You are going to see a lot more about Hedging from us over the next couple of weeks and months, as It’s an area I think most people do very wrong. I can’t give away the secret sauce on how exactly we are going to incorporate hedging, but I can give you some ideas that maybe better than what you are currently doing, and some avenues to think about…….

If you’ve been feeling like markets are… unstable… you’re not imagining it.

You can have the index hovering near highs while whole industries get “AI’d” in real time. One week it’s software. The next it’s insurance brokers. Then wealth managers. Tomorrow it’ll be another “high-margin, predictable cash flow” corner of the market that suddenly looks a lot less predictable.

And here’s the trap: most investors still think they’re hedged because they own bonds… or because they own gold… or because their portfolio is “diversified.”

That’s not hedging.

That’s hoping.

One of the cleanest pieces of research I’ve seen recently looked at 59 meaningful market drawdowns over the past 100 years and asked a simple question:

What does the market look like right before the fall?

The big takeaway wasn’t “recession.”
It was: drawdowns are normal, frequent, and often arrive before the economy looks sick.

In other words: waiting for an economic “reason” to hedge is like waiting to smell smoke before buying a fire extinguisher.

That same research flagged three conditions that tend to show up near peaks:

When you get those ingredients together, markets don’t gently “correct.”

They gap. They air-pocket. They reprice.

And that brings us to the most important part of today’s issue…

Bonds are sold as the polite, respectable hedge. The “adult” allocation. The thing that’s supposed to rally when stocks crack.

Sometimes they do.

But bonds aren’t a hedge. They’re a second bet.

They hedge growth scares… only when inflation is tame and the Fed can cut without losing credibility.

When inflation is the problem, bonds can drop with stocks. (2022 was the reminder nobody wanted, but everybody needed.)

Even worse:

So yes—bonds can diversify sometimes.
But if your plan is “my bonds will save me,” you don’t have a hedge.

You have a bedtime story.

Gold is not a hedge. It’s a regime trade.

Gold tends to work when the market is obsessed with:

But gold can also:

Gold is a belief trade.
A hedge is a math trade.

Gold might help in the right story.
But it’s not engineered to pay you when the floor drops out.

If you want protection that shows up fast when markets break, you need convexity.

That means:

Here’s the brutal truth:

These are the only hedges that reliably work when you actually need them.

And here’s the second brutal truth:

They bleed.

Every day you own them, time decay ticks like a parking meter.

Which is why most investors quit right before it matters.

They buy protection after a scary headline…
They pay the premium for a few weeks…
Nothing happens…
They cancel the insurance…
And then the market breaks.

So the real problem isn’t “finding a hedge.”

It’s this:

Think like a casino, not a customer.

The casino doesn’t “buy insurance.”

It builds a system where the insurance is paid for by the house edge.

Your goal is the same: pay for convexity with something that has positive carry… without blowing yourself up.

Below are a few frameworks (all defined-risk approaches) that can dramatically reduce the bleed.

Mechanic:

Why it works:
You’re converting some of your “uncertain upside” into “certain insurance.”
You stop paying for the hedge with cash. You pay with capped upside.

The mental shift:
You’re not hedging because you’re bearish.
You’re hedging because your portfolio is already long risk.

Best use case:
When valuations feel stretched and volatility is cheap—exactly when most people feel safest.

Trade-off:
You won’t fully participate in melt-up mania.
But that’s the price of not getting carried out during the air pocket.

Mechanic:

Why it works:
Single puts are expensive because they’re pure convexity.
A spread reduces cost dramatically while still protecting you in the “common crash zone.”

The hidden benefit:
You’re more likely to keep it on, because the premium is smaller.

Trade-off:
If the market falls off a cliff past your lower strike, protection stops expanding.
But in real life, most investors don’t need to hedge “Armageddon.”
They need to hedge “portfolio-destroying drawdown.”

Mechanic:

Why it works:
It’s basically a collar, but smarter, because both wings are defined-risk spreads.

Trade-off:
Again: capped upside.
But you’ve massively reduced the bleed.

Mechanic (conceptual):

Why it works:
Long-dated options decay slower per day.
Short-dated options decay faster (you collect that).

This is how pros try to turn hedging from “expense” into “managed cost.”

Trade-off:
This requires discipline and sizing.
If you sell too much premium, you can accidentally become the insurance company.

Rule: fund the hedge… don’t become the hedge.

Mechanic:

Why it works:
VIX can move violently when equities gap down.
But VIX options also decay—and can expire worthless repeatedly.

The guardrail:
Use spreads so you’re not lighting money on fire every month.

Here’s the uncomfortable reality about this market:

Index-level calm can hide brutal under-the-hood rotations.

A portfolio can get wrecked while the S&P 500 barely flinches.

That’s why “hedging” in 2026 isn’t about predicting the next crash.

It’s about staying alive through the rolling micro-crashes happening sector by sector… while keeping protection for the day correlation goes to 1 and everything sells off together.

Winners

Losers

Drawdowns aren’t black swans. They’re the calendar.

The only hedge that matters is the one that shows up when you need it.

And the only hedge you’ll actually hold through a bull market is one where you’ve solved the bleed—by financing convexity, not constantly paying for it.

Did you see the Obama aliens clip going viral?

The former President of the United States said “They’re real” on a podcast:

And social media went into a frenzy.

Obama has since qualified the statement, saying: “Since it’s gotten attention let me clarify: I saw no evidence during my presidency that extraterrestrials have made contact with us.”

