Not Even Harry Browne Thought It Was Going To Be This Bad

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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Libertarian666 » Wed Jul 03, 2013 3:09 pm

Pointedstick wrote: Your supply-and-demand analysis isn't wrong, but I think you're making an assumption that the Fed is creating artificial demand rather than crowding out demand from non-Fed market participants. If the Fed were to stop buying all the new bonds, what's to say that demand from private entities, foreign governments, and other central banks woudn't flood in and make up most or all of the demand shortfall?

Not saying that's exactly what I think is going to happen, but it doesn't sound all that implausible to me.
That seems extremely implausible to me. Yes, at some interest rate the government could sell $1 Trillion of bonds per year, but not at these extremely low rates. Furthermore, every increase in their interest expense blows an even bigger hole in the budget, and thus increases the amount they have to borrow. Their average duration is only a few years, so this effect would snowball fairly quickly.

Obviously, if the Fed ever actually slows down their purchases, we will see the effects. However, my prediction is that the Fed will never taper, because they know this is what would happen.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Gumby » Wed Jul 03, 2013 3:16 pm

Technovolist,

You are just spouting myths and half-truths. T-Bonds have no credit risk, period.

Ever since the US went off the gold standard, T-Bond auctions have been nothing more than a way for the Fed to set interest rates. That's their entire job description.
Cullen Roche wrote:David Beckworth has a nice post over at his site in which he argues that the Fed is not monetizing the debt.  He makes arguments that are similar to the ones I’ve previously made.  But I think the debate over monetization is even simpler than David notes.  The purpose of the fear mongering over the term “monetization”? is to imply that the Fed is funding the US government.  The term is used with an intended negative connotation that implies some sort of solvency constraint, as if the government couldn’t fund itself without this back stop which would result in us looking more like Greece with yields surging and on the brink of bankruptcy.  This is just patently wrong and those fear mongering over “debt monetization”? have seen their scary inflationary or default scenarios fall flat in recent years.  In other words, they’ve been wrong because they’ve misinterpreted what the Fed is doing.

In the end, this debate is rather simple and has already been won by those of us who predicted the market reactions in real-time .  If the Fed were needed to fund the US government then the fear mongers would have all been right when QE2 ended and yields would have surged because there would not have been enough demand for US government debt.  Investors like Bill Gross called the end of QE2 “D-Day”? because he was concerned about a lack of funding when the program ended.  I said, in real-time that he would be wrong and that yields would not surge and that there would be no lack of buyers.

Of course, Bill Gross wasn’t the only one saying this.  It was a common refrain back in 2010.  And despite their dire predictions, the exact opposite occurred when QE2 ended.  Yields declined!  The Fed was not directly funding the US government and the Fed was not needed to fund the US government.  After all, the US government always harnesses its banking system to fund its bond sales.  To argue that the Fed needed to back stop the Treasury is to misunderstand the dynamics at work between the Primary Dealers and the US government.  This is just one of the many misunderstandings surrounding QE2 and despite having already been thoroughly proven wrong, the myth somehow still persists….

Read David’s piece here.


Source: http://pragcap.com/read-of-the-day-the- ... ut-the-fed
Read the rest here: http://pragcap.com/read-of-the-day-the- ... ut-the-fed
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Libertarian666 » Wed Jul 03, 2013 3:18 pm

Ad Orientem wrote: On the subject of Fed manipulation of the bond market, we have been down this road before. Direct and very aggressive debt monitization began in 1944 and continued until 1951. It was massive to the point where proportionately it was more aggressive than what we have seen in the 2008 - present Fed policy. Yes, it did spark inflation and when the Fed finally ended it's unrestrained money printing in 1951 we saw the end of the first 30 year secular bull market in bonds. But it did not spark hyperinflation nor was there an explosion in interest rates. Rates began to rise but it was a gradual process that continued until the early 1980's.

