Does PP Only Work In Times of Declining Bond Yields?

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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Kriegsspiel » Fri Jun 04, 2021 6:10 pm

tomfoolery wrote:
Fri Jun 04, 2021 4:46 pm
If we have an environment over the next 10 to 20 years where inflation remains at 5%+, as interest rates slowly creep up, but still yield negative real returns, I don't see how the PP can survive. Although the next question is "compared to what?" and perhaps no portfolio can survive that environment.
If we are still effectively producing good and services, why couldn't you see corporate and gold values blasting off? If there's persistently high inflation, then people shy away from treasuries until the yield rises high enough. If they invest that money in stocks/gold, the PP gets a taste. If they buy goods and services instead, and they buy from corporations, then that's also beneficial. SOME stocks might go down, say, the financial sector, but other ones like commodities might go up. We'd be periodically balancing into bonds with higher and higher yields throughout this time. How high do you think 30 year treasury yields are going to end up at?

If investment yields are negative because the world isn't producing goods and services anymore, then we're fucked no matter what investment portfolio we're in (well, maybe not if it's farmland or whatever).
Although it seems like an equity-weighted portfolio in commodity producers might do alright.
We used to have a poster here, Kshartle, who was 50-50 gold and stocks. That probably would do alright, too.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Hal » Fri Jun 04, 2021 8:43 pm

vincent_c wrote:
Fri Jun 04, 2021 8:04 pm
Curious to know what other people think.

If people are so convinced that declining bond yields are over, how much do you think these people should be leveraged in their short LTT positions in order to show their conviction?
My 2 cents worth...

The premise of the PP is that you cannot predict the future. Now there ARE people smart enough to pick trends, but alas that's not me. So I would rather be 1/2 right than 100% wrong.

To Toms point about rising interest rates, yes that's the PP's Achilles heel. Maybe farmland? People always have to eat. Maybe that what Bill Gates was thinking?
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Kevin K. » Fri Jun 04, 2021 11:03 pm

There are a whole lot of portfolios that have only "worked" in times of declining or at least modestly positive real bond yields: not just the PP but Wellesley, the Larry Swedroe portfolio, all the Vanguard Retirement Income funds and many more.

Harry Browne was brilliant but just like any other great thinker he was also a product of his times. Would he have still recommended 50% in Treasury MM funds and 30 year T's in today's interest rate environment?
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Kevin K. » Fri Jun 04, 2021 11:30 pm

vincent_c wrote:
Fri Jun 04, 2021 11:21 pm
Kevin K. wrote:
Fri Jun 04, 2021 11:03 pm
There are a whole lot of portfolios that have only "worked" in times of declining or at least modestly positive real bond yields: not just the PP but Wellesley, the Larry Swedroe portfolio, all the Vanguard Retirement Income funds and many more.

Harry Browne was brilliant but just like any other great thinker he was also a product of his times. Would he have still recommended 50% in Treasury MM funds and 30 year T's in today's interest rate environment?
So the same question, would you hold no cash and in fact go in a lot of debt and take a leveraged position to short 30 year T’s in today’s interest rate environment?
Leverage and options (along with crypto, marijuana farming and equity sector bets like QQQ) are VP speculations at best and have no place in a discussion of anything intended to be "Permanent" IMHO.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Hal » Fri Jun 04, 2021 11:49 pm

vincent_c wrote:
Fri Jun 04, 2021 8:58 pm
Hal wrote:
Fri Jun 04, 2021 8:43 pm

To Toms point about rising interest rates, yes that's the PP's Achilles heel. Maybe farmland? People always have to eat. Maybe that what Bill Gates was thinking?
When interest rates were higher, I wonder if people also debated whether interest rates could go even higher or was it a given that interest rates would fall. If it was a given, why not just buy leveraged LTTs?

If interest rates could have gone either way then, how come the PP was viable then? And why cant interest rates go either way at today’s rates? Just wondering what is so different today than in the past and if someone can convince me then maybe it is actionable so that I can take leveraged long positions one way and leveraged short positions the other way.
HB stated he couldn't find any asset that outperformed in a high interest rate scenario. With regards to high rates, I can only answer from an Australian perspective in the 80's when home loans went up to near 20%. People, myself included, thought rates could go higher. Indeed people were selling things to be able to make ends meet. No thought of buying leveraged LTT's...

https://en.wikipedia.org/wiki/Early_199 ... _Australia
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by dockinGA » Sat Jun 05, 2021 5:32 am

A few comments I posted in a different discussion a few weeks ago regarding rising rates and potential impact on the PP.

