlson listed talking points including "diversification is working again." When I clicked through I didn't see where in the convo they got to this talking point and I wasn't able to listen to it. On the other side of the trade, Walter Bloomberg Tweeted out a quote from Blackrock that "bonds no longer offer reliable protection" for when stocks decline. 

Both things are true. Actually, the implication that diversification wasn't working was never correct, it was more like the manner in which we diversify has changed because "'bonds no longer offer reliable protection' for when stocks decline."

The conclusion coming is not that I want to own duration here, I do not, full stop. But I had a thought. If there is some sort of biggish correction this year (or worse), there is nothing preventing duration from offering protection. It's not reliable is Blackrock's point. My point is that the compensation is inadequate for the risk taken and that it's not reliable.

In this way, duration might be like managed futures. Last April, managed generally provided no protection when stocks dropped. Managed futures absolutely has the tendency to go up during market declines but the weakness is when things turn very quickly. Even fast signals won't be quick enough to react to a very quick turn around. 

I talk about small exposures to several different alts with different risk factors. Duration certainly could be thought of as having different risk factors from the other things we talk about like arbitrage, various versions long/short and so on. I don't think too many people think of duration as being an alt but for correct sizing in a portfolio, maybe it should be. 

The way we apply alts in a traditional 60/40 construct where maybe there are 5% allocations to eight different diversifiers, why couldn't one of them be duration? Maybe it will work on the next serious decline? If not, it may not be different than any other alt not "working" on the next decline.

Last April BTAL worked, merger arbitrage worked, managed futures did not and neither did duration but next time maybe the opposite will be true, sort of repeated from above.

In this light, if you wouldn't put 40% into any of the alts we talk about (I wouldn't) then you wouldn't put 40% into duration. I wouldn't put 20% into any of the alts we talk about and certainly not duration. If we're talking about 5-6%, it's just another alt, the consequence for being wrong is pretty small.

If we pivot to TPA and allocating between growth and stability, I think the argument for duration being included as stability is pretty weak and I don't think it has anywhere near the opportunity for growth or asymmetry as anything you might think to put in that bucket so I don't know how it fits in to TPA but I will give it some thought. 

But to be crystal clear, in terms of adding duration to the portfolio 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

This One Will Piss Some People Off

Bloomberg wrote about what looks like the unraveling of the Yale Model which of course the illiquid alt focused strategy that David Swensen is credited with deriving starting in the 1980's. As Bloomberg tells it, the beneficial effect of private equity and venture investing has deteriorated. We've looked at the Yale endowment countless times. It's interesting for learning about what alts can do but then it is also a useful lesson about having too much in alts, the extent to which illiquidity is unnecessary for retail sized accounts and the problems that arise from having too much complexity in your account.

A lot of simplicity hedged with a little complexity. 

Speaking of complexity, Jeff Ptak had a good writeup about what sort of complex (my word) funds are worth paying up for and which ones are not worth it. Although not that complex, he thinks target date funds are worth it for an interesting reason. 

Morningstar writes frequently about the gap between the returns for funds versus the return investors of those funds get which is less due to various behavioral mistakes. We talk every so often about ergodicity (long term, the market is going to go up with you or without you so you might as well go along for the ride). Target date funds rebalance for you (glide path) so there are fewer reasons to sell so you better capture the long term result says Ptak. To the extent the concept of a gap strikes a cord, holding on for a long time is obviously how the gap is overcome. 

Look at something like Amazon or anything else that is up a bazillion percent over the long term. As we talked about recently, there have been some hideous declines along the way but throughout those hideous declines people didn't stop ordering stuff or lately watching the streaming service. The next time the S&P 500 drops by 25% and Amazon cuts in half, we still will be buying stuff and watching the streaming service. Yes I am aware that AWS accounts for 20% of revenue and 60% of earnings. Chances are the AWS numbers will grow faster than the rest of the company. That all sounds great but the next time the S&P drops by 25%, I would expect Amazon to cut in half. Last April, Amazon fell 30% versus 18 or 19% for the S&P. 

Holding on isn't easy but sitting here, close to all time highs, you know it's the right thing to do. It will be the right thing in the middle of the next panic too. Usually. Owning individual stocks requires being able to discern when something has changed in such way that the company won't recover from. However infrequently stocks need to sold, funds even less so. The point of all of Ptak's articles about the gap is do less. Do less.

Alpha Architect cited a study about new retirees trading more as a result of having more time on their hands. Turns out that doesn't go very well. Do less. 

