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THE 60-40 PORTFOLIO FACES STRONG WINDS AHEAD
Investing in a 60-40 stock and bond portfolio has been the prevailing common financial knowledge for the last 40 years. However, Blackrock, one of the largest investment firm in the world with 10 trillion in assets under management, now believes that traditional portfolios, hedges and risk models will no longer work going forward.
Could the traditional 60-40 portfolio be a thing of the past, really?!
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The simple answer is yes, because we are experiencing a systemic, generational shift in Big Debt cycles and geopolitics, a very important imbalance in supply & demand for real assets such as commodities, a rapid rise in interest rates with an extremely high debt to GDP ratio and the end of the global, just-in-time deflationary economy.
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In an inflationary economy, which we have been in since the mid-2021, a traditional passive stock investor can expect a return of - (minus) 5% .... for a whole decade ! This won't help you much in reaching your financial goals or retirement plans!
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On the other hand, an active super investor or macro trader can expect returns of 15%-25% per year with a well diversified global macro portfolio!
"It is pertinent to note that since 1984, markets have spent 65% of their time pricing in falling inflation— an environment beneficial to both stocks and bonds. Stocks and bonds have opposing growth biases, i.e., stocks prefer environments where growth rises because earnings stay healthy. In contrast, bonds outperform when their fixed cashflows look relatively attractive, i.e., when growth falters. Thus, stocks and bonds have been extremely good diversifiers. However, while stocks and bonds have opposing growth biases, they have the same inflation bias— they need stable inflation to perform well. Therefore, when inflation becomes a dominant force in the economy (such as in the current scenario), stocks and bonds perform poorly, both individually and together, in a portfolio"
- Prometheus Reseach, October 2022
SHARE OF PORTFOLIOS LOSING X% OVER 5 YEARS BY COUNTRY (60-40 PORTFOLIO, REAL RETURNS)
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The risk of losing 50% to 100% of a 60-40 portfolio is very real. See the Chart below.
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Source : The Changing World Order, by Ray Dalio
A FEW WORDS ABOUT
COMMON KNOWLEDGE
Common knowledge refers to information that the average, educated reader would accept as reliable without having to look it up.
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In short, common knowledge represents the Truth for most people. There is no need to question common knowledge on a given matter, most of the time. But sometimes, blindly relying on common knowledge might cost you a lot and lead you in the wrong direction.
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This is especially true in finance: common knowledge should not be taken at face value, unless you have made sure such knowledge rightfully applies to your own financial situation.
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Here, I've laid out a real life scenario where common knowledge does not represent the optimal scenario. It has nothing to do with finance (except maybe for the part on the huge savings!) but is a significant problem that affects more than 60 million Americans.
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Heartburns are caused by many factors, and if you suffer from chronic heartburns, you know how frustrating it can be. If you are one of them, the Pepto-Bismol and Zantac brand names, just to name a few, will certainly be familiar to you.
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ʺIf you are always glued to common knowledge, you will not notice the right opportunities when they present themselvesʺ
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Commercial antacids work pretty well. They rapidly take care of heartburns. But you'll quickly become accustomed to them and you'll never have to take a second look at the problem again. Or maybe you should have: Zantac's maker kept quiet about cancer risks for 40 years.
Commercial antacids will end up costing you a good chunk of money over a few decades, and may have a few side effects. A Zantac tablet will cost you on average $1.00 per unit. Let's just say that you need 2 tablets per day, for 365 days a year, well, that's $7,300 that you'll have to spend over the next 10 years.
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Now, you may not know this, because it is not common knowledge, but the most optimal treatment (from a cost and benefit perspective) against ​heartburns is (drum beat ... drum beat ... ) sodium bicarbonate commonly known as Baking Soda. Yes, the orange Harm & Hammer box that we use for cooking and cleaning! You simply dilute a few tea spoons of baking soda in a bottle of water, take a few sips after your meal if you have heartburns and boom, heartburns are gone in minutes. With no side effects, except maybe a few burps ...
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HERE'S THE THING
A 500g box of Baking Soda will cost you about $1.00. This 500g will last you about 6 months. So the cost for treating heartburn problems just went down from $7,300 to $20 in 10 years. That's 99.83% less expensive.
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99.83% less dollars spent than what you would have likely spent based on Common Knowledge.
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SO, WHO DO YOU CHOOSE
TO BE THIS DECADE?
A 60-40 Traditional Investor
60% stocks, 40% bonds, in your home currency? You never go short and rarely take profits? You only invest in your country? All based on Common Knowledge? Well, we really hope you take the time to read further. Otherwise, our feeling is that you are glued to common knowledge and don't want to look at better options. But we might be wrong.
