Kevin K. wrote: ↑Tue Mar 28, 2023 10:17 am
Maddy wrote: ↑Wed Mar 22, 2023 8:00 pm
For over a year now, I've been asking the question, "Could Harry have anticipated this?" I'm referring primarily to the extraordinarily reckless manner in which the dollar's reserve status has been abused, to the resulting distortions in the financial markets, and to the chaotic bufoonery by which the Fed and the Treasury have attempted to prevent out-and-out collapse of the financial system.
I've finally decided that Harry did not, and could not, have imagined a scenario where the financial system is being run by a criminal cartel that has siphoned off most of the country's wealth, where the country's debt load is so high that default (or functional default) is the only option, where diversification no longer matters because everything is wildly inflated, and where the usual inverse correlations no longer work.
I've held out much longer than was probably prudent and am going into 100% defensive mode. Short-term treasuries, real estate with timber value, maybe a few old fashioned dividend-paying stocks with certificates. I'm not sure what else to do. Fishing hooks by the case, maybe.
Has anyone else come to a similar realization? This is seriously upsetting, and I'm fit to be tied.
Well, the principal at a leading asset management company I used to have all our investments with (they're in the DFA/Modern Potfolio Theory universe and mostly handle money from foundations and ultra-rich tech folks) has his personal money these days in 50% short-term Treasuries, 50% gold. Kind of the doomsday Buffett Portfolio (I'm referring of course to the way Buffett has things set up for his wife: 80% S & P 500, 20% T Bills).
I agree with others in this thread that it's not a matter of the Fed doing anything truly new but rather the degree of the abuse. And much as I dislike and disrespect Powell I don't think he deserves all of the blame. Massive tax cuts for the rich, gutting of the few regulations we had in place to prevent abuse (and make banks have reserves, etc.), endless stock buy-backs...the list goes on.
The same financial advisor I referenced above also has a long article on how the powers-that-be regularly distort the price of gold and that is arguably an even bigger problem with the PP these days than the once-in-a-lifetime LTT debacle we just lived through.
Personally, as a retiree with very modest assets I'm sticking to my modified Golden Butterfly (said modification consisting of replacing the STT/LTT barbell with STT/ITT's that are half nominal, half TIPS. But my wife has instructions to just move everything into Tyler's very simple and cool 80% Wellesley/20% gold portfolio if I kick the bucket first and she doesn't want to deal with things. If I were younger and still earning I'd be looking at something dead simple like Jonathan Clement's portfolio: 60-70% VT (Total World Stock), the rest in half VTIP (Vanguard short-term TIPS) and VGSH (Vanguard Short-Term Treasuries) with some emergency cash held locally or in iBonds at Treasury Direct. In the same situation (long time horizon, younger) I would also strongly consider Tyler's PInwheel Portfolio, which has a really cool mixture of real assets with globally-diversified equities and bonds:
https://portfoliocharts.com/portfolio/p ... portfolio/
That said, there's no way I'd feel comfortable holding a 4 x 25% PP. The total stock market component depends entirely on 5 FAANG stocks for its returns (thus the value of the SCV in the GB which together with the TSM component gives you something much more like a *real* TSM fund). LTTs are potentially lethal as everyone who holds them has learned of late and I don't think Browne would have recommended holding them for most of the past decade, at a minimum. The arguments for them: that they will zig when they stock market zags, and that they provide deflation protection - don't hold water. They've tanked in unison with stocks just as often as they've rebounded but people have short memories and somehow think what happened in '08 is the norm. And as William Bernstein points out in his book "Deep Risk" (which is required reading for any PP'er) devoting a full 25% of one's assets to protection against the least likely as well as least harmful of the economic scenarios Browne identified in building the PP is absurd. Then we're on to gold, which Browne included because he said it offers inflation protection - which is simply wrong, as Tyler himself proves in his excellent article on gold (see link below). Gold is great for SHTF scenarios and times of currency debasement/money printing/rapid interest rate increases and is also invaluable in hedging against sequence-of-returns risks in retirement. And while super-thoughtful writers like Ern over at Early Retirement Now have shown that the minimum stake in it required to confer these benefits is 15%, being dogmatic about 25% is silly. As for cash...well, TBills are looking like (to steal Medium Tex/J.M. Lawson's inimitable quip about Treasury bonds as a whole) "the best horse at the glue factory." Anyway, hard to see anything permanent about a portfolio that consists of 25% mega-cap-dominated U.S. stocks, 25% 30 year bonds exposed to limitless losses when interest rates spike, 25% metal with no inherent rate of return and 25% cash guaranteed to return less than the rate of inflation. You'd be better off putting the whole nest egg in a 30 year TIPS ladder (see link below).
https://portfoliocharts.com/2020/08/21/ ... e-of-gold/
https://www.advisorperspectives.com/art ... lot-easier
SUPERB!
Saving this for future study. A lot in here. May affect my future investing. Thanks!