Are most people here sticking with Treasuries?

[Hal]

Well I am happy
How's the PP doing in other countries?

[dualstow]

Well, I know what AUD is at least. Dollary-doos.

[amdda01]

TLT cracking 100 (99.36).

Anybody else just shaking their head?

[Smith1776]

ZFL, which is essentially the Canadian benchmark equivalent of TLT, is down by 23.82% year to date.

[Cortopassi]

The thing we all know, with a fair amount of certainty, right? Is that in the next 2-4 months, after another 1-2 more hikes, the up cycle on rates will be over, and you can probably buy TLT with abandon. I know that solves nothing if you've been in it watching it go down, but it seems like it will be reasonably black and white when a good buying opportunity timeframe is...

Agree? Not?

[Vil]

ZFL, which is essentially the Canadian benchmark equivalent of TLT, is down by 23.82% year to date.

And DBXG (Eurozone gov bond 25+) is -39.19% YTD. Interesting times we live in.

[Smith1776]

The thing we all know, with a fair amount of certainty, right? Is that in the next 2-4 months, after another 1-2 more hikes, the up cycle on rates will be over, and you can probably buy TLT with abandon. I know that solves nothing if you've been in it watching it go down, but it seems like it will be reasonably black and white when a good buying opportunity timeframe is...

Agree? Not?

I'd say you're likely right. I'm just blindly following the rebalancing bands though.

[Vil]

Agree? Not?

Bought a new bipod for my hunting crossbow and looking for new powerful hunting PCP (note: here firearms are forbidden unfortunately and the one my old man is in posession of, is rather outdated, note2: AGT Vulcan 3 looks as a decent candidate). That's the rebalancing I do at the moment. According to the Russian folks, the truck used to blast the Crimean bridge started its journey from BG, so who knows what comes next. IMHO, in a real SHTF situation, I do not think PP is gonna save our arses - do not trust bonds, stocks, nor gold. I havent tracked anything from my investments since a while, knowing perfectly that the only kind-of winning point is the rally of USD against the EUR (as part of my portfolio is in US PP), rest are quite big and nasty losses... Sorry for the offtopic

[Smith1776]

There’s absolutely a whole set of scenarios the PP won’t save you from. On the other hand, if we constrain the set of potential problems to just financial/economic ones, the PP is up there with the best possible strategies.

[boglerdude]

With physical gold, its even better when considering disasters outside the financial.

[Smith1776]

I continue to be impressed with the PP year after year. Even with a rapidly rising interest rate environment, which has long been considered a possible source of PP kryptonite, a Canadian PP is still down by less than 10% this year.

The PP isn’t magic, but I trust the strategy more than ever.

[mathjak107]

So far wellesly seems to be a good place to be as far as balanced portfolios, only down 14.50%.

Fidelity insight income model down even less at 13.20

Permanent portfolio is down 17.43 using morningstar data.

So despite all the charts those who love backtesting posted earlier on , the fact is the pp has reacted completely differently then guessing with the past data .

I doubt there are many last year that would have guessed the pp would be down almost 18% in a year.

So I don’t put a whole lot of faith in back testing and trying to predict what an outcome will be based on the last time as next time is usually just different enough to get a very different result

[dualstow]

So I don’t put a whole lot of faith in back testing and trying to predict what an outcome will be based on the last time as next time is usually just different enough to get a very different result

Me neither.

[Xan]

Just pointing out that an 18% drop in a year is not unprecedented for the PP. I don't believe the yearly data show it as it's only happened intra-year so far. Fingers crossed that happens this time too.

[Smith1776]

Monthly data also helps to smooth out a lot of the drawdowns one might see in real time.

Either way, I am less psychologically burdened by a given drop in portfolio value when I'm 4x25 than when I'm, say, 60/40. The "firewalls" between the asset classes do their thing. I also recall Craig once saying that the PP's response to changing asset economic climates was like a rudder on a ship -- it's not instantaneous. I think that may be at play here in our environment with rates increasing. At the very least, the cash portion of the PP has benefitted tremendously from these rising rates. We just need some time to collect the higher coupon payments to offset the loss in principle value in long treasury bonds. Heck, even the coupons from long bonds are now being reinvested at higher rates. Rudder on a ship indeed.

