Question for Melveyr

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melveyr
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Re: Question for Melveyr

Post by melveyr » Mon Feb 15, 2016 9:54 am

buddtholomew wrote:
I don't recall HB commenting on the relationship between money supply and gold.
Gold responds to unexpected inflation is the theory not excess bank reserves stored at the FED.
The $ didn't reach those who could spend it and raise inflation.
Not sure the model is broken, perhaps misused but not broken.
I wasn't saying that the PP or Harry Browne's analysis were flawed. I was saying that people (not necessarily on this forum) had been using flawed models to justify higher gold prices. My statement about flawed models was a short/medium-term explanation on why gold has been in the dumps lately and could continue to drop as people abandon their old worldviews.
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Re: Question for Melveyr

Post by barrett » Mon Feb 15, 2016 9:59 am

buddtholomew wrote:
melveyr wrote: The idea was that banks lend in direct proportion to the amount of reserves that they have, and that once things returned to normal we would have an explosion of credit and spending that would push prices up. Many people equated monetary easing and QE with "money printing" which I have found to not be accurate, at least when trying to connect it with its effect on inflation. People were buying gold based on these theories, and pushing the price up. We have seen a slow bleed in gold as holders have slowly come to recognize that their understanding of the connection between Fed policy and inflation is not as direct as they thought.
I don't recall HB commenting on the relationship between money supply and gold.
Gold responds to unexpected inflation is the theory not excess bank reserves stored at the FED.
The $ didn't reach those who could spend it and raise inflation.
Not sure the model is broken, perhaps misused but not broken.
What he was very clear on is that he considered the USD to be the world's number one currency, and that when it came under threat that the best place to turn was number two (gold). For the most part I agree with what melveyr is saying but there is a little voice in my head (might just be technovelist!) saying that the inflation may still be coming.
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Re: Question for Melveyr

Post by technovelist » Mon Feb 15, 2016 10:21 am

barrett wrote:
buddtholomew wrote:
melveyr wrote: The idea was that banks lend in direct proportion to the amount of reserves that they have, and that once things returned to normal we would have an explosion of credit and spending that would push prices up. Many people equated monetary easing and QE with "money printing" which I have found to not be accurate, at least when trying to connect it with its effect on inflation. People were buying gold based on these theories, and pushing the price up. We have seen a slow bleed in gold as holders have slowly come to recognize that their understanding of the connection between Fed policy and inflation is not as direct as they thought.
I don't recall HB commenting on the relationship between money supply and gold.
Gold responds to unexpected inflation is the theory not excess bank reserves stored at the FED.
The $ didn't reach those who could spend it and raise inflation.
Not sure the model is broken, perhaps misused but not broken.
What he was very clear on is that he considered the USD to be the world's number one currency, and that when it came under threat that the best place to turn was number two (gold). For the most part I agree with what melveyr is saying but there is a little voice in my head (might just be technovelist!) saying that the inflation may still be coming.
If price inflation isn't coming, it will be the first time in history that hasn't happened after destroying the link between currency and any actual object like gold.

More money has been lost on the notion that "this time it's different" than on any other mistaken notion.
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Re: Question for Melveyr

Post by Reub » Mon Feb 15, 2016 10:22 am

Ryan,  I just wanted to welcome you back and say that you've been missed!
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Re: Question for Melveyr

Post by BearBones » Mon Feb 15, 2016 10:54 am

melveyr wrote: Not so much here on this forum but many gold holders were betting on a big inflation coming because of charts like this...

The idea was that banks lend in direct proportion to the amount of reserves that they have, and that once things returned to normal we would have an explosion of credit and spending that would push prices up. Many people equated monetary easing and QE with "money printing" which I have found to not be accurate, at least when trying to connect it with its effect on inflation. People were buying gold based on these theories, and pushing the price up. We have seen a slow bleed in gold as holders have slowly come to recognize that their understanding of the connection between Fed policy and inflation is not as direct as they thought.
Thanks for clarifying. So it's not as much that gold may not be useful in inflation, but rather our ability to predict inflation is flawed. And the PP is too weighted toward gold for your tastes. I get that.

Yes, I vaguely remember the discussion several years back in which some, like MT, argued that all the "money printing" in the world (QE) would not necessarily translate into inflation if the macroeconomic fundamentals were not in place to cause the money to go into circulation. Seems that they were right. So far at least.

