Why should PP continue going up?

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technovelist
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Re: Why should PP continue going up?

Post by technovelist » Fri Jul 08, 2016 4:00 pm

iwealth wrote:
Sam Brazil wrote:and there are even certain alt coins being developed with even better built-in anonymity
Isn't this part of what makes bitcoins so risky? What's the barrier to entry here for newcomers besides branding?
Exactly. There is an unlimited number of other algorithms that have at least as good characteristics as the one implementing bitcoin.

This is why I call bitcoin the "Beanie Baby" of currencies.

Now what might be quite valuable is digital currencies that are 100% backed by gold (or silver, or whatever you wanted). I understand some people have developed something like that but I don't know anything else about it.
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Re: Why should PP continue going up?

Post by MachineGhost » Fri Jul 08, 2016 6:54 pm

Sam Brazil wrote:This is where I'm personally more comfortable with a trend following layer on top of the PP, like a 200 day MA, so that if it turns out long bonds are "broken," the PP won't continue plowing more and more money into them during rebalance events. If I'm wrong and LTTs can continue to skyrocket all the way to -50% yields, then no problem either, the system dictates to continue putting money into them.
The problem is if you're out of gold or bonds while equity decides to take a dump, you have no protection. How to reconcile this? Grin and bear it? Keep a small eternal position even when it is still "risk on"? Ultimately you wind up back at the PP.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: Why should PP continue going up?

Post by MachineGhost » Fri Jul 08, 2016 7:02 pm

technovelist wrote:Now what might be quite valuable is digital currencies that are 100% backed by gold (or silver, or whatever you wanted). I understand some people have developed something like that but I don't know anything else about it.
I was there. They all collapse eventually due to hucksters and fraudsters using it. Attracts unwanted government attention. But they weren't decentralized. Bitcoin isn't either really since four Chinese companies own the entire blockchain in practical terms, but at least its in the right direction.

What I don't like about Bitcoin is its got a limited supply, a limited number of decimal places and a limited number of transanctions that can be processed per second, i.e. perpetually deflationary and perpetually slowing down which doesn't make it useful as stable or practical money. OTOH, there was a cryptocurrency that was the opposite of Bitcoin and it attracted no attention at all and I was probably the only one even mining it. So my verdict is people are purely speculating on cryptocurrencies and not because they think its going to replace legal tender. Come on, people aren't that much of deep thinkers in the aggregate, especially the Chinese.

First mover advantage also works most of the time, hence Bitcoin is King of the Hill. The rest are me too tier players that aren't worth a moment's notice other than if it is cheaper to mine and convert to Bitcoin. However, Ethereum and Maidsafe are disruptive exceptions out of the payments realm, so they're worth paying attention to.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: Why should PP continue going up?

Post by Sam Brazil » Fri Jul 08, 2016 7:35 pm

iwealth wrote:
Sam Brazil wrote:and there are even certain alt coins being developed with even better built-in anonymity
Isn't this part of what makes bitcoins so risky? What's the barrier to entry here for newcomers besides branding?
You're right. There are no barriers other than branding, or more specifically, the network effect. That's a really powerful barrier, though, and I tend to think people dismiss it too lightly.

For example, what is to stop someone else from copying LinkedIn? Facebook? Twitter? Ebay? Paypal? The tech to create a social website is trivial. Their real value is in their 2 sided network popularity.

Once you've reached a certain critical mass of popularity in a two sided market, it becomes extremely difficult for others to compete. It's not impossible. Facebook's takeover of Myspace is an example, but it's generally speaking one of the most durable competitive advantages you can get, short of a patent.

Isn't that exactly the same thing as Bitcoin?
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Re: Why should PP continue going up?

Post by Sam Brazil » Fri Jul 08, 2016 7:38 pm

MachineGhost wrote:
Sam Brazil wrote:This is where I'm personally more comfortable with a trend following layer on top of the PP, like a 200 day MA, so that if it turns out long bonds are "broken," the PP won't continue plowing more and more money into them during rebalance events. If I'm wrong and LTTs can continue to skyrocket all the way to -50% yields, then no problem either, the system dictates to continue putting money into them.
The problem is if you're out of gold or bonds while equity decides to take a dump, you have no protection. How to reconcile this? Grin and bear it? Keep a small eternal position even when it is still "risk on"? Ultimately you wind up back at the PP.
Diversifying isn't a bad idea. One conventional PP. One trend following PP. Who knows which will end up better off.
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Re: Why should PP continue going up?

Post by Sam Brazil » Fri Jul 08, 2016 7:41 pm

technovelist wrote:
iwealth wrote:
Sam Brazil wrote:and there are even certain alt coins being developed with even better built-in anonymity
Isn't this part of what makes bitcoins so risky? What's the barrier to entry here for newcomers besides branding?
Exactly. There is an unlimited number of other algorithms that have at least as good characteristics as the one implementing bitcoin.

This is why I call bitcoin the "Beanie Baby" of currencies.

