President Trump has thrown the economic puzzle pieces in the air, and how (or if?) they will be put back together is anyone's guess at this point. From a financial perspective, we are at a perilous crossroads.
The US market is experiencing extraordinary volatility because no one knows how this plays out. Will Trump remain stubborn and continue playing a disastrous game of chicken with China, or will he back down? Equities, Treasuries, and the Dollar are all sinking as the world unloads US assets.
Based on an overwhelming number of market risk indicators turning bearish, my portfolios sold US stocks and ETFs at the end of February, so I missed the selloff.
I profited from foreign country ETFs moving higher through March as US equities slumped. However, when Trump announced his "Liberation Day," international shares also sold off dramatically, anticipating severe damage to the global economy. Where to turn now?
Inverse ETFs are dangerous because of the impact of bear market volatility on their prices. Bonds look hazardous because the Fed will be torn between lowering rates to boost a slowing economy and raising rates to fight higher prices and inflation from the tariffs.
My question is, what safe harbors will the community use during this period of increased market risk? Are you riding things out and holding your US equities? Will you keep your funds in cash for however long it takes for this to pass? What if the downturn lasts for years? Can Puts work in such high volatility? Do you use any other alternatives?
If you read a bit of history, you'll see that this isn't much of a shock or uncertainty, and even the Economic Policy Uncertainty Index is lower than it was in March 2020.
extraordinary volatility
The VIX is now just where it was during the European debt crisis of 2010 and the 2011 U.S. debt rating downgrade.
stubborn...playing a disastrous game of chicken with China
Whether this is stubborn and dangerous depends largely on what the implied subject of your sentence is.
For investors, yes. Universally, no.
so I missed the selloff
If you're really that confident, you should short futures on US stocks and oil. And, if your strategy has reliable positive alpha, you should short futures to hedge, not sell out.
severe damage to the global economy
Although this error almost overwhelmingly outweighs the correct interpretation, it is true that profits are not "economy" in any sense of the word.
Inverse ETFs
You can short futures on IBKR or even Robinhood without buying an inverse ETF.
Bonds look hazardous
Always like that
Bonds are always not safe havens, but not hazardous.
slowing economy
Always like that
Worldwide, the economy remains significantly below the 06-19 trendline.
safe harbors
There's nothing to do, especially if you didn't have a plan before and haven't done enough research to do anything.
I did not state, nor did I imply, that I don't have a plan. I have been investing for 25 years and always have a plan. As noted above, I was interested in learning what safe harbors the community will use. Nevertheless, you did not address that simple query; instead, you chose to critique the wording of my question. Thanks for that... I guess.
I wasn't asking for your ADVICE. I was simply curious how the community was handling this situation. I won't respond with how wrong you are in making these enormous assumptions about me.
But thanks for this lovely exchange in my first post to the P123 forum. I definitely won't be posting here again if toxic responses like this one are what members get for attempting to spark a community discussion—best of luck to you all.
I was also lucky to have some quite some international exposure during the sell off.
When it comes to a good risk off asset, I think the obvious answer is to own (quite) some gold. Almost 20% of my portfolio consists of it as of now, rising from 15% since the tariff announcements.
When I look at what’s happening - and what I read more and more others also start to think is happening - is that international investors are not sure anymore that the US government will keep its promises. When the US cannot guarantee a free market (by changing tariff policies in extreme ways from day to day), who says that they will keep paying their interest rates and actually pay off debt. Especially considering the tough challenge they already have in reducing their budget deficit and to find the money to actually service their current debt. Clearly, a lot of investors are starting to doubt whether holding US currency (and hence also US bonds as this is an investment in future US currency) is a safe bet anymore. That means they need an alternative.
What alternative? The euro maybe, we have seen ETFs like IGOV and BWX (European government bonds) rise. The euro is the second biggest ‘reserve’ currency. So that makes some sense. However, looking a bit further ahead and learning from past events - the ‘Europeans’ have not exactly shied away from currency devaluation either and with more and more pressure on the Eastern front (Ukraine) they will have a strong incentive to increase the money supply such that the independent governments can increase military spending such that they can defend themselves against Russian - and as it appears now - Chinese threats.
