MacroVoices #271 Harley Bassman: Hedging a High Interest Future

Episode Summary

Executive Summary: Macro Voices episode 271 centered on Harley Bassman’s case for making long-dated rate hedges available to retail investors via a new ETF, arguing that rising long-term rates could flip stock-bond correlations and trigger a severe systemic drawdown. The post-game also covered market rotation: a fragile S&P 500 near the 50-day, Nasdaq under pressure, oil consolidating, gold retesting $1,800, and crypto speculation shifting toward Ethereum and Dogecoin while Bitcoin weakens.

Main Topics: Harley Bassman’s long-duration rate hedge ETF: Bassman explains the rationale for a new ETF designed to give non-institutional investors access to long-dated options exposure on interest rates, effectively a retail-friendly tail-risk hedge against a major backup in yields. Risk of rising long-term rates and broken stock-bond correlation: Bassman argues that the biggest macro danger is not just higher rates, but a regime change where stocks and bonds stop diversifying and begin falling together, damaging 60/40 portfolios and levered strategies. Inflation, fiscal stimulus, and the path of interest rates: The conversation links rising inflation expectations, fiscal spending, and Fed policy to the possibility of higher long-term yields, while stressing that inflation has already appeared in assets even if not fully in CPI. Equity market technicals and sector rotation: In the post-game, Eric and Patrick discuss S&P 500 support at the 50-day moving average, Nasdaq weakness, and rotation away from growth/tech toward cyclicals, metals, and mining stocks. Gold, crude oil, and macro trend confirmation: Gold is framed as bullish on a successful retest of $1,800 support, while crude oil is viewed as still in an uptrend but at a key channel bottom after inventory-driven volatility. Cryptocurrency leadership and speculative dispersion: Bitcoin is described as losing momentum, while Ethereum is viewed as technologically superior for decentralized finance and Dogecoin as a momentum-driven speculative trade fueled by Elon Musk.

Key Arguments: Bassman’s core thesis is that a rise in long-term rates above roughly 3.5% to 4.5% could flip the historical stock-bond correlation, removing the hedge value of bonds. He argues that this correlation break would be especially damaging for levered investors and risk-parity strategies because both major portfolio components could fall at once. He believes the new ETF structure lets retail investors access an institutional-style hedge without requiring an ISDA or futures-based implementation. Bassman says the product is not for short-term rate speculation but for long-horizon insurance against an expensive adverse scenario. He contends the Fed likely wants a steeper curve because higher long-term rates help banks, pensions, insurers, retirees, and economic signaling. He argues inflation has already occurred in assets such as housing, stocks, bonds, and gold, even if CPI has lagged, and that future fiscal transfers may finally drive consumer-price inflation higher. Eric’s post-game view is that the S&P 500 remains buyable unless it stays below the 50-day moving average, while Nasdaq weakness may signal a larger leadership shift. Patrick argues the market is rotating from growth to cyclicals, with metals/mining outperforming and ARK Innovation/Tesla under distribution pressure. Both hosts see gold’s pullback toward $1,800 as a bullish retest rather than a failed breakout, assuming support holds. Bitcoin is portrayed as part of a broader digital-currency revolution, but not necessarily the dominant winner; Ethereum is seen as more functional, while Dogecoin reflects pure speculative excess.

Data Points: Episode number: 271 - Macro Voices episode identification Recording date: May 13, 2021 - Episode recording date S&P 500 technical support: 50-day moving average - Eric says the market is buyable as long as it stays above or only slightly below this level US dollar index level: around 90 to almost 91 - Patrick notes the dollar bounced after CPI but remains in a downtrend/consolidation Crude oil EIA inventory change: -427,000 barrels - EIA reported a very small crude draw versus API expectations Cushing inventory change: -421,000 barrels - EIA Cushing draw in the weekly inventory data Gasoline inventory change: +378,000 barrels - EIA gasoline build, smaller than API had anticipated Distillates inventory change: -1.7 million barrels - EIA distillates draw U.S. crude production: 11.0 million barrels/day - EIA data showed production ticking up by 100,000 barrels/day Crude oil channel support: about $63.47 - Harley and Eric discuss the bottom of crude’s established trading channel Crude oil channel resistance: about $67.50 - Top of the channel cited during the oil discussion Gold support/retest level: $1,800 - Gold is framed as retesting former resistance as new support Gold prior buy level: around $1,690 - Eric says he bought previously at this level 10-year Treasury yield resistance: about 1.7% - Harley says this level has been the top so far in the current move Critical rate threshold for stock-bond correlation flip: roughly 3.5% to 4.5% - Bassman’s estimate for when stocks and bonds may start moving together Specific threshold cited later: 4.25% - Harley repeatedly uses this level as the ETF strike/hedge reference ETF launch price: $50 per share - Harley describes the new Simplify ETF structure Option notional per share: about $1,000 of option exposure - Harley says 1,000 shares equates roughly to option exposure on $1 million of bonds ETF option tenor: 7 years - The ETF is built around a seven-year option on long rates ETF option strike: 4.25% - Harley describes the embedded option as struck at 4.25% Implied volatility differential: about 10% below the five-year option level - Harley says seven-year option volatility is cheaper than five-year Population with insufficient emergency savings: 40% - Harley cites a Fed study saying 40% of the population could not raise $400 for an emergency Bitcoin price reference: near $50,000 - Patrick notes Bitcoin was trading near this level at the time of discussion Tesla price reference: under $600 - Patrick says Tesla was under 600 amid distribution ARK Innovation ETF position size: 10% weighting in Tesla - Patrick notes Tesla remains a large holding within ARK Innovation CPI inflation context: 10-year chart breakout - Patrick says the inflation print represented the biggest breakout on the chart in a decade

Pivotal Quotes: "if rates go somewhere above three and a half, four and a half, somewhere in there, you will see this stock-to-bond correlation flip." — Harley Bassman: Explaining the central systemic-risk thesis behind the new rate-hedging ETF "the market is buyable as long as we stay either above or only a little bit below the 50-day moving average" — Eric Townsend: Eric’s technical view on the S&P 500 during the market wrap "There has not been inflation is false. It just wasn't in CPI." — Harley Bassman: Harley’s argument that inflation is already visible in asset prices even if headline CPI has lagged

Implications: Listeners are being warned that rising long-term rates could create a regime shift where diversification fails. The episode highlights a possible new retail hedge tool, while reinforcing that market leadership may be rotating from tech/growth toward cyclicals, commodities, and hard assets.