Here's another good example about thinking short term with a high likelihood of ending badly from Bloomberg. Investors, Bloomberg says, see an opportunity in long term treasuries because the yields are toward the upper end of where they've been in quite a while. Ok, but yields are below 5%. Do you think you have an edge figuring where rates are headed? I certainly do not. Assessing that the compensation isn't worth the risk (that describes my view) is not the same thing as making a prediction about where rates are headed. 

Here's a fun one to close out with. The optimal exposure for Bitcoin in terms of weaving into a portfolio to improve the Sharpe Ratio is......a negative exposure. That is the conclusion of Alistair Milne. You can decide for yourself but in terms of trying to model it in, much of its track record is not repeatable. In 2013 it was up 5400%. That's not going to happen again. In 2017 it was up 1400%. That's not going to happen again. In 2020 it was up 308%. A repeat of that would surprise me but maybe that's possible but it is also possible that turns out to be essentially worthless too. 

I've owned for a long time because of the asymmetric potential. I am not a true believer. Before the link today about negative exposure, I've made the point about backtesting it too far as being worthless because of the unrepeatable performances. I won't say don't own it but I see a lot of content from the fund providers about all of these RIA looking to make allocations and do some modeling. It's all worthless. It might go into the millions or it might crap out but there is no modeling it. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Is A Fourth Turning Real? Should We Worry About It?

Grant Williams sat for Matt Zeigler's podcast earlier this month and they covered a lot of ground mostly related to the Fourth Turning. The very high level on Fourth Turning is that it is the last section of a 100 year boom and bust cycle with different phases and as Grant described it, the Fourth Turning of the current 100 year cycle has started which means a lot of pain and hardship on the way to the next cycle when things are good again. 

You can take all of that however you like but there were a couple of very interesting ideas expressed that resonated with me and I think we've been working on here for a long time. I think I am probably less pessimistic about the impact of The Fourth Turning than Williams is but hard to say about that. 

We can use the term regime change to frame this conversation, the regime change for bonds with duration has already happened. I think I was able to get out in front of that thanks to a little bit of understanding of bond math (how much prices can drop when yields rise) as well my trying to assess the adequateness, or lack thereof, of the compensation available for holding longer term debt. 

If the regime for domestic equities is going to change toward more of a 1970's story or 2000-2009 story where foreign leads and domestic does poorly, that hasn't happened yet. If it hasn't happened yet and if this is a concern of yours, you are not too late to get out in front of a 1970's/2000's repeat. Yes, many foreign markets outperformed domestic last year but domestic did not do poorly, the S&P 500 is 2-3% from its all time high after a strong 2025.

Grant talked a lot about gold and commodities as ways to address the Fourth Turning where domestic equities do poorly. Foreign also has a good chance of doing at least ok. From 1/1/2000-12/31/2008, the S&P 500 compounded negatively at 1.93%, foreign developed as measured by VEUSX compounded positively at 2.23% barely sticking with inflation while emerging as measured by VEIEX compounded at 10.87%. Maybe another lost decade would be different but no foreign exposure seems like regret waiting to happen. If you go narrower than broad based indexes, going to the country level, I suggest looking a so called commodity based countries. iShares Canada (EWC) compounded 7.22% in the period we're looking at and iShares Australia (EWA) compounded at better than 9%. If Grant is right about commodities in a Fourth Turning scenario, those two (but there are others) have a decent shot. I haven't had Australian exposure for quite a while but will start looking around there. 

The way we look at all sorts of alternative strategies can be more of an answer now than in the 2000's because of how the fund industry has evolved to offer access to many more strategies. More available strategies though means a lot more work sifting through the good and the bad which we try to do here, assuming you believe in alts in the first place. 

AI can help make your research a little easier which gets us to the other point from the podcast I wanted to hit on. The threat that AI poses to white collar jobs is part of the discussion too. Grant said that he is glad he is almost 60 and not 20 so he doesn't have to worry about getting replaced by AI meaning that getting replaced is possible but that his personal consequence wouldn't be so terrible. 

We've been kicking around the idea that middle age can be a great time of life because you have a little experience, hopefully have some money in the bank and hopefully still in good health with a high level of fitness. 

The cliche that "kids today have it much easier" is dead. It might have died when going to college meant taking on mortgage-sized debt. I graduated in 1989 with $3000 in student debt. My payments didn't start for a few years and the minimum was $100/quarter. Not per month, per quarter. I don't know when AI first became a real threat to employment generally but it was long past me getting made obsolete early in my career or before my career even starts like people in their twenties today. 

