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The Breakdown
  • Nick Correa and Jack Farley break down an RV video from this week

What to own when the market crashes? TAIL RISK PART TWO: Breaking down Jason Buck's interview with Meb Faber (feat. never-before-seen charts 📈)

Hello fellow hive members 🐝, @Nick Correa and I are back at it again, probably with the best edition of "The Breakdown" we've ever done. We explore the treasure trove that is @Jason Buck's interview with Meb Faber of Cambria Investments, and define what "tail risk" is, its uses, and how various assets such as bonds, gold, real estate, and foreign stocks perform during immense drawdowns of the S&P 500. We explore Meb's Tail Risk ETF ($TAIL) and break down how its various holdings help achieve its mandate of negative correlation with the S&P 500 with not too much "bleed" during normal times.

We had fun with this one and hope you do too! (charts below)

Link to the original interview:

https://www.realvision.com/shows/the-interview/videos/meb-faber-a-framework-for-outperformance

@Jeremiah S @John Ahearn @Jaymes Rosenthal @Moritz Heiden @Matt Daniell @Craig P @Bradley Snyder @Sam Colt @Theodore Boydston @thomas cullis @Aneil Pokharel @Dennis Jarvis @Konrad Zawadzki @Joseph J @James J P Mulholland @Xavier Mejido @Master Of Money @Tom Catternan @Kewal Mistry @Jehan Hiramanek @Sean Morgan @Sam Mitchell @John Ahearn @Dan Little @Matthew Lansing @Matthew Lansing @Adam Toth-Fejel @Theodore Freysen @Seahyung Park @Sean Morgan @Bryce G @Dean W @ALLEN AZAR @Oliver Anderson @Andreas Niederberger @Cristofer Atiencia @Lemony Snicket @Brian Caputo @Brian Lee @brian barry @bill foord @Georgii Verbitskii @Max Wiethe @Stefan Clulow @John Fadool @Collin Velarde @James Clark @Daniel Olarte @Paul LaRue @Chris Clark @Roo Larson @Lars Andersson @Matthew Larkin @Larry Lawhorn @Larry Stein @larry cooper @Christian Petersen @Philip Peterkin @David Douglas @David Lack @David Sharp @David Douglas... (More)

Why are investors burning money? Had to get this off my chest... (*FIRST ORIGINAL BREAKDOWN*)

In the first ever ORIGINAL episode of The Breakdown, @Nick Correa and I tackle the VIX and VXX and ask the question, why would investors ever enter a trade that is practically guaranteed to lose them money??


@Jeremiah S @John Ahearn @Jaymes Rosenthal @Moritz Heiden @Matt Daniell @Craig P @Bradley Snyder @Sam Colt @Theodore Boydston @thomas cullis @Aneil Pokharel @Dennis Jarvis @Konrad Zawadzki @Joseph J @James J P Mulholland @Xavier Mejido @Master Of Money @Tom Catternan @Kewal Mistry @Jehan Hiramanek @Sean Morgan @Sam Mitchell @John Ahearn @Dan Little @Matthew Lansing @Matthew Lansing @Adam Toth-Fejel @Theodore Freysen @Seahyung Park @Sean Morgan @Bryce G @Dean W @ALLEN AZAR @Oliver Anderson @Andreas Niederberger @Cristofer Atiencia @Lemony Snicket @Brian Caputo @Brian Lee @brian barry @bill foord @Georgii Verbitskii @Max Wiethe @Stefan Clulow @John Fadool @Collin Velarde @James Clark @Daniel Olarte @Paul LaRue @Chris Clark @Roo Larson @Lars Andersson @Matthew Larkin @Larry Lawhorn @Larry Stein @larry cooper @Christian Petersen @Philip Peterkin @David Douglas @David Lack @David Sharp @David Douglas @Marc Liron @Ted Boydston

CHARTS

VIX spikes when stocks plummet... that is something that's very valuable as it's an asset that generates cash when all your other assets are in turmoil (note: you can't own spot VIX. if you could, it would be the world's greatest trade...)

