Trump's Effect on the PP

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Re: Trump's Effect on the PP

Post by MachineGhost » Fri Nov 18, 2016 3:50 pm

dutchtraffic wrote:The drawdown can never be higher than buy and hold :)
Why does your chart (first one) show it higher then?
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Re: Trump's Effect on the PP

Post by dutchtraffic » Fri Nov 18, 2016 3:51 pm

And if you are worried about missed gains during a sharp increase of the underlying, then sell 20 delta or even further 5-10 delta, it's pretty much free money if you are that many strikes away.
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Re: Trump's Effect on the PP

Post by dutchtraffic » Fri Nov 18, 2016 3:51 pm

MachineGhost wrote:
dutchtraffic wrote:The drawdown can never be higher than buy and hold :)
Why does your chart (first one) show it higher then?
I think there's something wrong with it, the second chart is also from a much more credible source.
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Re: Trump's Effect on the PP

Post by Kevin K. » Fri Nov 25, 2016 3:26 pm

rickb wrote: I'm very sanguine about the PP's ability to withstand interest rate increases, stock market crashes, etc.

On the other hand, I'm skeptical of the PP's ability to withstand an idiot congress led by an ignoramus who together seem like the perfect storm that may end up with the US defaulting on Treasuries and/or the US dollar losing its worldwide reserve currency status.

The PP is constructed assuming a 0% chance the US defaults (well, not quite - the gold you can hold in your hand is meant to preserve at least a portion of your assets in any conceivable or inconceivable SHTF scenario). My problem is that the chance of the US defaulting given our recently elected congress and president seems to have gone from an ignorable SHTF sort of probability to something greater than 1% and possibly as high as 10-20%. This seems to me to be a Nassim Taleb sort of "Black Swan" event. Extremely difficult to estimate, albeit relatively low, probability, but very high impact (sort of like Trump winning the election in the first place).

The IMF already has SDRs as a new global currency, see http://www.imf.org/en/News/Articles/201 ... e-Renminbi . What happens if the US dollar loses its reserve currency status is that demand for US Treasuries tanks. This would be a problem at our current deficit spending rate, let alone a significantly increased deficit spending rate caused by drastically cutting taxes on the uber wealthy and increasing spending to "defend" our border from those pesky Mexicans trying to steal our jobs and rape our women.

I guess I feel like we've taken a huge dump and blithely assuming it's going to miss the fan is perhaps excessively wishful thinking.
We've had the obstructionist idiots in Congress running the show and flirting with Treasury bond default for 8 years now, but adding the Ignoramumus-in-Chief does add an additional dose of volatility. I do think the points you are others have raised about the PP counting on flight to safety are well worth heading. But if what we are saying is not just that "full faith and credit" has one or more asterixes by it but that the dollar's reserve currency status and indeed the primacy of the U.S. in the world economy could be threatened then it seems to me being defensive would mean moving in the direction of a much more diversified approach along the lines of what DFA, Paul Merriman and other modern portfolio theory folks recommend. Hugely diversified equity allocation, perhaps 10% (but no more) in gold as SHTF insurance, total U.S. bond market instead of pure treasuries and a decent-sized slice of international bonds as well. "Defensive" going forward may look very different than in did in Mr. Browne's era. He certainly had no great regard for politicians, but I don't think he'd have imagined we'd have folks running all three branches of government whose main interest is in making sure it doesn't work in order to prove it doesn't work.
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Re: Trump's Effect on the PP

Post by Mountaineer » Fri Nov 25, 2016 4:50 pm

Kevin K. wrote:
rickb wrote: I'm very sanguine about the PP's ability to withstand interest rate increases, stock market crashes, etc.

On the other hand, I'm skeptical of the PP's ability to withstand an idiot congress led by an ignoramus who together seem like the perfect storm that may end up with the US defaulting on Treasuries and/or the US dollar losing its worldwide reserve currency status.

The PP is constructed assuming a 0% chance the US defaults (well, not quite - the gold you can hold in your hand is meant to preserve at least a portion of your assets in any conceivable or inconceivable SHTF scenario). My problem is that the chance of the US defaulting given our recently elected congress and president seems to have gone from an ignorable SHTF sort of probability to something greater than 1% and possibly as high as 10-20%. This seems to me to be a Nassim Taleb sort of "Black Swan" event. Extremely difficult to estimate, albeit relatively low, probability, but very high impact (sort of like Trump winning the election in the first place).

The IMF already has SDRs as a new global currency, see http://www.imf.org/en/News/Articles/201 ... e-Renminbi . What happens if the US dollar loses its reserve currency status is that demand for US Treasuries tanks. This would be a problem at our current deficit spending rate, let alone a significantly increased deficit spending rate caused by drastically cutting taxes on the uber wealthy and increasing spending to "defend" our border from those pesky Mexicans trying to steal our jobs and rape our women.