For people in the middle like maybe late 30's into mid 40's it's a little trickier. It's not realistic that someone at 45 would be ready to retire if their hand was forced compared to someone in their early 60's. But at 45, with a couple of good decisions someone could be a little ahead if where they need to be savings-wise, made some effort to develop new skills and be physically fit all toward having created their own optionality if their job is one that could soon be replaced by AI. 

If the Fourth Turning is a thing, then this whole jag we've been on about optionality since forever ago will become even more important. That's not the best way to phrase that, I've always believed cultivating optionality to be monumentally important. Get started now, if you haven't already.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Taking TPA To The Next Step

We've had some fun in the last few posts looking at Total Portfolio Approach (TPA) which is where we get constructing a portfolio around growth and stability as opposed to equities and fixed income. We expanded that a little bit to try to consider some sort of risk weighting along the lines of risk parity and we also talked a little bit about antifragility. 

Let's continue to expand the conversation a little bit to bring in quadrant style investing too. The most basic version of quadrant style allocates equally between stocks for growth, long term bonds for deflation, gold for inflation and cash for recession. The idea is that no matter what is going on the world at least one of those four will be doing well.

We've played around with this sort of thing quite a few times before but for this one we'll continue to include growth and stability while adding antifragility (benefits from chaos and disorder) and asymmetry. 

Portfolio 1 is the simplest expression of what we're talking about. ACWX is growth, SHRIX is stability, client/personal holding BTAL is antifragility and SRUUF which is uranium is asymmetry. I own a few shares of SRUUF. 25% in BTAL is way more than I think makes sense but it wasn't too much of an obstacle for that portfolio. SRUUF compounded at 22% over the length of the backtest but it's not like I cherry picked NVDA with no context which compounded at 64%. We could have just as easily used Bitcoin which does have context here and had a more volatile ride to a slight higher return than SRUUF.

Portfolio 2 is a step closer to reality. ACWX/client personal holding BLNDX make up growth. Using ACWX cherry picks nothing, it's a slight pivot to the possibility that after a long while of lagging, foreign might outperform for a while but play around with whatever broad based equity exposure you want. BLNDX is growthy but less so than plain vanilla equities. The stability bucket just two exposures we use all the time for blogging purposes the point is to avoid duration. Gold is antifragile except when it isn't but there is a tendency for it to do well in the face of chaos and disorder. ITA is a defense contractor ETF. We talk all the time about defense contractors so I think it is valid to include it in this exercise as opposed to quantum computing which we never talk about.

There is of course nothing that says any sort of quadrant styled portfolio needs to be just four or eight holdings. The 25% growth bucket could accommodate many more holdings, how many different equity holdings do you have? That number could fit into a smaller percentage of the portfolio. I'm not sure I could come up with too many more for the antifragility sleeve, maybe a couple of more but there's nothing that says each quadrant must be 25%. One thing about this idea is that 25% in "growth" is nowhere near a normal allocation to equities unless you include asymmetry in growth which certainly makes some sense. Maybe 40% growth and 10% asymmetry for example.

The point is not to run out and do this but if you look at what you own, if you go narrower than one broad index equity fund and one AGG bond equivalent then you probably have these attributes in your portfolio already so this amounts to reframing how you think of what you own and maybe being more able to assess and manage around other regime changes.  

It's not far fetched that a diversified portfolio owns a little gold which as we said does often exhibit antifragile attributes. If you have a bunch of different equity holdings that go narrower like into sectors, industries and individual stocks, it again is not that far fetched that you have a few moon shots in there equating to asymmetry. If you've read this blog for a while, hopefully whatever your fixed income bucket is more like a stability bucket without too much duration. 

Speaking of avoiding duration, check out this note from PIMCO. 

Active fixed income strategies delivered their best results in years in 2025, and the outlook for 2026 is just as compelling. The post-pandemic bond market repricing set up an extended period of attractive starting yields. Divergent economic conditions offer abundant avenues for active managers to generate alpha, or outperformance versus the broader market. Investors have a rare opportunity to increase quality and liquidity without giving up equity-like return potential – at a time when equity valuations have reached extremes.

They could be 100% correct but equity-like return potential? If that's your trade, great but whatever that is, what it isn't is stability. Duration is not stability and it is no longer a reliable offset to equity market volatility. This whole thing about duration that we've been exploring for what seems like forever had been a slow moving regime change that turned into a fast moving regime change in 2022. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Another Cambria ETF That Is Shredding

It's been a while since we checked in on the Cambria Endowment Style ETF (ENDW) which I believe was the second ETF created out of a 351 conversion. The very short version of 351s is investors with low cost basis stock in their portfolio can participate in a 351 to swap into a more diversified portfolio. It doesn't eliminate the cost basis as I understand it but it does diversify the risk of one stock having grown to be an enormous piece of the portfolio. 

