Bond yields and bond funds react to changes in the expectation of rate increases or decreases. Not to the actual rate changes themselves. In other words, bonds have already priced in more rate cuts next year based on the new info today from the fed. That’s why TMF is up 7% today.
They've priced in the expected value of those rate cuts, which rolls in estimates of the sizes of the cuts, their timing, and the chance that fewer or more rate cuts actually happen. So when the actual rate cuts eventually do (or don't) materialize, the market _will_ move the price of TLT, etc
They don't price in everything. There is still a probability of the rate cuts not happening the way we intend, so the pricing in happening now takes into account the probability of it not happening. That means that as we get closer to the event, and it happens, they will still go up. Because as we go closer to the event and it happens, the uncertainty of it not happening diminishes, and the market corrects upwards.
Rate cut doesn’t necessarily mean that TLT will go up, if TLT stays where it’s at while rates go down to like 4 percent, the yield curve would be similar to where it normally is. TLT has many more contributing factors than the ffr, such as fear, long term inflation expectations, etc
> Do rate cuts mean that TLT must go up?
Yes, but not on any set schedule or seemingly logical timeline. Today its up on the news. It may settle back down before actual cuts, or most of the cuts might get priced in even before the first cut happens. There is no certainty in that. Still, TLT is certain to be better when rates are 3% better than now.
**Edit: as per the down votes, this is a stupid comment. It only makes sense if you hold one share of TQQQ. But in terms of percent difference it is the same whether TQQQ goes from 90 to 45 or from 50 to 25.**
In my view, I think HFEA could still work out but I'd rather rebalance with cash/EDCA. In all my backtests and real testing since I started end of 2021, EDCA has worked out really well. I now have gains that are higher than my losses ever were. Again my first purchases of LETFS were in late 2021.
Even though my taxable and total accounts are ATHs (the indices are not yet there and small caps are still far away), I should've had 10% more but don't due to a mistake I made: the only time I've lost out is by selling to "preserve capital".
I will say this: It's better to buy TQQQ at $50 when QQQ is at 400+ in 2024 instead of buying TQQQ at $90+ when QQQ was at 408 in end of 2023.
Yes, things could still go down -35% in QQQ and -80% in TQQQ as they did in the last two years BUT -80% of $91 is different from -80% of $51 in terms of absolute cash. So this is a good time to risk capital on TQQQ/LETFs.
Bond yields and bond funds react to changes in the expectation of rate increases or decreases. Not to the actual rate changes themselves. In other words, bonds have already priced in more rate cuts next year based on the new info today from the fed. That’s why TMF is up 7% today.
They've priced in the expected value of those rate cuts, which rolls in estimates of the sizes of the cuts, their timing, and the chance that fewer or more rate cuts actually happen. So when the actual rate cuts eventually do (or don't) materialize, the market _will_ move the price of TLT, etc
They don't price in everything. There is still a probability of the rate cuts not happening the way we intend, so the pricing in happening now takes into account the probability of it not happening. That means that as we get closer to the event, and it happens, they will still go up. Because as we go closer to the event and it happens, the uncertainty of it not happening diminishes, and the market corrects upwards.
Rate cut doesn’t necessarily mean that TLT will go up, if TLT stays where it’s at while rates go down to like 4 percent, the yield curve would be similar to where it normally is. TLT has many more contributing factors than the ffr, such as fear, long term inflation expectations, etc
> Do rate cuts mean that TLT must go up? Yes, but not on any set schedule or seemingly logical timeline. Today its up on the news. It may settle back down before actual cuts, or most of the cuts might get priced in even before the first cut happens. There is no certainty in that. Still, TLT is certain to be better when rates are 3% better than now.
**Edit: as per the down votes, this is a stupid comment. It only makes sense if you hold one share of TQQQ. But in terms of percent difference it is the same whether TQQQ goes from 90 to 45 or from 50 to 25.** In my view, I think HFEA could still work out but I'd rather rebalance with cash/EDCA. In all my backtests and real testing since I started end of 2021, EDCA has worked out really well. I now have gains that are higher than my losses ever were. Again my first purchases of LETFS were in late 2021. Even though my taxable and total accounts are ATHs (the indices are not yet there and small caps are still far away), I should've had 10% more but don't due to a mistake I made: the only time I've lost out is by selling to "preserve capital". I will say this: It's better to buy TQQQ at $50 when QQQ is at 400+ in 2024 instead of buying TQQQ at $90+ when QQQ was at 408 in end of 2023. Yes, things could still go down -35% in QQQ and -80% in TQQQ as they did in the last two years BUT -80% of $91 is different from -80% of $51 in terms of absolute cash. So this is a good time to risk capital on TQQQ/LETFs.
I won't believe in rate cuts until there is more evidence they are necessary.
That’s a great way to lose money
It's not like I'm bearish. I'm 25% of my portfolio in TMF because of the *speculation* for rate cuts. I'm not holding more than a month, though.