So I'm not seeing why the sky is going to fall this time around.
The difference is that the US was the world's biggest net creditor in those days. Now it is the world's biggest net debtor, running unprecedented deficits, and its creditors are loaded up to the gills with its debt. I notice that no one has answered this question: "Who is going to buy those bonds if the Fed doesn't?"
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Ad Orientem » Wed Jul 03, 2013 3:22 pm

Libertarian666 wrote:
Ad Orientem wrote: On the subject of Fed manipulation of the bond market, we have been down this road before. Direct and very aggressive debt monitization began in 1944 and continued until 1951. It was massive to the point where proportionately it was more aggressive than what we have seen in the 2008 - present Fed policy. Yes, it did spark inflation and when the Fed finally ended it's unrestrained money printing in 1951 we saw the end of the first 30 year secular bull market in bonds. But it did not spark hyperinflation nor was there an explosion in interest rates. Rates began to rise but it was a gradual process that continued until the early 1980's.

So I'm not seeing why the sky is going to fall this time around.
The difference is that the US was the world's biggest net creditor in those days. Now it is the world's biggest net debtor, running unprecedented deficits, and its creditors are loaded up to the gills with its debt. I notice that no one has answered this question: "Who is going to buy those bonds if the Fed doesn't?"
That's simply not true. The debt as a % of GDP was over 120% in 1944.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Gumby » Wed Jul 03, 2013 3:27 pm

Libertarian666 wrote:I notice that no one has answered this question: "Who is going to buy those bonds if the Fed doesn't?"
http://pragcap.com/who-will-buy-the-bonds

Mind you, when he wrote that, he answered that 16 trillion-dollar question in real-time as QE2 drew to a close, and he was 100% correct.

Libertarian666, please stop fear-mongering. You really need to learn how bond auctions work before you start running for the hills. The money to buy government bonds generally comes from government spending.

Bond auctions are just a reserve drain that are conveniently used to set interest rates (i.e. the government spends money and people/banks choose to give the money back to the government in exchange for a risk free T-Bond). Ho hum.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Libertarian666 » Wed Jul 03, 2013 3:35 pm

Ad Orientem wrote:
Libertarian666 wrote:
Ad Orientem wrote: On the subject of Fed manipulation of the bond market, we have been down this road before. Direct and very aggressive debt monitization began in 1944 and continued until 1951. It was massive to the point where proportionately it was more aggressive than what we have seen in the 2008 - present Fed policy. Yes, it did spark inflation and when the Fed finally ended it's unrestrained money printing in 1951 we saw the end of the first 30 year secular bull market in bonds. But it did not spark hyperinflation nor was there an explosion in interest rates. Rates began to rise but it was a gradual process that continued until the early 1980's.

So I'm not seeing why the sky is going to fall this time around.
The difference is that the US was the world's biggest net creditor in those days. Now it is the world's biggest net debtor, running unprecedented deficits, and its creditors are loaded up to the gills with its debt. I notice that no one has answered this question: "Who is going to buy those bonds if the Fed doesn't?"
That's simply not true. The debt as a % of GDP was over 120% in 1944.
The external debt or the internal debt? The former is the main hazard.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by glennds » Wed Jul 03, 2013 3:47 pm

Pointedstick wrote: Your supply-and-demand analysis isn't wrong, but I think you're making an assumption that the Fed is creating artificial demand rather than crowding out demand from non-Fed market participants. If the Fed were to stop buying all the new bonds, what's to say that demand from private entities, foreign governments, and other central banks woudn't flood in and make up most or all of the demand shortfall?

Not saying that's exactly what I think is going to happen, but it doesn't sound all that implausible to me.
If there is a sufficient non-Fed market to buy Treasury Bonds at present rates, then why is the Fed buying them?
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Pointedstick » Wed Jul 03, 2013 3:54 pm

glennds wrote:
Pointedstick wrote: Your supply-and-demand analysis isn't wrong, but I think you're making an assumption that the Fed is creating artificial demand rather than crowding out demand from non-Fed market participants. If the Fed were to stop buying all the new bonds, what's to say that demand from private entities, foreign governments, and other central banks woudn't flood in and make up most or all of the demand shortfall?