Some comments:
1. You constantly say that you think the kryptonite for the PP is rising rates. Maybe it will be, maybe it won't. But going to portfoliovisualizer or portfoliocharts both shows that the worst 5 year run for the PP was in the early 80's. That was a period of declining rates (LTT's went from roughly 15% to 7% from 1980-85).
2. The late 70s saw the LTT rate rise by approximately the same amount. Yet the PP did quite well, certainly much better than a traditional portfolio of stocks/bonds.
3. Obviously gold's performance was probably the main driver in the PP at this time. This time is almost certainly different, for some reason, and it's also equally certain that none of us know ahead of time exactly how this time will be different.
4. If rates rise, that is likely to make LTT's more attractive to people who are currently invested in equities chasing yield. That would lower the price of equities (if not cause an outright crash of the market), and put a 'temporary cap' on LTT yields, until we break through that equilibrium (either up or down) in the constant dance of the investment world. As doodle has mentioned before, there are a lot of signs pointing towards a long term deflationary trend in the world's developed countries due to demographics, debt, etc.
5. And finally, on Jan 2 2020 (pre-Covid) the LTT rate was 2.33%. Today it stands at 2.35%. There has been a huge dip and subsequent spike in there, but the long term picture, at least according to how the market currently values LTT, hasn't changed any appreciable amount over the last 17 months. Being invested in LTT was just as crazy in Jan 2020 as it is today, and yet that investment allowed me to cash out some LTT in March 2020 and purchase a huge amount of stocks at the absolute bottom of the market. Mostly luck, but if I hadn't been invested in 4 asset classes that tend to move independent of each other I may not have had that chance (or more importantly the intestinal fortitude to do it right in the middle of a once in a century pandemic).

Long story short: Who knows what will happen in the future. I sure as heck don't.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Kriegsspiel » Sat Jun 05, 2021 6:14 am

tomfoolery wrote:
Fri Jun 04, 2021 11:40 pm
I dont know if this applies, but I've learned that it's foolish to piss in the wind and it's foolish to go against the government of the world's dominant fiat currency.

The government wants the stock market to do well. If I was 100% in stocks since I turned 18 a little over 20 years ago, I'd have far more money than the mess of stuff I did, to include the PP for several years of that period.

The government wants the housing market to do well. If I took out a 30-year fixed rate mortgage in my 20s as soon as I was able to, I'd have far more money then renting an apartment all these years. Many people who bought homes in the last few years have gotten paid over $1k per month to live in their home, after mortgage/insurance/taxes/maintenance, due to the appreciation the government caused by their fiscal policies.

And now, when the government has pushed interest rates to 5000 year lows, it seems foolish not to be leveraged and heavily invested in risk assets. Because the alternative is death.
Maybe it's time to get a little crazy and both a lender and borrower be. Lend the government money, and borrow money. HEDGE THOSE MAFAKIN BETS
A 22 year old graduating college this year making a median salary will need to work until they are 100 years old if they invest in a conservative portfolio and if the government keeps rates this low indefinitely. Government policies of modern times are designed to force people up the risk curve.

Put 90% of your money into stocks and 10% into call options or you won't be able to afford a downpayment on a house that's going up 20% a year, year over year, indefinitely. Average monthly rents even in what's been considered low cost of living places like the midwest will see $2k per month average rents within a few years.

My point in all of this, is you have two choices in today's environment:

OPTION 1) Assume the markets will remain irrational for long periods of time due to government manipulations. Become heavily leveraged. This is your only way to survive and not be a peasant renter wage cuck for the rest of your life.

OPTION 2) Sit on a ton of cash, pray that the markets collapse, swoop in and buy risk assets like stocks and real estate at the bottom.

Unfortunately, if the markets dont collapse, and simply remain stagnant, option 1 is still your best bet. So from a probability standpoint, it seems Option 1 would win out, since there's more possible scenarios that may occur where it wins.

And if you go Option 1 and the markets collapse, the government will bail you out anyway. If you go option 2 and the markets don't collapse, no government bailout for you.
The important factor that you are leaving out is savings rate. With a very high savings rate, investment returns aren't as big of a factor in quickly achieving a high net worth. I'll grant you that a few places are hostile for median people to build wealth, but in all the other places a mediocre person earning a normal income can do it without being a genius investor.