ENDW has had a fantastic result thus far.

It took a while for the portfolio to start taking shape. It might have been something to do with the mechanics of the 351 conversion but it looked like it was mostly the individual stocks that had been contributed to the seeding of the fund and if you look at the holdings now, it still may not be fully implemented, I'm not sure. The holdings include dozens of individual stocks with tiny weightings and a few ETFs with similarly tiny weightings. I'm not sure what the purpose is of having a 0.13% weighting of the Hartford Multifactor Developed Markets ex-US ETF in the fund for example.

ENDW started to take shape late spring or early summer IIRC and currently it has a lot of foreign equity exposure, some gold and a good bit of managed futures which might have contributed to the great result thus far. Unlike the Cambria Trinity ETF (TRTY) which tells you 35% trend, 25% equities, 25% fixed income and 15% in alternative strategies, ENDW's description is more vague. It is actively managed, talks about being aggressive and having "exposure to multiple major asset classes (e.g., equities, fixed income, and real assets and alternatives) in U.S., foreign developed, and emerging markets."

The comparison above includes ALLW and PRPFX which I'd say are also potential single ticket portfolio solutions. I used AOR and instead of VBAIX because VBAIX' chart appears to be distorted for a large capital gain distribution.

Speaking of the TRTY ETF which we mentioned the other day as having had a great 2025, TRTY might be the best example of taking someone else's portfolio design and using your own inputs to build a better portfolio. 

The difference between TRTY and our version of it I think can be attributed to TRTY having held more duration in the past as well as always having had quite a bit of foreign equity and value stocks. Our version has no duration, no equity factor bias but way to much in managed futures for my liking. 

The Wall Street Journal had a helpful writeup about how IRMAA works. IRMAA stands for income related monthly adjustment amount as related to what retirees will pay for Medicare parts B and D. It's essentially a surcharge for higher income earners for what they have to pay for Medicare. This table was useful.

One commenter made the observation that it is a form of means testing for Social Security. The specific mechanics are that whatever you pay for Medicare, subject to IRMAA or not, is deducted from your Social Security check. If your Social Security check is $3500 and your spouse's check is $2000 and  you make less than $218,000, each of your checks is reduced by $202.50. Part D can be deducted but there is some choice there apparently and if you have supplemental like Part G, you pay the insurance company directly. 

Everyone is entitled to their thoughts about the fairness or whatever but maybe a little more serious than an extra $200-$300/mo per person if you make that much is that if a couple is making $150,000 all in during retirement, so no IRMAA, and then one spouse dies and the income stays above $109,000 for the now single filer, they will get hit with IRMAA which seems like even more of a penalty to me. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Friday Antifragility

These sorts of memes always crack me up and are fitting for a wild week on the geopolitical front. 

We probably all have thoughts and opinions on what we think is going on, what is being reported as happening and then wading through the aftermath. Where I am most certainly not a geopolitics expert, I'm not going to attempt to interpret what's been going on but trying to observe impacts on capital markets is related to what I do for a living. 

Equities don't seem to be put out, Tuesday decline was barely a blip. This quote from Barron's is useful though. 

That is an environment where bonds don’t hedge stocks as effectively, and where gold offers a hedge against both stocks and bonds, Kelly said. Gold is also more than just insurance: a weaker dollar and higher longer-term rates tied to elevated spending could also push prices higher.

I don't know what will happen next obviously, maybe it's no big deal or maybe it's serious but the quote is a good prompt to remember that there are sometimes signals from other assets. Gold ripping higher is an expression of some sort of concern. The concern may turn out to be unfounded or very serious, again I don't know which is the reason to own something like gold that can add some antifragility to a portfolio. The precise definition of antifragile is benefitting from chaos or disorder. Gold usually fits that bill, client/personal holding BTAL usually does too. 

Defense contractors don't always offer antifragility but they appear to be doing so lately. We've talked about client/personal holding CBOE as a proxy for VIX as tending to go up in the face of escalated market emotion, YTD, yeah just three weeks but still, it's up 10% while the VIX is up a little less compared to 1% so far for the S&P 500. 

The quote also seems to be saying that bonds are less reliable sources of stability to borrow from our conversations about Total Portfolio Approach. I try to be consistent with clients and here about not trying to predict anything but instead being ready, both in the portfolio and emotionally, in case something crazy happens. 

