Feeding off of pain and euphoria. Find me on Twitter @greenlander1
I am also very bearish and wondering how to play it. I live on dividends and recently reduced my stock allocation to 13% -- mostly in utilities/reits/tobacco, 37% cash, 32% Closed-end muni funds and 17% AGG and TLT. I'm not unhappy with this positioning.I'm debating gradually accumulating (starting today since the market is up) a 6% position in SDS to hedge my equity positions (it's 2X) and just hold it until the Fed backtracks. If I'm going to do that though, maybe I should pick up some other dividend payers or dividend growth stocks (Utes, EMR, PG, etc) to bump my stk allocation to 20%, then hold 10% SDS and just sit on it. That way, I'd be hedged. The defensive equities wouldn't go down as hard as the S&P, so I might even gain. Obviously TLT is a hedge too and could add more of it to balance my equity position. I fully expect January to be very rough as it has been the past 2 years.Global liquidity is dropping, Eurodollar leverage is dropping all year (which you see with layoffs, capital raises, dividend cuts at Credit Suisse, Deustche Bank, Morgan). Global trade is declining. To me this is the overwhelming factor going forward. We're slipping into a global deflationary depression. I would hold VXX, but it has had the tendency to decay in value, but it seems like it's holding up lately.You can see that I'm not trying to be greedy but hedged. Thoughts??
I think your positioning is good and I would probably go short SSO as opposed to going long SDS if it is a multi week hedge because of the ETF decay. If you want a more aggressive hedge, short a very small amount of XIV. If your timeframe is a month or less you can go long SSO.Absolutely don't long long VXX unless you are trading on a hourly/ few days timeframe. The contango and other decay makes it an uphill battle. I expect fireworks in Jan too. I haven't gone short yet but will be looking to do so soon. I'm debating on how to play it myself.Good luck!
Thanks much for your comments. I didn't know SDS was subject to ETF decay, but I guess any of the leveraged ones would be the same. Yeah, VXX has disastrous decay! I'll have to check on Fidelity is I can short SSO. Thanks again. Doug
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