Not saying that's exactly what I think is going to happen, but it doesn't sound all that implausible to me.
If there is a sufficient non-Fed market to buy Treasury Bonds at present rates, then why is the Fed buying them?
To drive down rates, for the purpose of making non-bond assets seem more attractive. But the point is that even if and when the Fed stops this program and rates start to rise (gently, as Ad Orientem pointed out), it's not as though the government will face some kind of looming solvency or budgetary constraint. The increased borrowing costs will simply be paid by issuing more debt, which will be purchased by participants in the open market, Primary Dealers, or the Fed.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by glennds » Wed Jul 03, 2013 4:33 pm

Pointedstick wrote:
glennds wrote:
Pointedstick wrote: Your supply-and-demand analysis isn't wrong, but I think you're making an assumption that the Fed is creating artificial demand rather than crowding out demand from non-Fed market participants. If the Fed were to stop buying all the new bonds, what's to say that demand from private entities, foreign governments, and other central banks woudn't flood in and make up most or all of the demand shortfall?

Not saying that's exactly what I think is going to happen, but it doesn't sound all that implausible to me.
If there is a sufficient non-Fed market to buy Treasury Bonds at present rates, then why is the Fed buying them?
To drive down rates, for the purpose of making non-bond assets seem more attractive. But the point is that even if and when the Fed stops this program and rates start to rise (gently, as Ad Orientem pointed out), it's not as though the government will face some kind of looming solvency or budgetary constraint. The increased borrowing costs will simply be paid by issuing more debt, which will be purchased by participants in the open market, Primary Dealers, or the Fed.
Okay, so I think we agree that there isn't a sufficient non-Fed market to buy t-bonds at present rates, at least in enough quantity to fund the budget deficit. I agree that if and when the Fed stops there won't be a solvency catastrophe. After all, the US Government is probably still the most attractive creditor a bond holder could have and as such will always have access to capital, just not at present rates without the Fed.

I"m not sure I necessarily agree that when the Fed buying program stops, the rise in rates will be gentle. I suppose we'll find out if and when that time comes.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Pointedstick » Wed Jul 03, 2013 4:49 pm

glennds wrote: Okay, so I think we agree that there isn't a sufficient non-Fed market to buy t-bonds at present rates, at least in enough quantity to fund the budget deficit. I agree that if and when the Fed stops there won't be a solvency catastrophe. After all, the US Government is probably still the most attractive creditor a bond holder could have and as such will always have access to capital, just not at present rates without the Fed.

I'm not sure I necessarily agree that when the Fed buying program stops, the rise in rates will be gentle. I suppose we'll find out if and when that time comes.
I think it depends on what interest rates would be without Fed intervention. If the Fed works to drive down rates that were falling anyway, then their action isn't really all that consequential, for example. That zero lower bound is a harsh mistress for your average central banker.

So I think rates would be pretty low even without the Fed's intervention. In my mind, our economy is one that can't really support rates that are all that high. This is all speculation of course, but I think at the present moment, absent Fed intervention, it's doubtful that the 30-year T-bond rate would be much higher than 4.5%, if even that high.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by glennds » Wed Jul 03, 2013 5:09 pm

On a related note, I have heard it said that an unprecedented amount of money is sitting on the balance sheets of major banks, including the treasury primary dealers, in the form of excess reserves. The Fed's money expansion strategy relied on the banks as a whole to put the money created by the Fed into the system through lending and investing activities which would convert the excess reserves into required reserves. This has not happened and is one of the reasons behind the slow growth of money supply despite the QE activities, and a declining rate of money velocity. This in turn has contributed to low inflation and falling gold prices. This subject has come up in Bernanke's testimony  in recent congressional committee hearings.

I am interested in what will happen if the tide turns and the banking system as a whole begins increasing its investing and lending activities, and we see a progressive conversion of excess reserves into required reserves which should drive up the money supply. The potential is there to create the inflation that the Fed has been ostensibly seeking and bring about the exact inverse of of the recent effects on gold. Theoretically it should also stimulate the economy due to enhanced inflation, dollar devaluation thus an advantageous export position. I don't know if this will happen or not, but it's certainly possible, and if it does, we'll be glad to have gold in the Permanent Portfolio.