I guess I feel like we've taken a huge dump and blithely assuming it's going to miss the fan is perhaps excessively wishful thinking.
We've had the obstructionist idiots in Congress running the show and flirting with Treasury bond default for 8 years now, but adding the Ignoramumus-in-Chief does add an additional dose of volatility. I do think the points you are others have raised about the PP counting on flight to safety are well worth heading. But if what we are saying is not just that "full faith and credit" has one or more asterixes by it but that the dollar's reserve currency status and indeed the primacy of the U.S. in the world economy could be threatened then it seems to me being defensive would mean moving in the direction of a much more diversified approach along the lines of what DFA, Paul Merriman and other modern portfolio theory folks recommend. Hugely diversified equity allocation, perhaps 10% (but no more) in gold as SHTF insurance, total U.S. bond market instead of pure treasuries and a decent-sized slice of international bonds as well. "Defensive" going forward may look very different than in did in Mr. Browne's era. He certainly had no great regard for politicians, but I don't think he'd have imagined we'd have folks running all three branches of government whose main interest is in making sure it doesn't work in order to prove it doesn't work.
I'm not sure I'm understanding you correctly, but it seems you may be advocating more of a Boglehead type portfolio vs. a Browne type portfolio. Might a Boglehead portfolio, perhaps like one of the target retirement funds, deal with Black Swans a bit better, especially if one is in the distribution stage?
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Re: Trump's Effect on the PP

Post by Kevin K. » Fri Nov 25, 2016 5:10 pm

Mountaineer wrote: I'm not sure I'm understanding you correctly, but it seems you may be advocating more of a Boglehead type portfolio vs. a Browne type portfolio. Might a Boglehead portfolio, perhaps like one of the target retirement funds, deal with Black Swans a bit better, especially if one is in the distribution stage?
Yes, that's the question I'm raising. If you look at, for example, Vanguard Lifestrategy Conservative Growth Fund, it's 60:40 bonds to stocks but the bond holdings are 60% Total Bond Market (which is more than half Treasuries but also includes the entire corporate and agency markets) and 40% hedged International, while the 40% of the portfolio that's in equities is also 60:40 Total U.S. and Total International. Now there are no tilts to small cap, value or emerging markets as you'd find in a more sophisticated but much harder to manage portfolio, but the Vanguard fund-of-funds is infinitely more broadly diversified than the PP and much better positioned to withstand threats of default on Treasury obligations.

Personally, as I'm in the distribution phase myself, I find Desert's latest proposed portfolio (60% Intermediate Treasuries, 10% each Total U.S. Stock Market, Small Cap, Emerging Markets and Gold) much more appealing but am seriously thinking about diversifying the huge bond allocation beyond Treasuries. Desert's approach is a pretty cool hybrid of insights gleaned from the PP with Larry Swedroe's "Larry" portfolios.
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Re: Trump's Effect on the PP

Post by Kevin K. » Fri Nov 25, 2016 9:51 pm

Might as well require turning in all weapons that aren't musket-loaders and require the slaves to get back to their plantations while you're at it.
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Re: Trump's Effect on the PP

Post by Libertarian666 » Fri Nov 25, 2016 11:01 pm

Kevin K. wrote:Might as well require turning in all weapons that aren't musket-loaders and require the slaves to get back to their plantations while you're at it.
No, that would be the Democrat platform.
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Re: Trump's Effect on the PP

Post by ochotona » Sun Nov 27, 2016 2:59 pm

Back in 2001 and 2002, the US Dollar index hit a high of 120. Not the highest ever, but the highest in the last 20 years.

Right now it's at 101.55. Could the US-Foreign interest rates spreads being established now run it up by 18% back up to 120?

You'd see gold back to sub-$1000. LT Treasuries would be way high, they're 3% for the 30 year now, could they run up to 5%? 6%? Bonds would get creamed even more. Would the tight money on the long end of the yield curve then tank the stock market?

I think these are the risks for 2017-2018.
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Re: Trump's Effect on the PP

Post by barrett » Mon Nov 28, 2016 7:44 am

ochotona wrote: You'd see gold back to sub-$1000. LT Treasuries would be way high, they're 3% for the 30 year now, could they run up to 5%? 6%? Bonds would get creamed even more. Would the tight money on the long end of the yield curve then tank the stock market?

I think these are the risks for 2017-2018.
I think stocks will take a hit if the ten-year treasury gets up to, say 3.0% - 3.5%. There is a point at which investors will take the "risk-free" asset over the one with the very high P/E ratio. In other words, stocks and bonds will find a point of equilibrium.

I don't buy the notion that Trump is somehow going to cause a default on US treasuries. The USG will need to keep borrowing big if he is to fund what he wants to do with infrastructure. That can't be done if people don't have faith that they'll get their money back.

I'm not saying that there won't be more short-term pain for the PP. Obviously some damage has already been done but we all knew that bonds and stocks were overpriced and that something would bring them down a couple notches. We just didn't know what.