In addition, your savings rate is a system, investment returns are (more) a goal. The things you do (or don't do) to increase your savings rate are robust enough to work under pretty much any situation, whereas markets go through cycles.
Why? Because institutional investors have flooded the residential real estate market, due to low interest rates, on enormous leverage, and are jacking up rents. They don't care if you're only making $40k a year, you will put 70% of your after-tax salary into renting that studio apartment in Omaha and you'll like it, or you'll get multiple roommates. And your quality of life will suffer since you'll have less disposable income and no savings.

You might say "but people making $40k a year in Omaha can't afford to pay $2k a year rents, those investors are being silly if they think they can jack the rents up" but there's no choice in the matter. They have an oligopoly of residential housing. And if they can't rent it out, they'll let it sit empty and do cash out refinances at the new 20% year-over-year higher property values, and those are tax-free, because they are a form of debt. Eventually if enough people become homeless the government will step up with housing credits to bail out the renters landlords.

In a decade institutional investors will have a majority ownership of all single family houses. And if interest rates rise, which they likely have to, it will only get worse, because institutional investors buy in cash and do cash out equity stripping later. So interest rates don't matter on the initial sale price to them, but it does matter to the citizen potential homebuyer who needs to show they can afford the monthly mortgage.
This is a valid point and needs its own thread.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Kevin K. » Sat Jun 05, 2021 10:41 am

dockinGA wrote:
Sat Jun 05, 2021 5:32 am
A few comments I posted in a different discussion a few weeks ago regarding rising rates and potential impact on the PP.

Some comments:
1. You constantly say that you think the kryptonite for the PP is rising rates. Maybe it will be, maybe it won't. But going to portfoliovisualizer or portfoliocharts both shows that the worst 5 year run for the PP was in the early 80's. That was a period of declining rates (LTT's went from roughly 15% to 7% from 1980-85).
2. The late 70s saw the LTT rate rise by approximately the same amount. Yet the PP did quite well, certainly much better than a traditional portfolio of stocks/bonds.
3. Obviously gold's performance was probably the main driver in the PP at this time. This time is almost certainly different, for some reason, and it's also equally certain that none of us know ahead of time exactly how this time will be different.
4. If rates rise, that is likely to make LTT's more attractive to people who are currently invested in equities chasing yield. That would lower the price of equities (if not cause an outright crash of the market), and put a 'temporary cap' on LTT yields, until we break through that equilibrium (either up or down) in the constant dance of the investment world. As doodle has mentioned before, there are a lot of signs pointing towards a long term deflationary trend in the world's developed countries due to demographics, debt, etc.
5. And finally, on Jan 2 2020 (pre-Covid) the LTT rate was 2.33%. Today it stands at 2.35%. There has been a huge dip and subsequent spike in there, but the long term picture, at least according to how the market currently values LTT, hasn't changed any appreciable amount over the last 17 months. Being invested in LTT was just as crazy in Jan 2020 as it is today, and yet that investment allowed me to cash out some LTT in March 2020 and purchase a huge amount of stocks at the absolute bottom of the market. Mostly luck, but if I hadn't been invested in 4 asset classes that tend to move independent of each other I may not have had that chance (or more importantly the intestinal fortitude to do it right in the middle of a once in a century pandemic).

Long story short: Who knows what will happen in the future. I sure as heck don't.
This is a really good post; thanks for your perspective. Your point #5 is particularly well-made and I think it both underscores the durability of the PP's "bunker-like" (in the words of Bob Clyatt) construction AND that rather than abandoning the strategy altogether relatively small tweaks that (as others have pointed out) kind of fall within the rebalancing band ranges anyway may be all that's necessary for some investors.

The GB is one such tweak that I particularly like because it's an elegant response to William Bernstein's excellent critique of the PP (in "Deep Risk") - namely, that it doesn't make sense to allocate equal percentages of one's assets to deal with economic conditions that are far from being equally likely to occur and which cost wildly varying amounts to insure against. So you tilt a bit towards the most likely condition (prosperity) and diversify the equities rather than counting on the FAANG stocks for all of your portfolio growth.