Sometimes we can see things coming and sometimes we can't but being ready ahead of time makes navigating the crazy much easier to do. 

Kind of a heavy post today so I'll lighten it up a little bit. Dogs, bruh.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Risk Parity 2.0?

Ray Dalio was pounding the table on the debasement in Davos this week. Good timing for the new Bitwise Proficio Currency Debasement ETF (BPRO) if he's correct. BPRO started trading today so I am not sure if the holdings will fully reflect the strategy. The confusing holdings are SPTS, BIL and SHY which are all T-bills and they comprise 35% of the fund. The rest is a lot of Bitcoin. precious metals and mining companies. 

You don't need to backtest it to know it would have done pretty well last year thanks to the miners and precious metals and if Bitcoin ever goes up again, then BPRO would probably do well in that environment. There are plenty of ways to get these sorts of exposures so I don't know that it would do any better or any worse than the others, maybe the name including the word debasement is simply catchy or maybe the managers, it's an active fund, can nimble their way around the space a little better. 

Don't looks now but the Cambria Trinity Fund (TRTY) has been ripping higher.

It is heavy in various forms of trend at 35% and in 2025 trend did very well and that has carried on into 2026. Trend also ripped in 2022 although that isn't reflected for TRTY's return that year. In 2023, 2024 and going to the Tariff Panic last April, trend struggled mightily. We had the same conversation about it over and over. Managed futures is not an easy hold. 

It doesn't do well with fast changes and there can be serious dispersion in performance between different funds due differences in risk weighting, various types of signals used and other things. If you remember my posts from when it was struggling, I talked constantly about sizing it correctly and then holding on. If all you owned was TRTY, 35% in trend would be too much for me. I don't want a lousy year in managed futures trend to have a big enough impact on the portfolio that I sweat it. When markets puke down, managed futures is just one thing of several that should go up and usually they do even if not always. 

Simplify filed for a few funds that look interesting including the Simplify Tax Aware Total Portfolio Approach ETF (TPA). Total Portfolio Approach is something we've been exploring lately. Most recently, we worked with the idea that it is a blend of growth and stability versus equities and fixed income common to the traditional 60/40 portfolio. Not all equity strategies offer growth and not all fixed income offers stability. 

If you click through and read the strategy, the TPA ETF appears to including an element of risk weighting which was not covered in the Morningstar article that gave us the growth/stability construct. I am both intrigued by risk weighting and not very fond of it at the same time. 

It is intriguing in terms of thinking about how risk/volatility/return potential is distributed through a portfolio. I'm not fond of the idea of loading up on traditional fixed income to the point of leveraging up which is common to risk parity 1.0. Maybe risk parity 2.0 starts with TPA.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Duration Still Stinks

The other day I said it would not be a black swan if rising interest rates were a contributing factor to the next large decline for equities as I continued to bang the drum of avoiding duration.

Tuesday's trading is just a microcosm, maybe just a nanocosm but just don't with duration. The 38 basis point declines for IEF and AGG isn't such a big deal but TLT and TLH which go further out, I don't know why an investor needs to own them. 

The second table are all fixed income proxies and substitutes that we talk about here all the time. The symbols don't matter, but they are all the regulars. It would be great if they all went up but flat looks pretty good in a tape like we had today.

Over the weekend I put the following together in order to continue our conversation about building portfolios with growth/stability versus stocks/bonds.

There are no new (to the blog) names in the stability bucket in Portfolios 1 and 2 so frequent readers can probably guess what's in there. Where we figured the Total Portfolio Approach boils down to blending growth and stability, I think we can add a third idea, asymmetry. The first thing that comes to mind for asymmetry for me is Bitcoin. Some people think of uranium as having asymmetric potential. Quantum computing might have a seat at that table too. A little off the beaten path is the Direxion 3x Bull Technology ETF (TECL). The compounding will either kill you or make you rich. We looked at TECL a few weeks ago for being the best performing ETF of all time but you need to stomach the occasional 80-90% drawdown.

The way the stability bucket is built, it works out to the low end of normal equity market returns but I'm not sure I would count on that going forward. We've been writing about these types of funds/strategies for quite a few years and I would say they are meeting the expectation I have for them which primarily is very little volatility which means they behave the way I think most investors want bonds to behave. 

On Tuesday afternoon I listened in on the ReturnStacked quarterly update. They went over the performance of their fund lineup and explained quite a few things. The other day I mentioned their equity and carry ETF which has symbol RSSY. The fund has struggled badly, they acknowledged and explored why it has done poorly.

