Sorry, I meant to say 18 years (now edited), which is the number of years from the quote (“with a duration of 18 years”), which is presumably the time for the treasuries to mature, though I guess if you expect the market to move earlier than that, you should also expect returns earlier than that.
Let’s plug in the 10 year number instead, which the OP argues is “decisively rejected” and then calculate the expected return of this instrument given expected growth.
In the last 10 years the TTT ETF had a return of approximately −85%. I sure feel really confused about whether it makes sense to forecast a negative return for an asset like this, and to expect this trend to continue, especially in a conditional case like this, but I sure feel quite confident taking a bet that in the business-as-usual case your triple-leveraged bet against treasuries will have a negative expected return somehow (since it’s primary purpose is usually hedging).
So, I don’t know, my guess is going short the market in the business-as-usual world is a pretty bad idea, and you will probably indeed lose 80% of your investment over the next 10 years, if AI doesn’t happen.
So, assuming that I am betting $10,000 on this, and I am 50% confident on 10 year timelines. Then in this world I will make ($10k∗2.62)−($10k∗0.8)=$18.2k, i.e. an 80% return over 10 years, which is around a 5% annual return, and so lower than historical performance of ETFs.
Duration doesn’t mean time to maturity. It’s a measure of bond sensitivity to interest rates. Higher duration = more sensitivity. It’s measured in years tho which is confusing. You can make your 162% in one year if the interest rates move as the authors say, which is pretty mouth-watering!
(edit: just to showcase the degree of difference, a bond with 40 years to maturity can have duration of just 10 years if the bond’s coupon value is 10% & market rates were also 10% at the time of isssuance. This means the value of the bond will change less with rising rates. A 40-year bond with a 1% coupon, issued when market rates were also 1% will have duration of around 33 years, which in plain English just means that if interest rates go up a lot you get “FTX-linked tokens in November” returns. Bonds are tricky things and their pricing is weird is especially in ZIRP environments)
Yep, makes sense. I adjusted my calculations to be about 10 years, to more directly reflect the post, which doesn’t seem to change much.
Agree that if all the other details checked out, and you had 1-2 year timelines, this might imply a higher expected return, but I don’t currently see why it would imply that the markets decisively reject 10 year timelines, even if you buy the rest of the model (which I also have a bunch of other critiques of).
where did the 16 years you mention come from? don’t a lot of people have AI timelines shorter than that?
Sorry, I meant to say 18 years (now edited), which is the number of years from the quote (“with a duration of 18 years”), which is presumably the time for the treasuries to mature, though I guess if you expect the market to move earlier than that, you should also expect returns earlier than that.
Let’s plug in the 10 year number instead, which the OP argues is “decisively rejected” and then calculate the expected return of this instrument given expected growth.
In the last 10 years the TTT ETF had a return of approximately −85%. I sure feel really confused about whether it makes sense to forecast a negative return for an asset like this, and to expect this trend to continue, especially in a conditional case like this, but I sure feel quite confident taking a bet that in the business-as-usual case your triple-leveraged bet against treasuries will have a negative expected return somehow (since it’s primary purpose is usually hedging).
So, I don’t know, my guess is going short the market in the business-as-usual world is a pretty bad idea, and you will probably indeed lose 80% of your investment over the next 10 years, if AI doesn’t happen.
So, assuming that I am betting $10,000 on this, and I am 50% confident on 10 year timelines. Then in this world I will make ($10k∗2.62)−($10k∗0.8)=$18.2k, i.e. an 80% return over 10 years, which is around a 5% annual return, and so lower than historical performance of ETFs.
Duration doesn’t mean time to maturity. It’s a measure of bond sensitivity to interest rates. Higher duration = more sensitivity. It’s measured in years tho which is confusing. You can make your 162% in one year if the interest rates move as the authors say, which is pretty mouth-watering!
(edit: just to showcase the degree of difference, a bond with 40 years to maturity can have duration of just 10 years if the bond’s coupon value is 10% & market rates were also 10% at the time of isssuance. This means the value of the bond will change less with rising rates. A 40-year bond with a 1% coupon, issued when market rates were also 1% will have duration of around 33 years, which in plain English just means that if interest rates go up a lot you get “FTX-linked tokens in November” returns. Bonds are tricky things and their pricing is weird is especially in ZIRP environments)
Yep, makes sense. I adjusted my calculations to be about 10 years, to more directly reflect the post, which doesn’t seem to change much.
Agree that if all the other details checked out, and you had 1-2 year timelines, this might imply a higher expected return, but I don’t currently see why it would imply that the markets decisively reject 10 year timelines, even if you buy the rest of the model (which I also have a bunch of other critiques of).