ITT's historically have been as good as the classic PP barbell for returns but with lower volatility, though admittedly you lose the elegant convenience of having a big pile of cash at all times (since you need to replace essentially ALL of the barbell with ITT's to have meaningful downside protection and enough duration to [one of these days?] earn something like a positive real return. Alternatively, keep the barbell intact but instead of putting your cash into Treasury MM funds paying nothing or STT's put some or all of it into iBonds (or max out EE and i's if young enough).

tomfoolery's great post about the realities facing younger investors really does deserve a thread of its own, albeit probably in the variable portfolio forum. I can't find much to disagree with in his assessment of the economy and the effects of the Fed's actions and if I were in my 20's-40's I'd certainly be looking at doing many if not most of the things he suggests.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by flyingpylon » Sat Jun 05, 2021 11:01 am

dockinGA wrote:
Sat Jun 05, 2021 5:32 am
5. And finally, on Jan 2 2020 (pre-Covid) the LTT rate was 2.33%. Today it stands at 2.35%. There has been a huge dip and subsequent spike in there, but the long term picture, at least according to how the market currently values LTT, hasn't changed any appreciable amount over the last 17 months. Being invested in LTT was just as crazy in Jan 2020 as it is today, and yet that investment allowed me to cash out some LTT in March 2020 and purchase a huge amount of stocks at the absolute bottom of the market. Mostly luck, but if I hadn't been invested in 4 asset classes that tend to move independent of each other I may not have had that chance (or more importantly the intestinal fortitude to do it right in the middle of a once in a century pandemic).

Long story short: Who knows what will happen in the future. I sure as heck don't.
This. I always thought one of the major points of PP-like portfolios (I use the GB) was to harvest volatility. I also took advantage of this in March 2020 and made a nice return, just for paying a little bit of attention. I get the larger point about rates having nowhere to go but up, but (A) I don't know if that's what will actually happen, (B) people have been saying that for a long time, and (C) it sure doesn't seem like the world is getting any less volatile.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Smith1776 » Sat Jun 05, 2021 2:52 pm

I suppose we need to define what we really mean by "work".

I think the PP could suffer greatly if rates rise precipitously without the incredible rise in the gold price like in the 70s. No portfolio is truly immune to every possible economic outcome, but certainly some are better than others.

I think the real question is how the PP would fair relative to other possible portfolios. Is a traditional 50/50 stock and bond portfolio likely to do better? I doubt it. Both stocks and bonds have sufficient reason to fall in price when rates rise. Additionally, the 50% bond component in a traditional portfolio has similar term risk to the PP, so I don't see how us PP investors are exposed unnecessarily to that particular peril.

When rates rise, just take solace in the fact that your interest payments and 25% cash block are automatically earning high returns.
I still find the James Rickards portfolio fascinating.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by I Shrugged » Sat Jun 05, 2021 2:57 pm

Tom, is there a way you can get in on the side of the hedge fund house and apartment accumulators?
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by vnatale » Sat Jun 05, 2021 9:16 pm

vincent_c wrote:
Sat Jun 05, 2021 8:39 pm

tomfoolery wrote:
Sat Jun 05, 2021 7:33 pm

The problem in your argument, as I see it, is you are failing to realize I’m not repaying the $100k with cheaper dollars in one year, because I’m forced to sit on the $100k in a 0% MMF for the full time frame.


The problem I see with some people on the forum is that they impose their personal situation, risk tolerance, knowledge of financial markets, or worldview into things that can and is best evaluated objectively.

Regardless of whether 100k is forced upon you to earn 0% is is irrelevant. Say you were in the PP and you already have 100k earning 0%, you could easily then use that amount to do whatever you like. The debt is inflated away regardless of whether you think it is or it isn’t.

Also like mentioned before, there are various ways to take a short position without this problem and you previously wondered about futures and whether the market maker takes a cut and the answer is no other than the trading fees. If using options then yes, there will be a bigger spread.

Finally, if your short position loses money and you don’t increase your collateral then you’re no longer fully funded so you are leveraged. It’s wrong to factor in any margin interest into the calculation and since you can borrow at the repo rate to speculate in LTTs then yes it would be dumb to pay 8% interest.


In other words they are acting exactly as the majority of people do...including highly paid professional and consultants....letting their personal biases color their judgements.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by dockinGA » Sun Jun 06, 2021 5:30 am

tomfoolery wrote:
Sat Jun 05, 2021 9:59 pm
vincent_c wrote:
Sat Jun 05, 2021 9:22 pm
The other thing is, if someone wants to time the bond market by shorting LTTs, they need to be able to time the exit as well.

The PP, even at a time when a lot of forum members can’t stay the course, allows me to confidently stay invested because I am objective about it.