One fund that sounded like they are pleased with is RSBA which combines treasuries and merger arbitrage. This was the second time I've heard them say that this blend looks similar to credit without taking on credit risk.

The comparisons are all the ways I can think of to try to evaluate relative performance. Portfolio 2 is pretty much what RSBA does. Just comparing it to merger arb with client/personal holding MERIX assesses whether adding treasuries adds anything. I don't know if looking at 2x merger arb is worth doing, RSBA is levered up after all, but if anyone thinks that's useful, there you go. And if treasuries plus merger arb resembles credit, HYG covers that. To leverage up in testfol.io and Portfoliovisualizer you go negative CASHX to get to 100% so that accounts for the cost of the leverage at least a little.

I'm not sure investors are getting any benefit from the complexity of the leverage. I've said before, I spend the time on these trying to see if they can get to a point where I think they can help clients. I've been nowhere near that point thus far and this quick look doesn't get me any closer. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

The Psychology Of Retirement

The Wall Street Journal had a pretty rough piece about retirees losing a sense of purpose in retirement. The article specifically used the word mattering. Retirees can find it difficult to matter anymore which a big negative of course contributing to depression and in some instances, negative health outcomes. 

I read a ton of articles about retirement and the comments when available, always read the comments, and invariably there are plenty of comments from people sharing their retirement successes, they have enough money and they never looked back after going out middle fingers a blazin'. I embellished that last bit some some. 

For anyone who really does ease into retirement that smoothly, great, but part of planning to have a successful retirement requires forethought and introspection. A repeat idea from countless posts, waking up on day one of retirement and asking yourself "ok, now what am I going to do" is a personal crisis waiting to happen.

Some of the people profiled had ideas about what they would do which amounted to part time consulting in their primary career or some sort of organized volunteering related to their primary careers. A couple of weeks ago I made a passing reference to situations where consulting actually works out but was skeptical that a lot of people can actually create that situation for themselves. The article seems to say that there's something to this idea of it being hard to pull off. 

One path to figuring this out is starting long before retirement. I use the phrase "long runway" to describe building a plan for mattering in retirement to use the WSJ's term. The fire department sort of found me when my neighbor with a backhoe, for those who've been reading me for a very long time, recruited me into the department when we moved here full time in late 2002. Then my involvement with Del E Webb Foundation sort of found me from something I did quite a few years ago that was fire department related. It doesn't seem like working on large incidents in the way I talked about for many years and started to actually do on a couple of incidents is going to happen. My day job proliferated in a way I never expected and I am less comfortable with the idea of being gone during our fire season.

This started as a car fire in the middle of last June. This could have been catastrophic based on the time of year but I was home. I live a mile from the firehouse and this incident was in between our house and the firehouse. We got there crazy fast and had it knocked down very quickly. 

This will always create a sense of mattering to me. I've got 20+ years in and hopefully can do this another 20 even if not as chief for too much longer. That's a long runway. The Del E Webb work is very purposeful to me, doesn't matter what anyone else thinks which is probably important to figuring out how to matter, don't worry about what anyone else thinks. We have one board member north of 80, the board member I am replacing is 82 or 83, one of the volunteers is 87 and is the sharpest guy we have, essentially a forensic accountant. One of the fire board members is 83, been on the board since 2010, is also actively involved with the Kiwanis Club, some sort of shooting competition series and takes the occasional private investigation gig (retired customs agent). 

I like to share these examples from people in my life. There are some very interesting people around here and I feel like I've learned from them and been inspired. Thirty year old me never thought about anything related to the fire service yet six years later I was all in and the impact has been enormous.

It's obviously important to get retirement finances dialed in but that's only part of the story. Not worrying about money is certainly nice but that won't prevent someone from losing their purpose or sense of self. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

There's Probably A Simpler Way

Here's an interesting filing from Quantify ETFs.

These guys run the STKd 100% Bitcoin & 100% Gold ETF (BTGD) which we've looked at a couple of times. BTGD has brought in $98 million of assets and you can judge for yourself whether the result is close enough to what it targets.

The idea of blending more of a plain vanilla holding like the S&P 500 or a broad fixed income proxy with short volatility from a far more volatile asset interesting. I realize the filing has all sorts of different combos but I am intrigued by S&P 500 combined with selling Bitcoin volatility and S&P 500 combined with selling gold volatility. I have no idea if they will work but I am intrigued.