The last time we were in this environment, gold responded mightily and more than offset the losses in bonds and the stagnation in stocks. It's not doing the same thing this time so far, and if I had to guess, it probably won't. The dissolution of the gold standard and the subsequent revaluation of gold was kind of a special thing. Gold also just doesn't have the same place in people's minds the way it used to. Two generations of citizens have been born since gold was widely considered "money". Either way, I'm sticking to the strategy.

[Tortoise]

Either way, I am less psychologically burdened by a given drop in portfolio value when I'm 4x25 than when I'm, say, 60/40. The "firewalls" between the asset classes do their thing.

The firewalls are a good thing, but they do seem to break down during tight money recessions like the one we're in. Stocks, bonds, and gold have been going up and down in unison lately. All green or all red. It's like they're one big bucket that global money has been violently sloshing into and out of on a daily, weekly, and even monthly basis.

I'm sure the assets will become less correlated on longer timescales of a year or more, but on shorter timescales they're currently joined at the hip.

At the very least, the cash portion of the PP has benefitted tremendously from these rising rates.

I think you may be forgetting inflation. Short-term rates still haven't nearly caught up with inflation, so in real purchasing power, cash is getting walloped just like the other assets -- just not quite as badly.

We just need some time to collect the higher coupon payments to offset the loss in principle value in long treasury bonds. Heck, even the coupons from long bonds are now being reinvested at higher rates.

Sure, but just like short-term rates, long-term rates are still nowhere near inflation. Until they are, the coupon payments will not start to offset the real loss in principal.

Not trying to be a 4x25 naysayer, just being a realist. The reality is that we're in a tight money recession, in which historically almost all portfolios temporarily take a beating -- even the boring old 4x25. The best we 4x25 investors can hope for in a recession like this is just to get a bit less banged up than everyone else does.

The last time we were in this environment, gold responded mightily and more than offset the losses in bonds and the stagnation in stocks. It's not doing the same thing this time so far, and if I had to guess, it probably won't. The dissolution of the gold standard and the subsequent revaluation of gold was kind of a special thing. Gold also just doesn't have the same place in people's minds the way it used to. Two generations of citizens have been born since gold was widely considered "money". Either way, I'm sticking to the strategy.

Gold works in mysterious ways. Nobody seems to know exactly why it does what it does, let alone predict when it will do it.

Even if going forward, gold ceases to behave like it did in previous years or generations, at the very least I still think there are multiple benefits to keeping a big chunk of one's portfolio completely outside of the financial system and digital infrastructure. To me, those benefits alone probably justify the 25% gold allocation.

[Hal]

The last time we were in this environment, gold responded mightily and more than offset the losses in bonds and the stagnation in stocks. It's not doing the same thing this time so far, and if I had to guess, it probably won't. The dissolution of the gold standard and the subsequent revaluation of gold was kind of a special thing. Gold also just doesn't have the same place in people's minds the way it used to. Two generations of citizens have been born since gold was widely considered "money". Either way, I'm sticking to the strategy.

If I remember correctly, HB stated in his radio show that Gold would rise in value when people lost faith in the USD due to high inflation. They would then turn to the second most popular form of money, Gold.

So, a few observations...

1. It's a loss of faith. Don't see this yet. Unhappy with inflation, yes, complete loss of faith in the USD, no.

2. If in the future another form of money becomes No 2 in popularity, then it may make sense to replace Gold with that.

3. If I understand correctly, a pre 1873 US PP would have been Silver (most popular), Gold (2nd most popular), Bonds, Shares, post 1873 it became Gold (No1) Silver (No2)? and finally in the 1970s, Federal Reserve note (No1) Gold (No2)

PS: For a overview of Australian economic policy, sit down, put your feet up and have a listen to this. https://www.macrobusiness.com.au/2022/1 ... live-qa-5/
Starts at the 30 minute mark. And try not to fall off the couch laughing....

snippet: Australia sells its natural gas to China at less than what it charges local industry. China then resells to Europe at a profit.

[Smith1776]

I think you may be forgetting inflation. Short-term rates still haven't nearly caught up with inflation, so in real purchasing power, cash is getting walloped just like the other assets -- just not quite as badly.