If you take a speculative position that goes against you significantly, it is likely that you will lose any conviction you had about the trade.
Possibly, but I think if long term yields drop to 0.5% again, I would want to triple down on my speculation, not exit it. Assuming I had the cash to do so.
If rates drop to 0.5%, I'll be glad I had a huge stash of LTT's that just got a roughly 50% bump in price and use it as a rebalance opportunity. Those shorting LTT's will be sharting themselves.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by glennds » Sun Jun 06, 2021 11:46 am

Could it be as simple as the following?
  • Invariably at least one of the asset buckets in the PP is going to be a dog at any given time. Maybe for now that means LTT. Accept it.
  • You can't predict the future, and the idea is to be diversified so whichever way it turns, you'll have some cover
  • This is a capital preservation strategy (in real terms), not a supercharged high alpha portfolio. Tortoise/Hare
  • The strategy is designed to protect you from yourself. Overthinking is a risk of it's own
  • For the past 30 years (at least), there has always been a case for why things are different now, the PP is broken, HB never considered this or that, the sky is going to fall.
  • The real risk is not technical or related to any asset bucket. The risk is discipline plain and simple.
  • Rebalancing forces you to do something counter-intuitive and this is by design.
So if we're making a case about LTT based on yield technicals and we're looking for ways to hedge it, then we're basically swimming against the current of the above river. And if this list of features doesn't appeal, then it might be better to find something new than try renovating the PP?
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by glennds » Sun Jun 06, 2021 2:12 pm

tomfoolery wrote:
Sun Jun 06, 2021 12:43 pm
glennds wrote:
Sun Jun 06, 2021 11:46 am
  • This is a capital preservation strategy (in real terms), not a supercharged high alpha portfolio. Tortoise/Hare
I agree with all of your points and want to call out one as the point that because I agree with it, makes the PP less useful to me.

Unless you bought a house before 2020 and have at least $1M in assets socked away, or you have a job where you are making $300k per year and willing to work until you are 60+ years old, then a capital preservation strategy is a path to poverty.

If you're making even $100k gross in a "low cost of living" city where the median entry level single family shack price jumped from $220k in 2019 to $350k in 2021 and rents are rising 20% a year indefinitely, then your $60k after tax net income, that may be rising at 3% a year, if you're lucky, relative to 20% a year rent increases due to rampant real estate speculation, will make you part of the lower class.

Unless you buy Gamestop options and Dogecoin or at the very least, do a 100% SP500 portfolio (which is risky, but not as risky as Gamestop options).

PP won't cut it, because it's a capital preservation strategy. And in 2019, as a renter, I had a sizable 6-figure portfolio that if all I did was capital preservation, I'd be part of the upper middle class. And merely 18 months later, if all I can do is preserve capital, then by 2030 I will be part of the lower class, in spite of a 6-figure job.

In a decade I'll be spending nearly all of my income from my job on apartment rent, meanwhile others in the lower class will have section 8 housing, so it won't even make sense to work anymore at that point if it means I don't qualify for government handouts.
That's a pretty depressing scenario. A widespread one too from what I can see. And you didn't even mention the cost of kids and a family (should you have one). Or healthcare, unless you have a unicorn health plan that has not shifted as much risk and deductible cost as possible onto the insured.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by D1984 » Sun Jun 06, 2021 2:47 pm

tomfoolery wrote:
Sun Jun 06, 2021 2:21 pm
glennds wrote:
Sun Jun 06, 2021 2:12 pm

That's a pretty depressing scenario. A widespread one too from what I can see. And you didn't even mention the cost of kids and a family (should you have one). Or healthcare, unless you have a unicorn health plan that has not shifted as much risk and deductible cost as possible onto the insured.
I think it's because we promised too much to the boomers in terms of retirement and lifestyle in retirement. Can't let the housing market drop, boomers own a disproportionate amount of houses. Can't let stock market drop, boomers own disproportionate amount of stocks and pension funds need stock gains to pay out retirees.

So we did a zero sum game transfer from Millennials to Boomers, pushed interest rates to 5000 year lows, pushed the housing and stock markets to all time highs, at the expense of Millennials who can't afford houses and who, as they contribute to the stock market for their own retirement accounts over the next 30 years, will be buying stock at all-time highs with less room for growth.

The only answer is to open the borders and invite a bunch of immigrants in to help bail out the millennials. Not sure who will bail out the new immigrants when it's their turn to hit retirement age.
And do you know why this is.....?

Because Boomers f****ng vote, that's why! This is why SS and Medicare are "3rd rails" and untouchable, why their generation got good pensions and anyone under 40 or 45 hardly knows what a pension even is, why unaffordable housing, crappy low-wage jobs, and crushing student debt burdens for the current 20s and 30s age group get short shrift by (most) politicians while any issue that effects Boomers/Silents gets plenty of attention.