A Super Investor
You are at the right place. This training program is made for traditional stock and bond investors who wish to significantly improve their rate of return with a multi-asset and multi-timeframe macro diversification approach and a strong focus on market forecasting and timing.
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A Macro Trader
You are also at the right place. This training program is also for junior traders working from home who want to improve their macro skills and open their horizons with global macro trading strategies, relative performance, better risk management and most of all, learn to follow smart money by mastering price action in over 40 global markets.
LEARNING NEW SKILLS WITH A NEW MACRO TOOLSET
Whether you chose to become a Super Investor or a Macro Trader, we will show you how to profit from global markets by providing you with a flexible toolset that will improve your decision making. We have acquired and developed this toolset over the last 20+ years. It will help you understand key concepts such as:
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fundamentals that drive markets
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policy markers’ narrative vs market participants' real motivations and true intentions
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what is true portfolio diversification
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find value in all asset classes based on multi-timeframe analysis
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the importance of macro and debt cycles
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events that trigger major reversals
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price structure, price action and price reaction using multi-timeframe analysis.
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We are 100% confident that you'll start to see what others don't see or ignore, and therefore significantly improve your investment results, provided you stick to the methodology, gain experience and commit to being successful.
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The Table below highlights the key differences that we have seen between a typical RETAIL STOCK INVESTOR who focuses way too much on the micro picture,
a SUPER INVESTOR and a MACRO TRADER.
In the end, you'll decide who you want to be.
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APPROACH
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ASSET CLASSES
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REAL EXPECTED RETURNS
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DIVERSIFICATION
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ASSET CORRELATION
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RISK MANAGEMENT
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FLEXIBILITY
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THINKING
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CYCLES
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PRICE STRUCTURE
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PROFIT TAKING
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RELATIVE PERFORMANCE
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CONTRARIAN POSITIONS
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DIRECTIONAL
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STRATEGY
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TIME SPENT
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PSYCHOLOGY
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TIME TO SUCCESS
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APPROACH
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ASSET CLASSES
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REAL EXPECTED RETURNS
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DIVERSIFICATION
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ASSET CORRELATION
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RISK MANAGEMENT
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FLEXIBILITY
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THINKING
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CYCLES
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PRICE STRUCTURE
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PROFIT TAKING
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RELATIVE PERFORMANCE
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CONTRARIAN POSITIONS
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DIRECTIONAL
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STRATEGY
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TIME SPENT
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PSYCHOLOGY
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TIME TO SUCCESS
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APPROACH
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ASSET CLASSES
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REAL EXPECTED RETURNS
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DIVERSIFICATION
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ASSET CORRELATION
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RISK MANAGEMENT
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FLEXIBILITY
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THINKING
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CYCLES
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PRICE STRUCTURE
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PROFIT TAKING
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RELATIVE PERFORMANCE
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CONTRARIAN POSITIONS
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DIRECTIONAL
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STRATEGY
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TIME SPENT
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PSYCHOLOGY
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TIME TO SUCCESS
RETAIL INVESTOR
PASSIVE
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STOCKS-BONDS-CASH
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-5% +5%
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LOW
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NOT MEASURED
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WEAK
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LOW
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FOLLOWER​
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WEAK UNDERSTANDING
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CLUELESS
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RARELY
WEAK
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NEVER
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LONG ONLY
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BUY & HOLD​
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VERY LOW
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EMOTIONAL
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NOBODY KNOWS ...
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SUPER INVESTOR
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ACTIVE
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MACRO 10-15 ASSETS
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+10% +25%
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HIGH
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CONTROLLED
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REASONABLE
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HIGH
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INDEPENDENT
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GOOD UNDERSTANDING
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UNDERSTOOD
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REGULARLY
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REASONABLE
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SOMETIMES
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LONG SHORT NEUTRAL
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MULTI-STRATEGY
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5 HOURS PER WEEK
WORK IN PROGRESS
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AFTER THIS TRAINING
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MACRO TRADER
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SUPER ACTIVE
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MACRO 30+ ASSETS
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+15% +35%
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VERY HIGH
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MASTERED
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MASTERED
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VERY HIGH
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CREATIVE + SCEPTIC
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MASTERED
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MASTERED
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ALL THE TIME
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STRONG
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OFTEN
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LONG SHORT NEUTRAL
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DATA DRIVEN STRATEGY
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FULL TIME JOB
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MASTERED
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2+ YEARS
A FEW WORDS ABOUT MARKET TIMING
Common knowledge will tell you that market timing is impossible. Let us tell you something: it is indeed impossible for a broker that loves to play golf and spends most of his time dining and meeting with new prospective clients. As a Super Investor and Macro Trader you will learn the skills for market timing.
With our framework, we are able to anticipate market moves better than most investors and we'll prove it to you everyday in the 8XW live trading room and with a few anecdotal posts Fred made back in 2020.