I may be completely out to lunch on this, but it's gotten to the point where I almost don't care about what the inflation number is.

Someone else on the forum, I can't remember who, pointed out that cash lost value to inflation this past year, therefore cash sucks and stocks are the way to go. That was the gist of the poster's point anyway. I thought to myself, well, wait a minute. Cash has a steady nominal value and has lost value to inflation this year, but stocks have lost an equal amount to inflation in addition to the nominal losses. Inflation affects all dollar denominated assets equally, so cash shouldn't be given some extra criticism when all assets priced in the same currency get impacted the same way.

The one exception to the discussion I guess is TIPS, but as a Canadian citizen TIPS are not an option for me, so there's that.

I expect that the market will realign itself to providing positive real rates on T-bills in the not too far off future. I still think we're in an adjustment phase to these new higher rates.

[Smith1776]

2. If in the future another form of money becomes No 2 in popularity, then it may make sense to replace Gold with that.

Yes, it's the most interesting question surrounding the PP right now as far as I'm concerned: does gold still hold its place as the "people's" money?

Hard to say. Cryptocurrencies may supplant precious metals, but I somehow doubt it, and for the purposes of the PP I really don't care. This is just interesting water cooler talk to me.

Gold has the one thing that cryptocurrencies don't have by definition, which is physical materiality. I can stow gold away and hold it in my hand. I can own it completely outside of the financial system or any digital infrastructure. I don't need Bitcoin as digital gold. If I want digital currency, I'll just use dollars.

[mathjak107]

Bitcoin won’t do you much good when you have no electricity like most of the Ukraine

[Smith1776]

Bitcoin won’t do you much good when you have no electricity like most of the Ukraine

My sentiments exactly.

[mathjak107]

By the same token most of our investments including gold held by 3rd parties wouldn’t do us much good with no electricity

[Pointedstick]

Has anyone here actually purchased anything with gold directly, or accepted payment in gold for delivery of goods or services? I can say that I have not.

I have on the other hand participated in money-like transactions using cryptocurrencies before, in which they were exchanged for goods or services. Cryprocurrencies may generally be bad and unstable forms of money, but they do seem to be some form of money. Gold I'm not sure about though. It feels more like a commodity one exchanges for money than money itself.

[Tortoise]

Someone else on the forum, I can't remember who, pointed out that cash lost value to inflation this past year, therefore cash sucks and stocks are the way to go. That was the gist of the poster's point anyway. I thought to myself, well, wait a minute. Cash has a steady nominal value and has lost value to inflation this year, but stocks have lost an equal amount to inflation in addition to the nominal losses. Inflation affects all dollar denominated assets equally, so cash shouldn't be given some extra criticism when all assets priced in the same currency get impacted the same way.

Indeed.

To bring it back to what I said, though, I didn't give cash extra criticism. I actually pointed out that it's getting walloped less than the other three assets.

My point was simply that cash is getting walloped. You said that cash "benefitted tremendously from these rising rates", but that's not the case if we define "benefitted" as providing a positive real return. It's just losing less real value than the other three assets.

I expect that the market will realign itself to providing positive real rates on T-bills in the not too far off future. I still think we're in an adjustment phase to these new higher rates.

Of course. Economic conditions are dynamic, so this won't last forever (thankfully).

[seajay]

So far wellesly seems to be a good place to be as far as balanced portfolios, only down 14.50%.

Fidelity insight income model down even less at 13.20

Permanent portfolio is down 17.43 using morningstar data.

So despite all the charts those who love backtesting posted earlier on , the fact is the pp has reacted completely differently then guessing with the past data .

I doubt there are many last year that would have guessed the pp would be down almost 18% in a year.

So I don’t put a whole lot of faith in back testing and trying to predict what an outcome will be based on the last time as next time is usually just different enough to get a very different result

Unless you're lumping in and out for just months then less than one year volatility doesn't matter. Most accumulate over many years, withdraw/spend over many years.

At times single year or less modest volatility is only to be expected. When to the downside then typically adjacent year(s) see corrections. Golden Butterfly, PP, Wellesley ..etc. are all down year to end of September, likely one of the assets will pop to the upside within a year or so to re-level the balance.