IIRC the Millennials alone are a (slightly) larger generation than the Boomers; combined with Gen Z they dwarf them. If the combo of Gen Z/Millennials/younger portion of Gen X all voted at the same percentage rate that the 59+ age group did then they would be the deciding voters (because they could overwhelm the geezers with sheer numbers) and the Boomers could just go eat worms; politicians would have to cater to issues of interest to the younger generations and the Boomers would be the ignored demographic group.

Until that happens (and hopefully eventually it will happen regardless....if nothing else eventually the younger gens will start voting in greater percentages as they get older and eventually the Boomers/Silents will simply start dying off from old age) then expect nothing much to improve/change as regards housing affordability.

PS - Somewhat unrelated to the above but the solution to unaffordable housing is simply to BUILD MORE HOUSING, dammit! I mean MASSIVELY more....as in deliberately flood the market with a slight glut/oversupply of housing on purpose.This would solve the problem of lack of affordable housing without having to raise rates. Raising rates is just a band-aid; it might lower the price of existing housing somewhat but it doesn't actually do anything to increase the supply of needed affordable housing any further.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by D1984 » Sun Jun 06, 2021 3:57 pm

tomfoolery wrote:
Sun Jun 06, 2021 12:43 pm
glennds wrote:
Sun Jun 06, 2021 11:46 am
  • This is a capital preservation strategy (in real terms), not a supercharged high alpha portfolio. Tortoise/Hare
I agree with all of your points and want to call out one as the point that because I agree with it, makes the PP less useful to me.

Unless you bought a house before 2020 and have at least $1M in assets socked away, or you have a job where you are making $300k per year and willing to work until you are 60+ years old, then a capital preservation strategy is a path to poverty.

If you're making even $100k gross in a "low cost of living" city where the median entry level single family shack price jumped from $220k in 2019 to $350k in 2021 and rents are rising 20% a year indefinitely, then your $60k after tax net income, that may be rising at 3% a year, if you're lucky, relative to 20% a year rent increases due to rampant real estate speculation, will make you part of the lower class.

Unless you buy Gamestop options and Dogecoin or at the very least, do a 100% SP500 portfolio (which is risky, but not as risky as Gamestop options).

PP won't cut it, because it's a capital preservation strategy. And in 2019, as a renter, I had a sizable 6-figure portfolio that if all I did was capital preservation, I'd be part of the upper middle class. And merely 18 months later, if all I can do is preserve capital, then by 2030 I will be part of the lower class, in spite of a 6-figure job.

In a decade I'll be spending nearly all of my income from my job on apartment rent, meanwhile others in the lower class will have section 8 housing, so it won't even make sense to work anymore at that point if it means I don't qualify for government handouts.
i personally think the PP doesn't offer enough growth potential which is why the lion's share of my assets are in a different portfolio. With that said, I looked up the Case Shiller 10-City Index (this is the residential housing price index that covers only the largest--and typically most expensive--metro areas of the US....think NYC, Chicago, DC, Boston, SF, LA, etc) and the Case-Shiller 20-City Index (this covers most of the major metro areas in the US) and even the traditional PP beat both indices for 2020 (and also beat them soundly for 2019). The 10-City Index was up around 9.85% in 2020 and the 20-City Index was up approximately 10.12%; the "traditional" 25x4 PP was up 16.98%. Of course this may not continue in the future (since the PP's performance is partly driven by falling rates) but if someone held a PP on 12-31-2019 and then wanted to liquidate it to buy a home on 12-31-2020 he/she theoretically wouldn't have come out behind vs had they instead bought the home at yearend 2019.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by D1984 » Sun Jun 06, 2021 4:08 pm

tomfoolery wrote:
Sun Jun 06, 2021 3:41 pm
D1984 wrote:
Sun Jun 06, 2021 2:47 pm


PS - Somewhat unrelated to the above but the solution to unaffordable housing is simply to BUILD MORE HOUSING, dammit! I mean MASSIVELY more....as in deliberately flood the market with a slight glut/oversupply of housing on purpose.This would solve the problem of lack of affordable housing without having to raise rates. Raising rates is just a band-aid; it might lower the price of existing housing somewhat but it doesn't actually do anything to increase the supply of needed affordable housing any further.
Biden is doing his best, he's only one man, give him a break. Recently, one positive move Biden made to deal with housing shortage is doubling the tariff on Canadian imported lumber, which they use unfair trade practices up there. So this is one positive step towards more housing.
I wasn't talking about Biden or anyone else in DC from either party (although Trump's Canadian lumber tariffs were dumb and if Biden directs the Commerce Depot to increase them further that would be just as stupid....rather like Obama's looking at Bush's idiotic little misadventure in Iraq, glancing over at Libya, and saying "hey y'all, hold my beer and watch this"...); most of the policies that stifle construction of affordable housing are enacted at the state/local level.