To focus for a moment on HB's defined economic conditions, I happen to believe right now we are in a tug of war between deflation and tight money recession. If the Fed has it's way, we would be somewhere between (controlled) inflation and prosperity. If the excess reserves in the banking system end up mobilized and into the money supply, the Fed might have it's way. If they overshoot the goal, we could whipsaw from where we are today to not-so-controlled inflation in which case we'll applauding HB and the gold allocation in the PP. There's no way to know for sure how this will all play out.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by MediumTex » Wed Jul 03, 2013 5:12 pm

If the Fed announced that it was going to stop buying all bonds, it would cause the stock market to crash because everyone would assume that the economy was being taken off of life support (which it has been on for going on five years).

When the money in risk assets began running for safety in response to such an action, where would it go?  Into the treasury market, of course, just like it did in late 2008, when rates were just as low as they have been since the Fed has been buying bonds on a large scale.

In other words, rates are going to stay low either way.

Look at credit levels and demographics and that really tells you all you need to know about what is likely to happen with interest rates in the U.S., with or without the Fed monkeying around in the bond market, and Bernanke knows this.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by moda0306 » Wed Jul 03, 2013 5:40 pm

If the fed winding down QE would increase rates, why have rates done most of their increasing during QE, and decreasing after it's over?

If interest rates are so unnaturally low, how has gold gone from $1,900 to $1,200?

If interest rates are so unnatually low, why don't we have rampant inflation as demand for credit-fuelled consumption and investment overtakes our productive capacity?

What is the "natural" rate of interest for a currency issuer to borrow the money they issue?  Seems to me it's either 0% (kind of like the "natural score" of a referee or umpire), or whatever rate produces full employment and price stability in the market.  Both are below current rates.

Since demand for new loans is so low, and supply (either constrained (willing depositors x reserve multiplier)) or unconstrained (no true reserve req't)) is so high, with low current inflation (as measured even by the BPP) and low projected future inflation (spread between inflation and non-inflation-protected t-bonds), why is the "natural rate" anything but super low right now?

If the fed came out and raised t-bill rates to 7% (or whatever Austrians think they deserve on risk-free assets), this would be the subsidy of a lifetime, and would absolutely tank the economy, resulting in deflation, making 7% t-bills even more of a ridiculous subsidy.

The fed may be able to control the floor on the price of money, but they can't control the movements of the entire economy... The market is showing very, very few signs that these are grossly unnaturally low rates.

This idea that we've seen some asinine increase in the money supply is astoundingly misleading.  The fed trades fiat nominal "liabilities" for fiat nominal liabilities" of equal value.  If the government came out tomorrow and signed a bill making T-bills legal tender, open market operations would do NOTHING to the money supply on a chart going forward.  However, all the PP'ers holding T-bills wouldn't just shit the bed in fear and start spending their T-bills because the "money supply" exploded and their dollar-denominated confetti is about to collapse.

It's much better to look at there being a spectrum of "moneyness," much of which is made up by financial assets, some of which generate in the private sector (a share of stock or private bond) and are a direct claim (likely) to some non-financial assets (factory, home, business, car), or they are generated by the government to be used to clear private transactions (dollars/t-bills) and help control interest rates.  Most actual transactions don't use shares of the S&P 500 or a T-Bond or a muni bond as legal tender, but they very well could in our modern economy.  The problem isn't there being too much money on our balance sheets, it's that there's not enough money and other financial assets on our domestic balance sheets to keep our economy running at full capacity.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by happyspec » Sat Jul 06, 2013 1:23 pm

Pointedstick wrote: Also, if rates rise, we have 25% of our money in an short-term bonds--an asset type that quickly adjusts to rising rates and will give us nice fat interest payments. Almost as if it was all planned out that way…  ;)
in this discussion the arguments that have the most value in my humble opinion are those of Pointedstick. The headaches people get from thinking about future possible are nothing else than the result from trying to outsmart the markets. As I understand it the Permanent Portfolio has been constructed to relieve investors from the need to predict things.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by happyspec » Sat Jul 06, 2013 1:32 pm

Libertarian666 wrote:
Pointedstick wrote: I'm not sure I follow your logic, Libertarian666. Are you saying that without Fed interference, interest rates would be much higher?
Yes, of course. They are the only purchasers of T-Bonds. What happens when the only purchasers of anything stop purchasing? The price will go... down. This isn't rocket surgery!
Haven't you been buying T-Bonds too? at least you should have been ;)
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by frommi » Sat Jul 06, 2013 2:13 pm