That leaves the third biggest currency, that cannot be printed: gold. Its probably the purest play on US ‘mismanagement’ or even a possible default.
In a more practical sense, I think there is two ways to take this into account in your systems. One way to do it, would be to have a system that takes trend into account. Such a system would (should) have a considerable amount of gold allocated by now. Another way to do it, would be to incorporate correlations as a signal. Stock bond correlations have increased a lot, which is typically an environment in which other assets - surprise, especially gold - do well. Both of these type of signals can be codified within Portfolio123.
Let me know what you think. I very much look forward to any reply and to exploring more on this topics.
Historically, gold has not been a good safe haven for geopolitical risks
Sure, I'm happy to profit from trends, but believing the fact that it's indeed reliable helps one become profited by others.
You can buy CDS if you are confident
surprise, especially gold - do well
Leaving aside the fact that this is factually incorrect, a single predictor for a single subject is extremely unstable.
It should be noted that out-of-sample time series forecasts of foreign exchange or equities through macro factors continue to fail or just succeed a very little bit.
defend themselves against Russian
Considering that European military expenditures (even taking into account price differences) are much larger than Russia's, this is obviously not a real justification, but an excuse to divert domestic conflicts.
Trend following may mitigate long-term declines, but is ineffective or even harmful in the face of current short-term shocks. Also, it should involve a lot of futures contracts to mitigate its risks instead of allocating "a considerable amount of gold"
I'm really no expert but for me, Gold and cash/short term bonds. Gold at all time high now and trending up for a year. i.e. can allocate in/out based on trend (therefore limiting downside and not requiring any deep macro analysis but can backtest to generate confidence in the signals) although buying into gold now has missed one year of a trend.
Trump has caused a loss of trust in America, so in short term this may happen:
US equities flat or down
European equities flat or up. (European investors are taking money out of US and back to Europe I think.)
Dollar down
Bonds (e.g. TLT) didn't go up during this equity market sell off so when will they go up?!
Key points DJT has to resolve - Bond market and China argument
If you have still some years until retirement, then do nothing and trade your strategy as usual. Every potential safe heaven is now expensive.
I started accumulating some long puts on SPY at the beginning of December 2024 when the greed was at maximum level and further diversified geographically my equity portfolio. But these kinds of things should to be done before the crash.
I purchased even more "crazy small caps" equities during the crash using proceeding from put options. Now I do nothing. I do not use leverage never ever.
I think you're right—they are expensive. It's little like buying very expensive fire insurance when everything but the master suite is already ablaze. I also wonder how much of this is just going to mean-revert sooner than we can react—possibly leading to a second poor decision.
I’ve been reading On the Edge by Nate Silver. Turns out he uses statistics for more than just election forecasting—much of the book is about game-theory-optimal (GTO) poker strategies and Nash equilibria in mixed strategies.
In poker, GTO means following a strategy where you’re indifferent to what your opponent does in the long run—and protected over many plays. If your opponent plays too tight or bluffs too much, they get exploited. You just stick to the equilibrium and let their mistakes compound to your advantage.
I think the market works the same way. You can try to predict and exploit it—but if you're wrong, the market exploits you. Or you can lean toward a kind of market Nash equilibrium: a diversified, risk-managed strategy that doesn’t depend on prediction and still survives over time.
To be totally honest, I think I’m particularly bad at prediction—possibly to the point of being a reliable contrarian indicator (not joking). The market tends to punish my guesses more often than not. So I lean into an equilibrium-like approach. In my case, that’s diversification—but for others, options, futures, or pair trading might serve the same role, especially outside of something like a SEP-IRA.
It’s a bit wonky, and I apologize for that—but I think this is what we’re really doing (in decision-theory terms) when we choose diversification or hedging over trying to outguess the market.