Granted, it would help if the Federal government would commit to financing and constructing at least 10-12 million new units of housing (both for sale and for rental) in high-cost metro areas but the President cannot take such an action unilaterally; Congress would need to sign off on that; furthermore, even if Congress did pass a bill and Biden signed it the Federal government cannot simply override local and/or state laws in order to build more housing (which is kind of a shame because it would help in this case if they could).
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by jalanlong » Sun Jun 06, 2021 6:33 pm

Kriegsspiel wrote:
Sat Jun 05, 2021 6:14 am
The important factor that you are leaving out is savings rate. With a very high savings rate, investment returns aren't as big of a factor in quickly achieving a high net worth. I'll grant you that a few places are hostile for median people to build wealth, but in all the other places a mediocre person earning a normal income can do it without being a genius investor.

In addition, your savings rate is a system, investment returns are (more) a goal. The things you do (or don't do) to increase your savings rate are robust enough to work under pretty much any situation, whereas markets go through cycles.
This is something I struggle with. I am in a position where we can live on my wife's income and my income can go straight to savings. So given my high savings rate and the fact that my rewards checking account offers me 3.5% interest, do I really need to take on the risk of investments at all? I guess I should want to maximize the return on my money regardless of my savings rate. But a lot of times I feel like I should just concentrate on maximizing my savings rate, using cash to avoid any debt and to buy things in bulk to save money and leave the markets to other people. There are studies showing that people who have high balances in the bank accounts (as opposed to retirement accounts) sleep better at night!
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Kriegsspiel » Sun Jun 06, 2021 7:31 pm

tomfoolery wrote:
Sun Jun 06, 2021 12:43 pm
Unless you bought a house before 2020 and have at least $1M in assets socked away, or you have a job where you are making $300k per year and willing to work until you are 60+ years old, then a capital preservation strategy is a path to poverty.

If you're making even $100k gross in a "low cost of living" city where the median entry level single family shack price jumped from $220k in 2019 to $350k in 2021 and rents are rising 20% a year indefinitely, then your $60k after tax net income, that may be rising at 3% a year, if you're lucky, relative to 20% a year rent increases due to rampant real estate speculation, will make you part of the lower class.

PP won't cut it, because it's a capital preservation strategy. And in 2019, as a renter, I had a sizable 6-figure portfolio that if all I did was capital preservation, I'd be part of the upper middle class. And merely 18 months later, if all I can do is preserve capital, then by 2030 I will be part of the lower class, in spite of a 6-figure job.

In a decade I'll be spending nearly all of my income from my job on apartment rent, meanwhile others in the lower class will have section 8 housing, so it won't even make sense to work anymore at that point if it means I don't qualify for government handouts.
You need to move to somewhere cheap and buy a house. Huge swaths of the country have been emptied out over the last couple generations, and you can buy real estate for very cheap. If you really thought all your income is going to be going towards housing in the near-term future, you should be looking at buying a low-cost property with low property taxes, maybe even in a place with no or low income tax, depending on how you want to play it. Nevada, Tennessee, South Carolina, Florida, West Virginia, South Dakota.

If you can, buy it with one of these incredibly low interest rate mortgages to take advantage of inflation.
You there, Ephialtes. May you live forever.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by Kriegsspiel » Sun Jun 06, 2021 7:47 pm