Market timing can have a significant impact on your investment returns.
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Let's look at a few anecdotal, market forecasts posts Fred made in 2020 and then let's look at the power of the yield curve inversion.
FORECAST OF BIG MARKET TRENDS AND REVERSALS IN 2020-2022
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So with our market timing toolset, we were able to anticipate and profit from the following major market trends and reversals:
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the major stock buying opportunity after COVID hit;
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the long yield-short bonds opportunity after bonds spiked post-covid and interest rates reached historically low levels;
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the peak in technology stocks in Q4 2021 after a spectacular bubble move - we reduced our equity exposure in November 2021 by more than 50%;
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the long US dollar theme as new inflationary pressure triggered a massive flight to the US dollar (not gold) because the USD was perceived as the best cash "alternative";
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the major move in energy prices.
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THE YIELD CURVE INVERSION AS A FORMIDABLE FORECASTING TOOL
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Did you know that since the 1970s, the yield curve inversion correctly forecasted recessions 100% of the times, which often coincided with market tops?
These are extraordinary forecasting odds, don’t you think?
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So, while the typical retail investors, buy & hold brokers and media networks were cheering new highs, the Yield Curve Inversion screamed at you to reduce your stock exposure and lock profits in.
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Would you have loved to lock profits in near the market top, wait for a 30-50% pull back and get back in at a such a discounted price?​
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In life and in finance, timing is everything: awesome things happen when you get it right.
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​Just by following the forecasting signal from the Yield Curve, you would have shielded your profits and therefore reached your financial goals a lot faster.
The Yield Curve is only one tool in the much larger toolset that we will introduce you to in this training program.
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YIELD CURVE & RECESSIONS
Such toolset includes understanding how markets really work based on supply, demand, the human behaviors that shape them and how good you will be at confidently forecasting major market moves, and profit from expanding (long) and deflating markets (short).
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This extensive toolset combined with your own personal skill sets, experience and commitment can help you achieve your financial goals 8X faster.
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You'll never be bothered again by bull or bear markets because you will have adapted like an opportunistic tiger who can catch his prey at any time of the day and on a sunny, rainy or stormy day.
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A FEW WORDS ABOUT
TRUE DIVERSIFICATION
Do you know the correlation between all the securities you own in your portfolio? If you don't, it's ok, you are not alone. We have asked around and no one of our retail investor friends were able to give us an answer. This means that, like many others, you are taking way too much risk as an investor and you are not aware of it. When important assets in your portfolio become (they will inevitably) highly correlated - like stocks and bonds in 2022 - you are compromising your financial goals target or may even risk Armageddon if all your assets become highly correlated.
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The truth of the matter is: being only long stocks and bonds (even if you own stocks in various industries) does not mean you own a "diversified" portfolio, far from it. True diversification means that you are invested in at least 4 different assets classes at all times and uses many different and uncorrelated investment strategies with short-term and long-term goals in mind.
With True Portfolio Diversification, you will reduce your risks by up to 80% without affecting your returns. That is huge!
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In this training program, we'll spend a lot of time on true diversification and correlation amongst various asset classes, as well as on strategies that can improve your returns while reducing your risks. We will teach you how to identify correlated and non-correlated assets and help you build a true diversified portfolio. You will learn how to read correlation tables and make good use of them to lower your portfolio risks. These tables will be updated regularly in our live trading room.
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Data will make you a much smarter investor.
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Once you understand portfolio correlation, we will dive into the importance of Relative Performance and show how you can anticipate and profit from smart money flows into different asset classes.
CORRELATION MATRIX
RELATIVE PERFORMANCE CHART
PORTFOLIO BALANCING AND PROFIT TAKING
PROFIT FROM SHORT-TERM MOVES WITH LOW RISK, HIGH REWARD TRADES
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Have you ever heard of RenTech or Renaissance technologies ?
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RenTech is a hedge fund that runs its numerous trading strategies based on data models and price patterns that happen over and over again in all macro markets: stock indexes, commodities, currencies and bonds.
With
With various short terms strategies, RenTech generated, year over year for more than 30 consecutive years, average annual returns over 65% (per year!). Their average trade holding period was 1 day. A money-making machine.
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What's also remarkable is that RenTech took a lot less risk than the risk retail investors are taking to earn, let's say, a 5% average return per year.
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RenTech's Sharpe Ratio was 5+ during some periods. Just to give you an idea, the Nasdaq Sharpe ratio is currently negative 0.72.
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The Sharpe ratio of the average retail investor is negative. It means he or she is taking too much risk to earn returns.
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Your Sharpe ratio can be improved significantly by understanding true portfolio diversification, correlation and relative performance.