Some of these did a whole lotta livin in just two years. YBTC sells calls on Bitcoin. The nature of a covered call fund is capped upside without any expectation of meaningful protection to the downside. If Bitcoin drops 50%, would you feel better if YBTC only fell 45%? Portfolios 1 and 2 endured two pretty big declines, the Tariff Panic last April and last fall when Bitcoin dropped from $126,000 to below $90,000. One challenge to the SPY/YBTC combo, which would be ISSB from the filing, is that the correlation between stocks and Bitcoin might go up in risk off environments. 

When stocks and Bitcoin both go up then yeah, ISSB would probably do very well even if the tracking may not be exact. 

The SPY/IGLD combo, which would be ISSG from the filing is a little more interesting. It's not less volatile than the S&P 500 but a 90% SPY/10% IGLD combo (so 80% SPY with 10% in ISSG if it lists with 10% left over) has lower volatility, a higher Sharpe Ratio and a lower beta than just the S&P 500. Yes, 90% SPY/10% IGLD outperformed just the S&P 500 but I would not count on gold's fantastic performance in 2025 repeating very often. 

I saw the following on Twitter.

My first reaction is to wonder if all of that can do anything in terms of improving risk adjusted results versus a plainer vanilla 60/40 portfolio.

The year by year returns are almost identical. In 2025, the WisdomTree's Cap Weighted Passive Allocation outperformed by 635 basis points thanks to the large weighting in gold. I don't doubt the accuracy of the weightings WisdomTree came up with but if anyone wants the effect captured by this portfolio, there's probably a much simpler way to do it. 

And a little fun from the NY Times, Is This Billionaire A Genius Or A Fraudster about Michael Saylor. You can probably guess where I land on this one. Gift link! 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

Growth & Stability, Not Equities & Fixed Income

A couple of months ago we looked at Total Portfolio Approach (TPA) as a "new" type of portfolio construction. If you read that post from November, it doesn't do a great job of dialing in what TPA actually is because the articles talking about it didn't really dial it in either. Jason Kephart from Morningstar managed to crack the code with a very useful article. Based on Jason's article, TPA fits right in with what have been doing/exploring for many years. 

Jason says that holdings are selected based on how they are expected to behave. We talk about expectations in this context all the time. For example, while a staples sector ETF will have equity beta, it's not a correct expectation to believe it will lead the way in a bull market for stocks. It might do that but it's an incorrect expectation. Client/personal holding BTAL can go up when stocks are going up but the reason to own it is that it has reliably gone up when stocks go down. It's reasonable to expect it to go up when stocks drop even if there is no guarantee.

Instead of stocks and fixed income, think instead of "growth and stability." That's useful.

He said the idea is not higher returns at all costs but instead to have a portfolio that "behaves more predictably" when markets get hit. He says this approach can make it easier for investors to hold on or as we say help avoid panic selling. 

Applying this idea in his article, Jason talked about high yield bonds going into the 60% (or whatever number) as part of the equity allocation in a traditional 60/40 because high yield bonds tend to have equity beta. The idea he came up with to build a TPA is 50% in equities, 10% in high yield bonds, 35% in core bond exposure (AGG or BND) and 5% in cash. 

After seeing that he put 35% in AGG he then said "correlations shift, regimes change, and assets that historically provided stability can behave very differently when the underlying drivers of markets evolve" which I found very odd in relation to 35% in AGG. My brother, the regime has changed. Duration is no longer stability. 

If we forget about the term fixed income entirely and replace the word with stability, the stability sleeve wouldn't have to include fixed income in the traditional sense. 

Portfolio 1 is proportional to Jason's 40% AGG/Cash sleeve and Portfolio 2 is built with strategies we use for blogging purposes all the time. It's hard to argue a lot of AGG and a little cash is all that stable. 

A quote from a Barron's article this weekend that says bond investors want "safety, certainty and frugality." Frugality probably doesn't fit in that well in our conversation but safety and certainty do. In terms of TPA, I word it all the time to talk about alts behaving the way I think people want bonds to behave and Portfolio 1 above doesn't do that. It would not be a black swan if a move higher in intermediate and longer term rates were a contributing factor to the next large decline in equities. If so, then AGG which is intermediate duration would again disappoint like in 2022 even if the magnitude wasn't as severe as 2022. 

Kind of related, TheItalianLeatherSofa blog took up our discussion from this week about our all weather portfolio that tried to allocate based on equal weighting standard deviation and excess kurtosis. The author's name is Nicola. Nicola is far more willing to hold duration. True to the Dalio all weather, Nicola models in TLT which tracks 20 year and longer treasuries. He believes that my thoughts about avoiding duration are a shorter term "macro narrative." 

