Did Harry Browne consider this flaw in his strategy?

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lordmetroid
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Re: Did Harry Browne consider this flaw in his strategy?

Post by lordmetroid » Mon Dec 14, 2015 1:15 pm

Did some testing using data from google finance and google docs sheets. Could not see any benefits to the stability of the portfolio by owning bitcoins.
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Re: Did Harry Browne consider this flaw in his strategy?

Post by Cortopassi » Mon Dec 14, 2015 2:26 pm

I know very little about bitcoins, but on a forum that is very keen on physical gold, physical cash, and even buying and holding bonds directly, the digital cloud nature of bitcoins scares the crap out of me personally.
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Re: Did Harry Browne consider this flaw in his strategy?

Post by Pointedstick » Mon Dec 14, 2015 3:14 pm

Cortopassi wrote: I know very little about bitcoins, but on a forum that is very keen on physical gold, physical cash, and even buying and holding bonds directly, the digital cloud nature of bitcoins scares the crap out of me personally.
Say, when was the last time you examined your paper stock certificates and paper bonds? ;)
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Re: Did Harry Browne consider this flaw in his strategy?

Post by bitcoininthevp » Mon Dec 14, 2015 3:16 pm

I know very little about bitcoins, but on a forum that is very keen on physical gold, physical cash, and even buying and holding bonds directly, the digital cloud nature of bitcoins scares the crap out of me personally.
There are many concerns regarding bitcoin, but the security of assets via cryptography is one of its strong points.

"It might make sense just to get some in case it catches on."
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Re: Did Harry Browne consider this flaw in his strategy?

Post by Cortopassi » Mon Dec 14, 2015 3:39 pm

Pointedstick wrote:
Cortopassi wrote: I know very little about bitcoins, but on a forum that is very keen on physical gold, physical cash, and even buying and holding bonds directly, the digital cloud nature of bitcoins scares the crap out of me personally.
Say, when was the last time you examined your paper stock certificates and paper bonds? ;)
No doubt, but the gold and cash I can, which gives me some peace of mind.

To bitcoininthevp -- I am less worried about the cryptography vs. the internet going dark for an extended period or simply losing access to them.  I suppose similar could happen to brokerage accounts, but it would seem I have a better chance of being able to call up Interactive Brokers and verify my TLT and VTI holdings and cash them out, etc vs. calling up who?? if I don't have access to my bitcoins.  Who would I call?

This could all be my ignorance of them as well...

Specifically from their site, the parts that scare me:

What happens when bitcoins are lost?

When a user loses his wallet, it has the effect of removing money out of circulation. Lost bitcoins still remain in the block chain just like any other bitcoins. However, lost bitcoins remain dormant forever because there is no way for anybody to find the private key(s) that would allow them to be spent again. Because of the law of supply and demand, when fewer bitcoins are available, the ones that are left will be in higher demand and increase in value to compensate.

What determines bitcoin’s price?

The price of a bitcoin is determined by supply and demand. When demand for bitcoins increases, the price increases, and when demand falls, the price falls. There is only a limited number of bitcoins in circulation and new bitcoins are created at a predictable and decreasing rate, which means that demand must follow this level of inflation to keep the price stable. Because Bitcoin is still a relatively small market compared to what it could be, it doesn't take significant amounts of money to move the market price up or down, and thus the price of a bitcoin is still very volatile.

***The chart for the past couple years looks eerily like gold***

Is Bitcoin vulnerable to quantum computing?

Yes, most systems relying on cryptography in general are, including traditional banking systems. However, quantum computers don't yet exist and probably won't for a while. In the event that quantum computing could be an imminent threat to Bitcoin, the protocol could be upgraded to use post-quantum algorithms. Given the importance that this update would have, it can be safely expected that it would be highly reviewed by developers and adopted by all Bitcoin users.

***This one is interesting because these will be coming***
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Re: Did Harry Browne consider this flaw in his strategy?

Post by dualstow » Mon Dec 14, 2015 4:00 pm

Funny, I was just looking at this:

Suspected Bitcoin founder 'paid $85 million' worth of the cybercurrency to buy gold and software... after 'being told it was good insurance for his funny money'

  http://www.dailymail.co.uk/news/article ... money.html
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Re: Did Harry Browne consider this flaw in his strategy?

Post by bitcoininthevp » Mon Dec 14, 2015 4:05 pm

the internet going dark for an extended period
This is a valid concern, if unlikely. Bitcoins definitely rely on the internet.
simply losing access to them
The fact that you cannot recover bitcoins that you do not have the private key for is a perfect illustration of the security involved. You are right, if you lose your coins you have no one to call. With bitcoin, you are your own bank. The good and bad of being your own bank.

Trusting "normal people" to be able to securely backup their wallet/keys is a usability issue for bitcoin. There exist solutions and they are getting better. There are now hardware wallets (like Ledger, Trezor and KeepKey) now that help with this. Bitcoin is still very young and these solutions will get better and more usable in the future.
What determines bitcoin’s price?
Not sure which part was your exact concern on this one. Pricing is all supply and demand. There is no "paper market" for bitcoins as there is in the gold market so the pricing is more "pure". However, since the market is small it is more vulnerable to whales pushing the price up or down.