Two posts considered offensive, that offer nothing to the ongoing discussion, have been removed. Please always be kind or we will be forced to suspend posting rights.
I'm glad you admit that even a tone similar to the previous undeleted reply is unacceptable, and that slandering that actually falls into the category of "offensive," "not remaining friendly," and "offensive." . It's the equivalent of you admitting that you simply object to any criticism that challenges your beliefs, while wrongly and baselessly calling it "not helpful to the discussion".
As for your reference to personal attacks or as for your own personal attack fallacy here, I'm not sure what that has to do with anything.
But since you enjoy defending him so much, please delete all my postings and replies here, that's what I'm asking.
Uncertainty and macro and policy instability have increased a lot. Not just now but likely for at least next 24 months. Recession risks rising globally (clearly a drag on company profits)
US policy highly unpredictable and unstable and so second and third order effects and responses impossible to model
Trust and outlooks for US dollar highly uncertain (eg Canada and EU dumping US bonds in coordinated way happened apparently last week to get trumps attention on tariffs — and seemed to work)
Much wider range of potential outcomes (eg big gains and big losses) than before and much more sensitive to news
Inflation could spike, but could also not (eg heavy prolonged recession could collapse prices or tariffs could raise prices and recession could trigger fiscal stimulus)
China and other nations will respond in ways that are hard to predict but get US attention and US policies will remain fairly unpredictable and uncertain and unstable for awhile
Bottom line: nobody knows. We’re at a possible inflection point in geopolitics and global world order (see Ray Dalios ideas) — but that could also all get delayed decades or more perhaps with calmer and more intentional, pro growth policies. we’ve never really been here before.
And AI could be hugely pro or anti growth or somewhere in the middle
What to do?
be honest with yourself about your actual risk tolerance and life stage
if you’re young and your portfolio is relatively small compared to future earnings, probably just keep investing monthly and dollar cost averaging into a relatively diversified global portfolio that’s somewhat overweight your home country and some mix of “safe” and “risk” assets… but try and build 2-3 year “cash” emergency fund just in case
if you’re in retirement or very near retirement and have large portfolio relative to future earnings — and own your home…de-risk some to reflect likely higher vol or derisk a lot and know that you face some potential for lost upside and some inflation risk but you will “survive through the turbulence”
But all these choices are hard and personal — so don’t follow someone else’s advice (including mine).
Having a “stress relief” portfolio that’s small (eg less than 5-10% of overall savings) that you do whatever you want in (but not doing too much with core) can also help.
And tuning out news and taking care of mental health (sleep, laughter, etc) can help.
Diversification matters (people will tell you)…. But very few assets are reliably low correlation through periods of intense market stress.
And no one is smart enough in a complex system like this to make large numbers of small macro bets and have them reliably work out. Some macro fundamental bets will definitely work out and the people who make them will seem very smart in hindsight but they are lucky and will turn out to be very unlikely to repeat their success next time around (eg John Paulson)
There are some options in private markets that may help… but hard to access and not clear they will help after fees and illiquidity always.
So a long post… cash is your only safe harbor but real risks of inflation and huge portfolio allocation shifts are generally not a great idea… the feeling of needing them generally indicates core asset allocation is off.
A money manager you trust may also help weather tough times (but they can be wrong too).
These are great opportunities to re-evaluate your pain tolerance under real world circumstances (which are a lot different than trying to evaluate your pain tolerance and risk threshold in hypothetical simulations).
Given the likely little rally in next few days (as a result of Trump pulling back on tariffs), this may be an opportunity to take some chips off the table and de-risk.
No safe harbor moves for me at this time, but the future is so uncertain that I might feel a need to unload later. I have some diversification in assets and don't feel pressed to make significant changes yet. But there are many potential pitfalls in the next few months or years.
This doesn't feel like a "Black Swan" singularity to me. It feels more like a swarm of "Black Swans"!