Juergen wrote:
Pointedstick wrote: Also, if rates rise, we have 25% of our money in an short-term bonds--an asset type that quickly adjusts to rising rates and will give us nice fat interest payments. Almost as if it was all planned out that way…  ;)
in this discussion the arguments that have the most value in my humble opinion are those of Pointedstick. The headaches people get from thinking about future possible are nothing else than the result from trying to outsmart the markets. As I understand it the Permanent Portfolio has been constructed to relieve investors from the need to predict things.
There is no reward without risk. Even the PP has a risk, its rising interest rates without inflation. If you think you can get above inflation returns without risk, than stop investing a penny and rethink about what you are doing. I was naive enough to do it and i now have to pay the bill for it. Read about Markowitz portfolio theory, The Intelligent Investor and Security Analysis from Graham and perhaps than you are better prepared :).
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Pointedstick » Sat Jul 06, 2013 3:50 pm

Nobody sensible thinks the PP is a riskless investment portfolio. Without presuming to speak for others, what I can say attracts me to the PP is the history of inflation-beating returns, the shallowness and short duration of portfolio drawdowns (I mean c'mon, we're talking about intra-year -7% or so here), and the mental peace of mind provided by being broadly diversified across multiple major asset classes. So far the PP is having a lousy year. That doesn't invalidate it as a portfolio concept any more than 50/50 stocks and short-to-intermediate-duration bonds would be invalidated by a stock market crash. That's an awfully popular portfolio that can experience much, much deeper drawdowns.

You just need to know what you're getting into. If I wanted zero nominal downside volatility, I'd choose something else. If I wanted stable tax-free income, I'd choose something else. What is being stress-tested here is not the PP itself, but extremely conservative PP investors who did not realize that the portfolio could experience moderate levels of downside volatility in the short term.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Tortoise » Sat Jul 06, 2013 4:43 pm

Pointedstick wrote: What is being stress-tested here is not the PP itself, but extremely conservative PP investors who did not realize that the portfolio could experience moderate levels of downside volatility in the short term.
Yes, that's certainly a big part of what's going on here. But based on what some of the dissatisfied PP investors have been saying recently, it sounds like another source of their frustration is some of the perhaps oversimplistic statements about the PP that have been repeated over the years. And oversimplification often leads to misunderstandings.

A few examples:
  • "The rising asset(s) in the PP tend to more than compensate for the falling asset(s). I.e., the rising asset(s) tend to buoy the portfolio."
    (This is usually the case but is not always the case.)
  • "...smooth, steady returns..."
    (This is a relative statement. The returns are smooth and steady relative to a far more volatile stock-and-bond portfolio, but not relative to cash or short-term bonds.)
  • "The PP is for the money you can't afford to lose."
    (In this context, "lose" is defined over an investment period of at least a few years--not over mere weeks or months.)
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Ad Orientem » Sat Jul 06, 2013 5:16 pm

Tortoise wrote: A few examples:
  • "The rising asset(s) in the PP tend to more than compensate for the falling asset(s). I.e., the rising asset(s) tend to buoy the portfolio."
    (This is usually the case but is not always the case.)
  • "...smooth, steady returns..."
    (This is a relative statement. The returns are smooth and steady relative to a far more volatile stock-and-bond portfolio, but not relative to cash or short-term bonds.)
  • "The PP is for the money you can't afford to lose."
    (In this context, "lose" is defined over an investment period of at least a few years--not over mere weeks or months.)
That should be put up in a flashing neon sign on the front page of the forum.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Libertarian666 » Sat Jul 06, 2013 9:02 pm

Juergen wrote:
Libertarian666 wrote:
Pointedstick wrote: I'm not sure I follow your logic, Libertarian666. Are you saying that without Fed interference, interest rates would be much higher?
Yes, of course. They are the only purchasers of T-Bonds. What happens when the only purchasers of anything stop purchasing? The price will go... down. This isn't rocket surgery!
Haven't you been buying T-Bonds too? at least you should have been ;)
No. I don't use the PP.
As for T-Bonds/T-Bills: I am rather heavily short dollars. In a way that can't result in a margin call, of course; I'm not suicidal!
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Pointedstick » Sat Jul 06, 2013 9:15 pm