If you are buying and selling you also have to trust the exchange (read: Mt Gox saga)
Is Bitcoin vulnerable to quantum computing?
I dont know too much about this except that there would be a lot of issues with all kinds of systems (outside of bitcoin) if/when quantum computing comes around. The nice thing is that bitcoin can evolve and swap out certain pieces.

Hope that helps.
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Re: Did Harry Browne consider this flaw in his strategy?

Post by bitcoininthevp » Mon Dec 14, 2015 4:11 pm

dualstow wrote: Funny, I was just looking at this:

Suspected Bitcoin founder 'paid $85 million' worth of the cybercurrency to buy gold and software... after 'being told it was good insurance for his funny money'

  http://www.dailymail.co.uk/news/article ... money.html
The bitcoin community likes to repeat the "First they ignore you, then they laugh at you, then they fight you, then you win." mantra. So they might enjoy being at stage two of that progression :)

In bitcoin there is never a dull moment. Always some new tool or company, price swing or crazy story. I dont think the guy is bitcoin's creator (Satoshi), but keep the popcorn coming!
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Re: Did Harry Browne consider this flaw in his strategy?

Post by dualstow » Mon Dec 14, 2015 5:21 pm

I'm lovin' the mystery as well. It's like a Neal Stephenson novel.
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Re: Did Harry Browne consider this flaw in his strategy?

Post by Lang » Fri Jan 01, 2016 12:04 pm

gaston wrote: The yield on a canada 30 year is 2.162%. In his radio shows, Browne said that rates dropped to 1% during the great depression. Let us assume that rates go even lower to 0.01% on a 30 year and plug in the numbers in a calculator (http://www.free-online-calculator-use.c ... lator.html) and we find a gain of 64%. A rate drop to 1% would create a gain of 30%. In any case, bonds do not seem to have the ability to rise by more than 100% as he said. For a 30 year bond to have the potential to rise by 100% assuming rates drop to 0%, current rates would have to be >3.5%.
Canada issued a 50-year bond two years ago (it matures in 2064, so it now has 48 years to maturity). It currently trades at a yield of 2.15%. It can appreciate by 99% if its yield goes to zero. Just keep in mind that it's riskier than a 30-year bond.
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Re: Did Harry Browne consider this flaw in his strategy?

Post by Jack Jones » Fri Jan 01, 2016 12:17 pm

So, does the point that the OP brought up concern anyone else? Can long bonds still function as we need them under deflation with interest rates low?

Or, perhaps could low interest rates mean that deflation is less likely, so the fact that they can't appreciate by > 100% isn't a concern?
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Re: Did Harry Browne consider this flaw in his strategy?

Post by economicsjunkie » Wed Jan 06, 2016 5:11 pm

To look at bond price alone is to ignore the gains achieved from coupons, especially if you re-invest the coupon (as you should in my opinion).
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Re: Did Harry Browne consider this flaw in his strategy?

Post by economicsjunkie » Wed Jan 06, 2016 5:23 pm

lordmetroid wrote: The chinese seems to be buying a lot of bitcoins. Have Bitcoins surpassed Gold as a safe haven now and Gold should be replaced by Bitcoin? Perhaps it would be smart to have both Bitcoin and Gold.
However, I kind of like the butterfly concept but find 40% of obligations to be quite a lot excessive. Perhaps Cash is superfluous and one can use a butterfly with Bitcoin instead:
  • 1/5 Index fund
  • 1/5 Best recently performing sector fund
  • 1/5 Gold
  • 1/5 Bitcoin
  • 1/5 Bonds
Bitcoin belongs in your speculative variable portfolio, not the PP.
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Re: Did Harry Browne consider this flaw in his strategy?

Post by economicsjunkie » Wed Jan 06, 2016 5:30 pm

dualstow wrote: The whole pp is about safety. It's not like anyone's going into *all* long bonds.
The whole pp is about safety, but the 25% bond allocation is NOT. It's about getting the most volatile and interest rate sensitive government bonds possible.
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Re: Did Harry Browne consider this flaw in his strategy?

Post by economicsjunkie » Wed Jan 06, 2016 5:43 pm

Lang wrote: Canada issued a 50-year bond two years ago (it matures in 2064, so it now has 48 years to maturity). It currently trades at a yield of 2.15%. It can appreciate by 99% if its yield goes to zero. Just keep in mind that it's riskier than a 30-year bond.
Interesting. Given that, gaston should be investing in that 50 yr bond, not in the 30 yr bond.
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Re: Did Harry Browne consider this flaw in his strategy?

Post by Lang » Wed Jan 06, 2016 11:23 pm

economicsjunkie wrote: To look at bond price alone is to ignore the gains achieved from coupons, especially if you re-invest the coupon (as you should in my opinion).
"Yield to maturity" takes coupon reinvestments into account.
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Re: Did Harry Browne consider this flaw in his strategy?

Post by economicsjunkie » Thu Jan 07, 2016 1:25 pm

Lang wrote: "Yield to maturity" takes coupon reinvestments into account.
... but calculating the bond price with an online bond price calculator doesn't.
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