Closing 2nd TZA
Hedging less and managing expectations
If this post seems familiar, it may be because it’s virtually identical to my most recent, which was also a sale of TZA in a similar situation and for similar reasons.
However I do encourage you to read through, as some new points are made which should be instructive.
TZA is essentially a levered short vs. the Russell 2000 Small-Caps index.
I’ve had four TZA positions documented in this substack.
The 1st was in 2023, sold for a gain of 13% in 7 months.
The 2nd, also in 2023, netted a 16% profit in just 5 weeks.
The 3rd was opened in December of 2023 at $20.62, to be sold at the morning open.
The 4th and last was opened February 2024 at $19.61, sold profitably last week.
As I type, late on Tuesday April 8th, futures are down to a level which would result in TZA opening in the morning, April 9th, around $25.75 or up 25% on that 3rd position.
That’s great for any investment over the course of about 15 months, and fanstatic for a hedge. The Russell 2000 is down 12.3% over the same period, so the hedge offered very significant outperformance.
It was really about insurance though, and by closing this position capital is freed to deploy when stocks settle.
I’ve been unequivocal that markets would tank, most recently a month ago. Whatever the news squawks now, as that tanking happens, is excuses not reasons.
I’m offering that 2nd TZA position for sale at a limit of $25.00 until that price is hit or further notice.
In case markets recover overnight and as a result TZA trades lower than $25.00, I’m happy holding on to that hedge.
Rates Reversion
I called attention frequently last year to the normalizing of the yield curve, after a historic length of inversion.
In this short post from late July 2024 I correctly identified the point of inflection, and it’s interesting to note that the leading sector on the way up - big tech, and specifically semiconductors - topped at the time.
Though it didn’t hit mainstream headlines until January of this year, Deepseek was out for testing in June of 2024 and perhaps these insider Nvidia sales are pure coincidence:
Broker data as recently as the end of March reveals that retail investors - the so-called “dumb money” earning its name - were buying big tech, primarily Nvidia, hard and fast through the first quarter of 2025.
At yesterday’s low, Nvidia was down 46% from its high 3 months ago. It’s now at the same price it reached in March of last year.
Here’s how I characterized it in February:
Dead money, gone nowhere, while many fail to realize the mania in overpromised tech fantasies peaked for this cycle and epic stock promotion spends masquerading on financial reports as AI CapEx no longer succeed in moving the priced-for-everlasting-perfection needle ever further into the red zone.
The dip in rates and certain electoral results extended the inevitable awhile longer.
Now just 7 weeks later it’s clear the inevitable is in progress, within a totally standard length of time from the yield curve normalizing.
In other words nothing new or unexpected is happening in equities and, as I’ve asserted previously, a recession is already underway but by the time the government or media makes it “official” it’s far too late to sell anywhere near the highs.
Here’s a recent headline underscoring the point:
'The Canary Is Sick': Blackrock's Fink Says Most CEOs Telling Him 'We're Already In Recession'
There were so many gigantic flashing signs, most notably the most common precursor which is rates reverting.
Please click below and take a moment to read this post I referenced above:
Here’s a chart showing how the yield curve looks today. Note the date of the above post, July 2024, on the chart below and see what’s happened since:
In that post you’ll find this quote:
Any time mainstream news - not financial news, but regular news - leads with a story about markets crashing then buy Altria and Berkshire and hold very long term.
In other words do differently than da masses, or do differently than dumbasses. You’ll by far outperform the vast majority of “experts” and indexes by doing so.
If you’re making a shopping list consider starting there, but be aware a real sell-off - an actual cyclical protracted inevitable downturn - has barely begun.
There remains a great many momentum darlings of the so-called “dumb money”, including outright, obvious, massive frauds, trading at stratospheric levels of valuation and gullibility.
By the end of the cycle that will no longer be the case. At that point hypervalued stocks like Nvidia will be far lower, while momentum names and “meme stonks” will be down 95% from the peak.
Until then, expect incredible bounces such as the one seen early today, followed by terrifying free-falls like the one seen late today, and expect some of those bounces to last so long and go so high it seems inconceivable that the worst is not over.
Think “bounce” not “bottom”.
Most important, enjoy the ride! History is repeating, and opportunities of a lifetime await where the imprudent are forced to liquidate.
Until then there’ll be plenty of time to reassess and perhaps add to existing holdings, or deploy capital into new ideas, only if and when ideal setups are evident.