Now what might be quite valuable is digital currencies that are 100% backed by gold (or silver, or whatever you wanted). I understand some people have developed something like that but I don't know anything else about it.
At what point is it no longer Bean Baby currency, though? How long does it need to maintain its growth in popularity to transition from a fad to a legitimate new technology that's disruptive and here to stay.
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Re: Why should PP continue going up?

Post by technovelist » Sat Jul 09, 2016 9:15 pm

Sam Brazil wrote:
technovelist wrote:
iwealth wrote:
Isn't this part of what makes bitcoins so risky? What's the barrier to entry here for newcomers besides branding?
Exactly. There is an unlimited number of other algorithms that have at least as good characteristics as the one implementing bitcoin.

This is why I call bitcoin the "Beanie Baby" of currencies.

Now what might be quite valuable is digital currencies that are 100% backed by gold (or silver, or whatever you wanted). I understand some people have developed something like that but I don't know anything else about it.
At what point is it no longer Bean Baby currency, though? How long does it need to maintain its growth in popularity to transition from a fad to a legitimate new technology that's disruptive and here to stay.
I think it would be reasonable to conclude that it is here to stay as soon as it has half the duration of gold's use as money. Let's call it 1000 years for a round estimate.
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Re: Why should PP continue going up?

Post by dualstow » Sat Jul 09, 2016 9:42 pm

Bitcoin is still very "nubile." ;)
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Re: Why should PP continue going up?

Post by blackomen » Tue Jul 12, 2016 10:37 am

clacy wrote:"Why should ______ continue to go up?"

You can substitute many things for PP in that questions..... Real estate, 60/40, any number of lazy portfolios, farm land, silver, muni bonds, etc, etc.

Unfortunately no one can ever answer these with certainty.

My belief is that balanced portfolios stand the test of time better than going all in on one asset class. And I happen to think that the PP tends to be the best situated of all the standard balanced/lazy portfolios.

So with that said, a better question is what asset allocation do you think will outperform it in the next 5 years?
Agreed.

Reality check: we don't invest in the PP because we believe it's gonna deliver superior returns. We invest in it in order to shield us from massive losses in case we're wrong. Even holding cash could lead to massive losses if we get hyperinflation (like the double digit inflation rates of the late 70s and early 80s.) Back in the beginning of 2013, I had a strong intuition that stocks were gonna be the winner that year and I was right, but I had chosen the PP which lost 3% vs stocks which gained 30%. On the other hand, Gold and Bonds both lost around 20% and had I picked the wrong asset, I could have been staring at those losses instead of the mere -3%.

The purpose of the PP, as stated by Harry Browne, is to protect the purchasing power of your assets, not to deliver superior real returns, without knowing what the future holds. So far, it seems to be doing its job well, but if you're still not satisfied with the returns you're getting, there's always the VP.
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Re: Why should PP continue going up?

Post by Kbg » Tue Jul 12, 2016 11:01 am

For what it's worth (not much), I would wave off a trend following PP. Gold is the only asset of the three that trends well. Band rebalancing (return to mean) is a much better approach for this particular portfolio. Having noted this, one could use a discretionary mix. When you hit a rebalance band slap a MA on the asset(s) that are showing good trending and wait until the asset stalls or is potentially reversing and at that point pull the rebalance trigger. Just make sure you decide your mechanics ahead of time and pull the trigger with no regrets when it happens. This may get you a bit more juice if the trend continues or lose a bit if the rebalance hits right around the extreme.

There is no way to backtest this as it is all discretionary. It may help and won't hurt that much.
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Re: Why should PP continue going up?

Post by belgo » Wed Jul 13, 2016 1:04 pm

I am coming a bit late to this very interesting discussion. Sam, you are raising a number of very valid questions. I set up an EU PP only 4 months ago and the bond issue was a big question for me. The 30y Bund was trading at 0.87% at the time ... In Europe we are basically already facing your theoretical questions about the bond floor. And guess what: 4 months later, the same bund is at 0.42% yield and the Long term bond part has generated close to 10% return so far in the EU PP. So it does seem to fulfil what it needs to do even at yields that are ridiculously low. People have to put their money somewhere when they panic. I do agree that somewhere there must be a floor or things become ridiculous. But I believe that floor is well below 0% as there is a cost to storing cash under your mattress on a large scale. And i noticed that the Swiss bonds are all trading well below 0% even the very long ones; it does not seem to immediately "kill" the Swiss banks. So I can see a scenario where the long term rates will remain very low for very long and that you do not hold them for their yield but because they act as a safe haven in a panic scenario. And once, who knows when, rates will go up and the bund will show losses, but my hope is that the other assets will have risen enough to compensate for this scenario. We are indeed in unchartered territory but I am quite happy with the Bunds so far.
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Re: Why should PP continue going up?

Post by Kbg » Wed Jul 13, 2016 1:26 pm

I was listening to a podcast yesterday and the interviewee made a very interesting case for the US eventually getting to the same/close to the same rates as Japan and Europe. Several points why but the big ones were better government finances and international money flows into the US as a result of NIRP/ZIRP in the other major economic blocks. If you are a foreign investor you get the carry spread and dollar appreciation. He gave an anecdote where several rich Russians in his neighborhood are up like 60%.
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