Since I've never held duration in the modern era (my 20+ years as an advisor), it's not clear to me I am expressing a macro narrative but maybe. The way I've described it here is assessing whether or not the compensation for the volatility is adequate or not. TLT is currently in a 40% drawdown that started in late 2021. Circling back to TPA, that is not stability. The investor who bought in 2021 and is still holding will never get back to even on a price basis. 

Anyone buying TLT today at $88 might face a similar dilemma, never making it back if rates take another meaningful leg higher. If you believe four point whatever percent is adequate compensation for 20 years, buy an individual issue instead of TLT. If rates do go up, you'll at least get par back at maturity versus never getting back to even on the ETF. Waiting 20 years to get back to par seems like a terrible position to put yourself into. Different story if the compensation is adequate. If 7% for an individual treasury ever happens, that might be interesting for being at the low end of a normal equity return distribution. I'm not saying we'll see 7%, just saying that if we do....

Jason Buck frequently uses the word ensemble to describe a portfolio as opposed to a list of stocks that you hope will all go up. The cliche response is if they all go up together then they will all go down together. Building an ensemble, maybe in a TPA framework, by combining growth and stability in an effective manner can help mitigate the all go down together portion of the cliche.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.

ETF Slop

That phrase, ETF slop, was the focal point of an episode of the Rational Reminder podcast. It's a long one but the key point was to question whether newer ETFs actually benefit customers or not. Things like crazy high yielders and 2x single stock ETFs would be part of the ETF slop discussion. 

I'm willing to learn about any ETF or strategy, slop or not. If you read these posts regularly, you probably know what sorts of things I think of as being slop, like the two above, but I think it is time well spent trying to challenge my belief of what is slop or the other way around, study ETFs that maybe people would not consider slop but actually is.

There are some derivative income funds that offer utility without "yielding" 80% and I believe in the idea of capital efficiency even though I am very skeptical about bundling it into an ETF. There are quite a few levered equity/managed futures products either coming or recently listed. Simplify just listed one with symbol CTAP and I believe Man Financial and JP Morgan each have one coming if they're not out already. The capital efficient (levered) space is going to proliferate. 

I believe PIMCO is the first in the space with its Stocks PLUS Long Duration (PSLDX) which is 100% equities/100% long bonds. PIMCO just launched something similar in an ETF wrapper. SPLS looks like 100% equities/100% various PIMCO bond funds. 

Are any of these for the customer's benefit or are they just slop. It depends who you ask but I would encourage skepticism when assessing complex funds. 

Reading the description of SPLS, it almost reads like it is stocks plus carry. It certainly does not appear to be stocks plus duration. Carry can be several different things. It can refer to long backwardation/short contango, it can also refer to the income stream kicked off by a investment like a dividend from a stock or a coupon from a bond. RSSY from ReturnStacked does both.  

While no one suggests putting the entire equity allocation into RSSY, I have no idea why someone would want to own it. But that doesn't mean there isn't something to the idea of stocks plus some version of carry. Stretching beyond the typical definition of carry, the description of SPLS got me wondering about adding arbitrage on top of equities. SPLS seems to want to add fixed income yield on top of stocks without a lot of fixed income volatility and maybe that will work but arbitrage is usually a very low vol, absolute sort of return strategy.

Portfolio 3 might replicate what SPLS is trying to do but I believe SPLS will be active in owning different PIMCO fixed income fund but that model was down 35% in 2022. These are clearly no picnic where it comes to volatility and drawdowns. Portfolio 1 was surprisingly volatile and was down more than just the S&P 500 to varying degrees in 2002, 2008 and 2022. 

There's certainly no magic bullet with this idea but it's time I will continue to spend. 

Closing out, we knew these were coming at some point. GraniteShares filed for a single stock autocallable ETF on Robinhood. CAIE from Calamos has been wildly successful in terms of AUM and having a very high yield but without an eroding NAV. A very high level on how these work is they pay out very high yields unless there's some sort of very large, predetermined decline in the underlying security. CAIE yields 14%. I didn't see any mention of the yield in the GraniteShares filing but if you figure we are in a 4% world then one way or another, getting a 14% yield means you're taking a lot of risk. That's not a bad thing so long as you understand the risk being taken. A diversified portfolio includes holdings with various risk profiles, that really is not problematic when sized correctly. 

For now though, I do not have the risk to autocallables dialed in. I'll get there but for now, it's hard to figure that nothing bad happens with CAIE until the S&P 500 drops 40%.

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.