jalanlong wrote:
Sun Jun 06, 2021 6:33 pm
This is something I struggle with. I am in a position where we can live on my wife's income and my income can go straight to savings. So given my high savings rate and the fact that my rewards checking account offers me 3.5% interest, do I really need to take on the risk of investments at all? I guess I should want to maximize the return on my money regardless of my savings rate.
The master, Jacob (all praise and blessings be upon him), just saved all his money in a bank account for like 66% of the time it took him to FIRE. But that was because he didn't know how to invest (I was in the same boat when I graduated college and let my money pile up in a checking account for a couple years). Since you already know how to invest, there's no reason to do that... Especially when your net worth gets higher and investment returns start to really carry some weight. But seriously, if you're a two-income household in Texas you should be in a good spot. I have some fond memories from when I was in Texas living super fucking cheap and paying no income tax.
But a lot of times I feel like I should just concentrate on maximizing my savings rate, using cash to avoid any debt and to buy things in bulk to save money and leave the markets to other people. There are studies showing that people who have high balances in the bank accounts (as opposed to retirement accounts) sleep better at night!
It's not either/or. High savings rate + investments will probably work better. I've recently come around a bit on debt (I just finished The Value Of Debt In Building Wealth by Thomas Anderson and there were some good points in there, it was on MMM's reading list) myself. I suspect those studies apply to normal people who usually live paycheck to paycheck. Or maybe to people who are in a portfolio that's too risky for them ;D
You there, Ephialtes. May you live forever.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by stuper1 » Mon Jun 07, 2021 12:48 pm

jalanlong wrote:
Sun Jun 06, 2021 6:33 pm
Kriegsspiel wrote:
Sat Jun 05, 2021 6:14 am
The important factor that you are leaving out is savings rate. With a very high savings rate, investment returns aren't as big of a factor in quickly achieving a high net worth. I'll grant you that a few places are hostile for median people to build wealth, but in all the other places a mediocre person earning a normal income can do it without being a genius investor.

In addition, your savings rate is a system, investment returns are (more) a goal. The things you do (or don't do) to increase your savings rate are robust enough to work under pretty much any situation, whereas markets go through cycles.
This is something I struggle with. I am in a position where we can live on my wife's income and my income can go straight to savings. So given my high savings rate and the fact that my rewards checking account offers me 3.5% interest, do I really need to take on the risk of investments at all? I guess I should want to maximize the return on my money regardless of my savings rate. But a lot of times I feel like I should just concentrate on maximizing my savings rate, using cash to avoid any debt and to buy things in bulk to save money and leave the markets to other people. There are studies showing that people who have high balances in the bank accounts (as opposed to retirement accounts) sleep better at night!
About that rewards checking account that offers 3.5% interest, isn't the 3.5% interest only on the first 10 to 20 thousand dollars and then the interest rate drops to a much lower rate? If not, please share which bank this is, because I'd like to look into it. Thank you.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by jalanlong » Mon Jun 07, 2021 1:39 pm

stuper1 wrote:
Mon Jun 07, 2021 12:48 pm
jalanlong wrote:
Sun Jun 06, 2021 6:33 pm
Kriegsspiel wrote:
Sat Jun 05, 2021 6:14 am
The important factor that you are leaving out is savings rate. With a very high savings rate, investment returns aren't as big of a factor in quickly achieving a high net worth. I'll grant you that a few places are hostile for median people to build wealth, but in all the other places a mediocre person earning a normal income can do it without being a genius investor.

In addition, your savings rate is a system, investment returns are (more) a goal. The things you do (or don't do) to increase your savings rate are robust enough to work under pretty much any situation, whereas markets go through cycles.
This is something I struggle with. I am in a position where we can live on my wife's income and my income can go straight to savings. So given my high savings rate and the fact that my rewards checking account offers me 3.5% interest, do I really need to take on the risk of investments at all? I guess I should want to maximize the return on my money regardless of my savings rate. But a lot of times I feel like I should just concentrate on maximizing my savings rate, using cash to avoid any debt and to buy things in bulk to save money and leave the markets to other people. There are studies showing that people who have high balances in the bank accounts (as opposed to retirement accounts) sleep better at night!
About that rewards checking account that offers 3.5% interest, isn't the 3.5% interest only on the first 10 to 20 thousand dollars and then the interest rate drops to a much lower rate? If not, please share which bank this is, because I'd like to look into it. Thank you.
https://www.hmbradley.com/

It is actually to $100k.
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by johnnywitt » Thu Jun 10, 2021 9:28 pm

So, the PP made a profit through the dramatic rate increases of the 70's. It also did well in the Japanese Deflation in comparison to other Portfolios.
Also, if the FED introduces a CBDC they could conceivably take interests rates well negative. Even if we don't get a CBDC rates could still plummet in a deflationary crash to way lower than they are right now.
The PP isn't for most people and it never will be because it goes to much against most normal folks emotional thresholds. I bet most people on this forum that run a PP and keep running it aren't "normal". >:D
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Re: Does PP Only Work In Times of Declining Bond Yields?

Post by dockinGA » Fri Jun 18, 2021 10:06 am

I'm not going to posit an explanation, but it's certainly trending in a direction that would cause another dreaded yield curve inversion.
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