Suppose I had $100 invested in UPRO before Trump's tariff announcement. Anticipating that the event would trigger market turmoil, I wanted to close the leveraged position and hold cash (SHV) until the volatility subsided.
In a tax-free world, this would be straightforward: sell the position and wait out the storm with no further risk. However, let’s assume the UPRO is held in a taxable account, and closing the position would trigger a capital gain of $90. If it's long-term gain, I’d owe 20% in federal tax,13.3% in state tax (CA), and potentially plus 3.8% NIIT. If short-term gain, the marginal federal tax rate can be as high as 37%.
Regardless of whether my bet is right, I would surely pay a significant tax bill. Instead of closing the position in the taxable account, I can open an opposite position in Roth IRA accounts - In practice, I used YANG and TMF to bet the market crash.
If the market does drop as expected, I’ve effectively transferred the loss in the taxable account to the tax-free account. If the market rises instead, the money flows in the opposite direction, but my overall portfolio remains market neural. As long as my betting odds are better than 50/50, this strategy can gradually move money in some desirable direction over time.
If the assets in the taxable account aren't highly appreciated, the strategy becomes even more favorable. Whenever the taxable account incurs a significant loss, I can simply close the position, realize the loss, and use it to reduce my overall tax burden.
Trump is set to announce his reciprocal tariff on April 2, a move that will reshape the global trade and mark a paradigm shift in the U.S. foreign and economic policy.
The transition could be turbulent—potentially triggering a market crash, a brief economic downturn or recession, rapid Fed rate cuts, and eventually, a recovery. It’s starting to feel eerily reminiscent of late January 2020, similar to the unsettling period just before the first confirmed COVID case hit the U.S.
My portfolio before:
40% UPRO/TQQQ 40% SHV 20% Real Estate (Primary home + 2 rentals)
To brace for impact:
10% UPRO 5% YANG 5% TMF 60% SHV/BND 20% Real Estate
Let’s see if reality unfolds as expected.
=========== Update on April 2 ===============
Last warning before the storm...
=========== Update on April 3 ===============
The market did crash today. Now, let's see if it continues to play out as expected:
It’s been clear for some time that the US equity market was propped up by unsustainable deficit spending and the manipulation of treasury duration. The interest payment in the US has exceeded the defense spending - a dangerous sign. The status quo cannot continue forever, something has to break.
=========== Update on April 4 ===============
China retaliated with a 34% reciprocal tariff. The ball is back in Trump’s court. Meanwhile, Xi has his own internal political dynamics to manage. Neither can afford showing weakness anytime soon. The trade war is likely to escalate before de-escalating. How this game of chicken will end is beyond anyone’s control.
The market continues to collapse today. These developments seem to align with the Trump administration’s objectives:
The 10-year Treasury yield has dropped below 4%, which is beneficial for refinancing over $9T in Treasuries.
Oil, gold, and most commodities are coming down, which helps lower inflation.
The dollar is depreciating, which should, in theory, boost U.S. exports.
The next question is when the Fed will intervene. My guess is it won’t cut preemptively unless:
The market downturn triggers widespread margin calls, risking a financial crisis.
Clear evidence of economic pains emerges, though that may take months to develop.
YANG and TMF appreciate ~25% and 5%, respectively, but my bet is too small to change anything.
3. Matthew Klein and Michael Pettis on trade wars:
=========== Update on April 6 ===============
Nikkei futures suspended after hitting circuit breaker.
Russell 2000 circuit breaker hit in the overnight session.
CME group futures markets are putting out circuit breaker warnings for tomorrow.
Trump is pressuring the Fed to cut interest rates:
It’s shaping up to be a high-stakes, three-way game of chicken between Trump, Xi, and the Fed. With neither Trump nor Xi showing any signs of backing down in their standoff, the pressure is mounting on the Fed to make the first move.
However, Jerome Powell can’t simply cut rates like during the GFC or the COVID crisis—he’ll need a credible justification. Until that cover materializes, global markets are likely to remain on edge, and next week could bring extreme volatility as investors try to read Trump's Xi's, and the Fed’s next move in this economic standoff.
=========== Update on April 7 ===============
Trump doubled down as expected:
YANG surged as anticipated, while TMF unexpectedly reversed its gains. I closed both positions today, the YANG bet returned about 55% in a few days but TMF was only break-even. My main decision is to close large position on UPRO/TQQQ before the tariff announcement, which saved me from big losses.
There's speculation China has sold $50B in U.S. Treasuries—potentially a signal of its intent to escalate financial tensions. If China decides to weaponize its Treasury holdings, the traditional correlation between the stock market and Treasuries may begin to break down. In light of this, I exited my position in TMF. So, this is about a break-even bet.
=========== Update on April 8 ===============
The Trump administration attempts o calm the market by signaling progress on trade negotiations. The stock market opens up with a ~3% rebound right now.
Financial markets usually move ahead of real economic shifts. With reciprocal tariffs set to take effect tomorrow, their impact will gradually ripple through the global value chain. People and businesses start to change their behaviors in response to the incentives, but it may take time for the world to adjust accordingly. I expect more negative news bubbled up from real economic before it's safe to be fully invested.
Updated: The rebound was short-lived, and the market ultimately closed lower. The new tariff will take effect at midnight tonight. As the pain spreads through the economy, its impact will be reflected in corporate balance sheets and macro stats. Only then, things start to settle and the market can recover sustainably.