But here’s the investable point: now everyone’s talking about aliens.

And when a topic hits the mainstream, capital starts hunting for exposure.

If the possibility of UFO disclosure  - and how that could affect the markets - is something that interests you . . .

Join me for a live webinar briefing this Friday February 20 at 2pm EST. 

We’ll walk through the ‘UFO Disclosure Trade’:

Register now and secure your spot for the free live webinar.

SECURE MY SPOT: Disclosure Day: A Playbook For Investors If The Government Confirms It Has Alien Technology.​

Markets are trading like the AI disintermediation scare is the only macro that matters—pushing expectations toward a more dovish path—even as the spot data argue the opposite. Payroll growth is still positive, and inflation is proving stubborn in the places that matter most. The bigger point: “recursive AI replaces everyone tomorrow” assumes the tech can scale itself without friction… but compute and power don’t self-scale, and model gains still appear to require disproportionately more infrastructure. Historically, major tech shifts don’t just reshuffle a fixed pie—they expand it—often by pushing people into more output per hour and a wider scope of work, not instant mass unemployment.

The near-term risk, ironically, looks more like Infl-AI-tion: a generational AI capex cycle colliding with real-world constraints and policy frictions. AI buildout is already showing up in input costs (AI-linked commodities and especially memory), and it’s pulling forward construction demand at a time when labor supply is tightening—construction is highly reliant on immigrant labor, and a slowdown in immigration can turn “more projects” into wage pressure fast. Layer on tariffs that raise the floor under goods prices and broaden inflation dispersion, plus sticky “supercore” services inflation and slower-than-hoped shelter disinflation, and you get a setup where markets may be underpricing the upside tail for inflation—even while everyone is debating job losses that may take longer to materialize than the headlines imply.

Today I cover an ETF, Van Eck Digital India (DGIN)…..

I hardly ever cover ETFs here as I believe most of them suck (more on this in another newsletter), but from time to time the most efficient way to get closer to the exposure you are looking for is to use an ETF.

India is starting to look like the next “digital + AI infrastructure” geography—not because it’s inventing the frontier models, but because it’s building the pipes (data centers + power), scaling digital rails (payments + identity), and has a huge consumer/internet base that can absorb new services fast.

India has spent the last decade building digital public infrastructure (connectivity + payments + identity). The government’s own “Digital India” progress note shows internet connections rising from 25.15 crore (251.5M) in 2014 to 96.96 crore (969.6M) by June 2024, and UPI hitting 1,867.7 crore (18.677B) transactions in April 2025.

That matters for investors because it creates distribution + payments at national scale. When AI features show up in commerce, banking, travel, “agentic” customer service, etc., a country with ubiquitous digital identity + payments tends to adopt fast.

The headline you pasted is real: Adani is talking about $100B over the next decade-ish to build “renewable-powered AI-ready hyperscale data centers by 2035,” and positioning it as a multi-hundred-billion-dollar ecosystem buildout.

Two important nuances:

So India’s AI angle may rhyme more with your “old economy benefiting from AI” bucket than with “buy the model makers.”

That same government note references the IndiaAI Mission (₹10,371.92 crore over five years) and that national compute power had crossed 34,000 GPUs by May 2025.

So you’ve got: demand (users + enterprises) + rails (UPI/identity) + capex (data centers/power) + policy impetus.

DGIN is a targeted “Digital India” basket, not a broad India index. It tracks the MVIS Digital India Index—“companies involved in supporting the digitization of the Indian economy.”

From VanEck’s own holdings snapshot, it’s concentrated in the exact “digital economy” pillars you’d expect:

Sector-wise, the fact sheet shows this is mostly IT + Comms + Consumer Discretionary, with some Financials and a smaller Energy sleeve.

1) It’s small and not very liquid.
VanEck lists total net assets around ~$16.6M (mid‑Feb) and average daily volume about ~6k shares/day, with a quoted bid‑ask spread around 0.35%.

Translation: it’s tradable, but it’s not “deploy $5M today without thinking.” You’d use limit orders and keep the position size sane vs liquidity.

2) It’s “Digital India,” not “India AI data centers.”
DGIN will benefit indirectly if India’s data center capex accelerates (because digitization demand and cloud penetration rise), but it’s not a pure-play data-center/power buildout vehicle.

If your goal is true Digital India exposure (telecom + consumer internet + fintech + India-listed tech), there are not have enough liquid ADRs to recreate what DGIN owns.

Look at what’s in DGIN: Bharti Airtel, Reliance, Zomato, TCS, HCL Tech, Tech Mahindra, Jio Financial, Indus Towers, PB Fintech, Paytm, etc.

Most of that ecosystem is India-listed, not conveniently accessible via big, liquid NYSE/Nasdaq ADRs.

It collapses into a narrower trade:

That can be a good trade, but it’s not the same as owning India’s domestic internet/app economy.

DGIN is the cleanest U.S.-listed ETF wrapper I’m seeing for that specific theme (telecom + consumer internet + fintech + IT services).

Great talk on options with Philip Davis. We do things a bit differently but some great insight on covered calls (write them on value stocks), how to sell puts, and an interesting tail risk strategy……

The H.E.A.T. (Hedge, Edge, Asymmetry and Theme) Formula is designed to empower investors to spot opportunities, think independently, make smarter (often contrarian) moves, and build real wealth.

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