SHORT TERM OPPORTUNITIES ARE PLENTIFUL
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In this training program, we will introduce you to short term trading strategies that offer phenomenal risk-reward opportunities.​
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Look at this trade we did in the WTI (crude oil) market that offered a 1:10+ RR. The yellow arrow shows our entry point.
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The right arrow shows our exit point. We do these types of short term trades almost everyday in the 8XW trading room.
Once you'll have discovered our toolset and have enough experience to follow our though process, the 8XW trading room will significantly help you see opportunities that others don't and help you profit where others lose. Worth every penny.
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RELATIVE PERFORMANCE IS EVERYTHING BUT OPTIONAL
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Check out the chart of the relative performance of commodities in 2022. The first screenshot as of September 14 and the second screenshot as of October 27.
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As of September 14, the clear winner was Natural Gas. That's why we were active trading natural gas in 2022. A dollar invested in natural gas would have earned much better returns than a dollar invested in the stock market.
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Next, check out the chart of Bitcoin and Ethereum.
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Can you see which one was a better investment in the same digital asset class category in the last few years? Ethereum of course.
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These relative performance divergences happen again and again and you need to anticipate them to beat the benchmarks.
I'll help you navigate through relative performance divergences and convergences.
I'll help you figure out the right timing to get in and when to get out.
NARRATIVE VS TRUE
INTENTIONS
One important edge in global macro finance is the skill to find the true intentions or key motivations of policy makers. Opportunities will arise when the public is mislead by a mainstream media narrative that only aims to please the electorate but which ends up to be misleading or completely false.​
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Let's look at the 2022 gas price debate. Unless you own an electric car, you certainly have noticed the important increase in gas prices at the pump. While this might have been frustrating for most of you, the implications of high gas prices and oil prices must always be taken in their context. From a macro perspective, you have to know that higher crude oil prices will ease inflationary pressure on the global economy. Indeed, history shows us that high gas prices are actually a blessing for an overheating economy, as it slows down demand without the need for more disruptive interventions from central banks, such as interest rate increases.
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U.S. President Biden has been very vocal about these high gas prices and intervened in the market by releasing ordering the release of an important portion of the U.S. strategic crude oil reserve. This was meant to ease prices at the pump. That strategy has been somewhat effective short-term, easing price pressure and pleasing the electorate just at the right time ... a few months before the mid-term election.
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That was a 100% politically motivated move. Why do we know that? Because the narrative goes completely against true intentions of policy makers. The table below summarizes the narrative presented vs the true intentions or key motivations.
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Once you can figure out this sort of thinking, you'll look for any misleading narrative that causes a distortion in prices, to your advantage.
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NARRATIVE
TRUE INTENTIONS, KEY MOTIVATIONS
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High gas pump prices hurt consumers
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Release of strategic reserve will be used to ease price pressure
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Energy companies are greedy, greedy, greedy. We should tax them more
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We will not try to explain the positive impact of high prices because that would become a PR mess. Instead, I'll turn a blind eye to central bank disruptive action with aggressive interest rate increases which will have higher negative consequences on American families and their mortgage payments in the long run.
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High oil prices are a blessing for an overheating economy
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The U.S. is today the world's no. 1 producer of crude oil and natural gas. High energy production capabilities are a huge asset in times of international instability and stable prices are good for U.S. energy companies
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High oil prices are a better solution to an overheating economy (feel pain sooner) than aggressively increasing interest rates (feel pain later and longer).
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The release of the strategic reserve will cause issues mid to long term and will need to be replenished at unknown market prices.
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Energy companies need to be profitable to ease pressure on inventory and pursue R&D for alternative green technologies.
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We could go on and on. We'll review many different examples of deceiving narratives in the training program. The point is : you need to be aware that the mainstream narrative will often be misleading and may reflect everything but the real intentions of policy markets.
PROFIT TAKING IS AN ART
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If you are not taking profit regularly, you will never be able to beat the benchmarks.
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For most investors, taking profit is hard, really hard. They often feel they either sold too soon, too late, or even worse, never got out! But as you gain experience, it will become more natural and you'll never look back once you have sold or covered a trade. Remember that you can always get back in a trade when you see the right opportunity, again.
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You'll also learn how to let your winners ride. It is a skill that improves with experience.
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Taking profit must become an unconscious trait of the Super Investor and Macro Trader.
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If you are a buy & hold investor, you'll need to reconsider your approach for a portion of your portfolio, at the very least.
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The frequency of your profit taking will depend on the timeframe you choose to trade from: daily, weekly, monthly or intraday.
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We approach trading with a multi-timeframe angle and will therefore take profit regularly, and then rebalance our portfolio accordingly.
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You absolutely need to be able to pull the trigger to get in but also get out of a profitable trade. Because paper profit means nothing.
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We will show different techniques to optimize profit taking. Measured moves, average true range and WRB being three of them.