Equities are very positively correlated to the S&P 500

Treasury Bonds are generally negatively correlated (at least in this current regime), and they generate yield - that's why they are thought of as a "positive-carry put."

BUT VIX is... (More)

Breaking down Michael Nicoletos' bull case for the dollar: explaining inflation base effects, yield differentials, and currency forward rates

@Nick Correa and I are back at it again, this time breaking down several key terms and ideas from my interview with @Michael Nicoletos which are critical to understand Michael's bull case for the dollar.

We cover:

- what "dovish" 🕊️and "hawkish" 🦅mean

- how to pronounce "bund" (the right answer: BOOOOND)

- why would investors ever own a negative-yielding bond?

- what inflation "base effects" are, and why measuring a year-over-year change relative to a deflationary spiral of March / April 2020 might not give a complete picture

- why differences in sovereign bond yield curves exist, and what they indicate about the expectations of the currencies in which they're denominated

- at the very end we touch on the mechanics of yield differentials such as forward points, cross-currency basis swaps, etc.

Enjoy!


Original interview with Michael Nicoletos:
https://www.realvision.com/shows/the-interview/videos/is-the-dollar-headed-higher?source_collection=8e80b18fdb074555bdd47d97e73fbe91

CHARTS

Yield curve differentials - why do they exist?


If you bought "negative yielding" bonds, you would've done just fine:


Bonus charts
Spread:

Forward Points:

For more on forward points:

https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/forward-points/

For more on forward curves:
https://www.chathamfinancial.com/insights/what-is-an-fx-forward-curve

For a deep-dive on cross-currency basis swaps:
https://www.bis.org/publ/qtrpdf/r_qt1609e.pdf

IMPORTANT
Goes without saying but I am NOT an expert in any of this. This series is intended to serve as a primer, as a step on your journey of learning rather the journey itself. Do your own research before entering buying/shorting the DXY, TLT, etc., let alone a swap contract with an investment bank (I hear they treat their clients great 😃)

In the... (More)

The Origin of Short Selling, Dividends (Paid in Nutmeg?), and Bunny Rabbits Trading at 1000x your monthly rent - Breaking down my interview with Jamie Catherwood

Nick "The Dream" Correa and I are at it again - this time breaking down two key concepts from my interview with financial historian Jamie Catherwood: short selling and dividends.

Jamie regaled me with stories about Isaac Le Maire, who waged the first activist campaign against the Dutch East India Company, selling their stock short after they fired him for embezzling funds (allegedly). This campaign worked and let to the company paying the world's first dividend (in nutmeg).

@Nick Correa has two questions for me: 1) what is short selling? and 2) what is a dividend? He and I quickly go beyond the basics as you will see... enjoy!


If you like the video, please SMASH that like button and follow "The Breakdown" as a topic
@Jeremiah S @John Ahearn @Jaymes Rosenthal @Moritz Heiden @Matt Daniell @Craig P @Bradley Snyder @Sam Colt @Theodore Boydston @thomas cullis @Aneil Pokharel @Dennis Jarvis @Konrad Zawadzki @Joseph J @James J P Mulholland @Xavier Mejido @Master Of Money @Tom Catternan @Kewal Mistry @Jehan Hiramanek @Sean Morgan @Sam Mitchell @John Ahearn @Dan Little @Matthew Lansing @Matthew Lansing @Adam Toth-Fejel @Theodore Freysen @Seahyung Park @Sean Morgan @Bryce G @Dean W @ALLEN AZAR @Oliver Anderson @Andreas Niederberger @Cristofer Atiencia @Lemony Snicket @Brian Caputo @Brian Lee @brian barry @bill foord @Georgii Verbitskii @Max Wiethe @Stefan Clulow @John Fadool @Collin Velarde @James Clark @Daniel Olarte @Paul LaRue @Chris Clark @Roo Larson @Lars Andersson @Matthew Larkin @Larry Lawhorn @Larry Stein @larry cooper @Christian Petersen @Philip Peterkin @David Douglas @David Lack @David... (More)