“No one cares… UNTIL EVERYONE CARES.”
On December 17, 2019, I became an SEC whistleblower and filed my first TCR on LETFs. Since then, I’ve demonstrated—through math—that leveraged ETFs (LETFs/LETNs) and their creation/redemption flows are predatory at best, and likely far worse.
What might interest you: these products can be beaten using gambling math. Like counting cards in blackjack, the edge is rules-driven, it compounds over many hands for those who play the math. I’m collaborating with Brad Hebert
@CrossCutProds, Executive Producer of Dirty Money (and others), to document this journey before the everyone-cares phase.
We’re documenting the math, the effort, the gradual realization, and the support many of you have given behind the scenes (you will be known). Documentary-style, public, open-sourced, math-based.
To make it easy,
@bothunter and I built backtest tools and launched two live tracking dashboards based on my published, validated models:
• Day Late Dollar Richer: (SQQQ)
• FRAWD Model Portfolio: blending previously published mathematically advantaged models in real time
The math functions as a proof—it’s either true or false. Under unchanged mechanics and specified execution, this is mechanically forced expectancy: you won’t win every hand, but the expected outcome repeats.
I’ll post portfolio values daily versus the S&P 500. The Frawd Model Portfolio has been tracked since Sept 5, and DLDR since Mar 12. Trades and pricing are real; position size is scaled.
Simply put: LETFs are a casino game wrapped in an ETF. Issuers and swap counterparties sit as the house and are financially liable if you win, just like a casino.
If issuers/swap counterparties had average issuance at $100 and average redemptions at $150, they would go out of business. The game had to be built to guarantee investor losses to ensure house profitability (like a casino). Leverage reset, creation/redemption, and swap mechanics make the payout profile incentive-compatible for the house, and I’ve published falsifiable analyses showing how that plays out across time and products.
Papers, models, and more at: frawdresearch dot com
Disclosure: I am a legally represented whistleblower. The math is factual, and when the same mechanics persist, future behavior will rhyme with the past—because these products are structurally engineered that way. Nothing here is investment advice; this work is for investor protection and education.
The Frawd Model Portfolio will take into account corporate actions (dividends) and borrow fees; there is zero need for any vagueness or omissions on my part, the truth is powerful enough.
Lastly, in an effort to walk the fine line of giving the world enough to prove I’m right but not make myself irrelevant or have my work stolen, my published work represents the bottom quartile of my ability; you can safely assume 4× the returns you see (Frawd Model Portfolio) with .75 beta as the upper limit of my non-published, mathematically assured models. As SSRN models are validated and backtested and confirmed by the media, I will release additional enhancements, with average model returns increasing 5% per annum.
If you believe that counting cards is possible, you must by association believe that products that have a defined structure and payout (reset daily, pay 2–3× daily returns) can be gamed for profit, especially when performance tables are disclosed via prospectus and performance too far outside those limits will welcome lawsuits.
Remember: THERE’S NO CRYING WHEN YOU’RE THE CASINO.
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