Libertarian666 wrote: No. I don't use the PP.
As for T-Bonds/T-Bills: I am rather heavily short dollars. In a way that can't result in a margin call, of course; I'm not suicidal!
Long gold and short dollars? Oof. How are you holding up these days?
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Libertarian666 » Sat Jul 06, 2013 9:25 pm

Pointedstick wrote:
Libertarian666 wrote: No. I don't use the PP.
As for T-Bonds/T-Bills: I am rather heavily short dollars. In a way that can't result in a margin call, of course; I'm not suicidal!
Long gold and short dollars? Oof. How are you holding up these days?
It hasn't been too much fun doing my weekly spreadsheet recently.
But I'm pretty sure part of 2008 wasn't much more fun than this, and I managed to survive.
My "short dollar" position is a non-recourse mortgage on my primary residence at a ridiculously low fixed rate, so that doesn't pose any hazard. My gold is also fully paid for.

Luckily, I'm working, so I don't have to draw down my portfolio. Now that would be painful.
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Gumby » Sat Jul 06, 2013 10:06 pm

Libertarian666 wrote:
Pointedstick wrote:
Libertarian666 wrote: No. I don't use the PP.
As for T-Bonds/T-Bills: I am rather heavily short dollars. In a way that can't result in a margin call, of course; I'm not suicidal!
Long gold and short dollars? Oof. How are you holding up these days?
It hasn't been too much fun doing my weekly spreadsheet recently.
But I'm pretty sure part of 2008 wasn't much more fun than this, and I managed to survive.
My "short dollar" position is a non-recourse mortgage on my primary residence at a ridiculously low fixed rate, so that doesn't pose any hazard. My gold is also fully paid for.

Luckily, I'm working, so I don't have to draw down my portfolio. Now that would be painful.
Sounds like you let your political views guide your investment decisions. Would you disagree?
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by Libertarian666 » Sun Jul 07, 2013 12:30 am

Gumby wrote:
Libertarian666 wrote:
Pointedstick wrote: Long gold and short dollars? Oof. How are you holding up these days?
It hasn't been too much fun doing my weekly spreadsheet recently.
But I'm pretty sure part of 2008 wasn't much more fun than this, and I managed to survive.
My "short dollar" position is a non-recourse mortgage on my primary residence at a ridiculously low fixed rate, so that doesn't pose any hazard. My gold is also fully paid for.

Luckily, I'm working, so I don't have to draw down my portfolio. Now that would be painful.
Sounds like you let your political views guide your investment decisions. Would you disagree?
Yes, I disagree. My economic analysis indicates that the risk in stocks, bonds and the dollar is too great for me to tolerate, which has nothing to do with my political views. Of course, I could be wrong, but that is true of all analysis on any basis.
asherah
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Re: Not Even Harry Browne Thought It Was Going To Be This Bad

Post by asherah » Sun Jul 07, 2013 4:54 am

Tortoise wrote:
  • "The rising asset(s) in the PP tend to more than compensate for the falling asset(s). I.e., the rising asset(s) tend to buoy the portfolio."
    (This is usually the case but is not always the case.)
  • "...smooth, steady returns..."
    (This is a relative statement. The returns are smooth and steady relative to a far more volatile stock-and-bond portfolio, but not relative to cash or short-term bonds.)
  • "The PP is for the money you can't afford to lose."
    (In this context, "lose" is defined over an investment period of at least a few years--not over mere weeks or months.)
As my first post in this forum I would like to give my +1^n to this. I have read a lot about the PP and these quotes always raised my eyebrows. I know that HB himself made these statements in his radio shows but a newbe can be misguided by these general remarks. They really have to be corrected or to be set in the general frame of the PP.

Besides this: Many thanks for all your posts! My asset allocation is now 50 % German PP with EMU stocks and 50 % playground with international stocks and bonds. Looking forward to the gold crash. My bet: 950 USD within weeks.
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