One more question:
So it seems that you have shifted from gold to TIPs for an inflation hedge. Do you think that is better than just a smaller allocation to gold? If so, can you elaborate?
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Re: Question for Melveyr

Post by pugchief » Mon Feb 15, 2016 12:02 pm

What happened to the theory that it was negative real interest rates that caused gold to rise?
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Re: Question for Melveyr

Post by melveyr » Mon Feb 15, 2016 12:23 pm

BearBones wrote:
One more question:
So it seems that you have shifted from gold to TIPs for an inflation hedge. Do you think that is better than just a smaller allocation to gold? If so, can you elaborate?
If I wanted to inflation proof a retirement plan that was about to enter the withdrawal phase the first step would be home ownership, then having the majority of fixed income in TIPs, then making some of the equity exposure international, and then if I was still worried a small allocation to gold. Gold is still the only tool for hedging the extreme inflation risks, but I think it should be used after exhausting the other options.

Please keep in mind that I am personally more comfortable having a portfolio that consists of traditional asset classes, so that makes my portfolio more susceptible to the extreme inflation tail risks. A gold heavy portfolio is likely to be the best portfolio in an extreme inflation. I just don't like having a large amount of capital tied up in something that is such a small part of the global portfolio. The gold market is around $6 trillion in size whereas the size of the global equity and bond markets is closer to $300 trillion.

I am really not trying to give advice. Please just interpret this as what I am doing, not what you should. Every portfolio that generates decent returns takes risks and you have to make sure that it is aligned with your psychology. The PP is not aligned with mine so I stopped using it.
Last edited by melveyr on Mon Feb 15, 2016 12:25 pm, edited 1 time in total.
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Re: Question for Melveyr

Post by pugchief » Mon Feb 15, 2016 12:35 pm

melveyr wrote:
I am really not trying to give advice. Please just interpret this as what I am doing, not what you should. Every portfolio that generates decent returns takes risks and you have to make sure that it is aligned with your psychology. The PP is not aligned with mine so I stopped using it.
The problem is, as was debated a while back: What would make one abandon the PP? Consensus was, IIRC, that if Craig or MT gave up on it, then it was toast. I would put you in that class as well, what with a personal website/blog devoted to the PP and all of the mathematical reasons why it is so great.
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Re: Question for Melveyr

Post by melveyr » Mon Feb 15, 2016 1:12 pm

Well, as I said before I am certainly not ringing the alarm bell on the portfolio. The performance since starting the blog has been decent considering the risk level. The sharpe ratio has beaten the vanguard 60/40 Balanced fund (VBINX). I just want to go with a more traditional approach with my assets going forward because I don't like the tracking error that the PP has with traditional portfolios. I always found myself comparing it with the BH approaches and it bothered me when it would underperform. This is a psychological thing. I also like that running a three fund portfolio makes managing my 401k very easy because no matter what company I switch to they are 90% likely to have funds that will work for me.

I still find the PP to be a very interesting portfolio and understanding how it works has given me a macro toolkit that I never would have had without it. The charts on my site will continue to update and I look forward to tracking its performance for many years.
Last edited by melveyr on Mon Feb 15, 2016 1:22 pm, edited 1 time in total.
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Re: Question for Melveyr

Post by buddtholomew » Mon Feb 15, 2016 1:59 pm

As Melveyr said, there are positives and negatives to every portfolio, so why choose?
I have chosen to adopt both a BH + PP portfolio to avoid future regret and allocated retirement (20-30 years) and taxable (short to intermediate term) investments accordingly.
There have been few surprises along the way, except one.
I too noticed that the PP lagged in times of prosperity.
To resolve this dilemma, I decided to raise the stock allocation in retirement accounts.
I dare not touch the PP allocations as the portfolio performs as advertised during the difficult times.
Last edited by buddtholomew on Mon Feb 15, 2016 2:01 pm, edited 1 time in total.
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Re: Question for Melveyr

Post by Fred » Mon Feb 15, 2016 3:51 pm

pugchief wrote:
melveyr wrote:
I am really not trying to give advice. Please just interpret this as what I am doing, not what you should. Every portfolio that generates decent returns takes risks and you have to make sure that it is aligned with your psychology. The PP is not aligned with mine so I stopped using it.
The problem is, as was debated a while back: What would make one abandon the PP? Consensus was, IIRC, that if Craig or MT gave up on it, then it was toast. I would put you in that class as well, what with a personal website/blog devoted to the PP and all of the mathematical reasons why it is so great.
We should all be grateful that at least Mr. Melvey isn't doing a Mathjak on us.
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Re: Question for Melveyr

Post by ochotona » Mon Feb 15, 2016 4:15 pm

Mel, I'm just curious, what is your approximate age and years left until your retirement target date?
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