The other thing is that if the USD continues to gain strength, there should be tons of overseas buyers for US Treasuries as they would stand to gain on two fronts, i.e. from the yield spread above their own country's bonds AND and from a currency that is strengthening relative to their own.

As usual, I have no clue about gold except that it will do well if the USD's rock solid standing is ever called into doubt. That was all Harry Browne ever really said about gold... that the USD was the world's number one reserve currency and that folks would flock to the number two currency (gold) when option number one was no longer attractive.
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Re: Trump's Effect on the PP

Post by sophie » Mon Nov 28, 2016 7:53 am

Exactly, Barrett. The Fed agrees with you about stocks, which is why they've been so hesitant about raising rates.

I do think the market has a far greater impact on Treasury interest rates than the Fed does though. And the market is a large, infinitely complex entity with many moving parts, some of which you listed. Thus we're back to the idea that you can't predict the market. Yes, interest rates could rise battering stocks and gold, although if they start rising too fast gold will rebound. Or, this could be the same transient bump in rates that we saw the last time the Fed raised interest rates, combined with some excitement about Trump's election. Or, interest rates could go back in the dumpster where they've been for a while, stocks will take off again, and gold will continue to wallow in the 1200-1300 range.

Or maybe something completely different from all of the above will happen. Right?
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Re: Trump's Effect on the PP

Post by Cortopassi » Mon Nov 28, 2016 8:07 am

sophie wrote:Or maybe something completely different from all of the above will happen. Right?
+1,000,000

Almost every time I thought I figured something out, I was burned.

Given my personal makeup, I see no other option out there better than a PP.

And now finally after years of trying, I am just starting to look at the overall gain/loss number for the whole PP, and not individual components. It helps. But I still watch gold more than I should.
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Re: Trump's Effect on the PP

Post by Cortopassi » Wed Nov 30, 2016 9:45 am

CullyB wrote:Bonds and stocks getting hurt badly again today. Equities aren't making up for it. This could be a very painful 4 or more years for this type of investing.
You meant gold, not stocks, right?

Whatever. Unless you got a 5% CD or money market I can plop my net worth in, there's nothing else I would consider doing than the PP.

All the moves every day are exaggerated both up and down in almost every type of holding. Does make it tough for those of us that like to watch daily.

I am bracing myself for December to erase the 6.5% gain I have for the year so far. If it doesn't, I will be pleasantly surprised.
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Re: Trump's Effect on the PP

Post by buddtholomew » Wed Nov 30, 2016 3:13 pm

Cortopassi wrote:
CullyB wrote:Bonds and stocks getting hurt badly again today. Equities aren't making up for it. This could be a very painful 4 or more years for this type of investing.
You meant gold, not stocks, right?

Whatever. Unless you got a 5% CD or money market I can plop my net worth in, there's nothing else I would consider doing than the PP.

All the moves every day are exaggerated both up and down in almost every type of holding. Does make it tough for those of us that like to watch daily.

I am bracing myself for December to erase the 6.5% gain I have for the year so far. If it doesn't, I will be pleasantly surprised.
Seems like gold and LTT's are in a race to the bottom wherever that may be...
It has been really tough to watch the portfolio perform so poorly since the recent highs.
It feels like we are the bag holders when everyone else is selling to escape.
Still sticking to the plan, but man this is borderline abuse.
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Re: Trump's Effect on the PP

Post by IDrinkBloodLOL » Wed Nov 30, 2016 6:55 pm

WHAT THE FUCK IS THIS SHIT
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Re: Trump's Effect on the PP

Post by Kriegsspiel » Wed Nov 30, 2016 7:10 pm

I don't even the numbers.
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Re: Trump's Effect on the PP

Post by IDrinkBloodLOL » Wed Nov 30, 2016 7:34 pm

I have now lost like 2/3 of this year's gain. Why the fuck cannot even one year work out remotely decent?
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Re: Trump's Effect on the PP

Post by Cortopassi » Wed Nov 30, 2016 9:32 pm

IDrinkBloodLOL wrote:I have now lost like 2/3 of this year's gain. Why the fuck cannot even one year work out remotely decent?
It will. It never feels like it at these points, but it will.

What would you have done otherwise? More stock? More active trading? Just curious.
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Re: Trump's Effect on the PP

Post by rickb » Wed Nov 30, 2016 11:57 pm

Cortopassi wrote:
IDrinkBloodLOL wrote:I have now lost like 2/3 of this year's gain. Why the fuck cannot even one year work out remotely decent?
It will. It never feels like it at these points, but it will.

What would you have done otherwise? More stock? More active trading? Just curious.
I don't track year to date returns, but I'm up about 6% over the last 12 months with >90% of assets in a PP portfolio. Seems pretty good to me.

The reason I'm in a PP portfolio is 2008. I've never been an aggressive investor, but in 2008 the total assets (accumulated over 30 years of "investing") dropped by about 25%.

If you do the arithmetic, you can easily figure out I'm over 50. This involves a significant amount of money (I'll clue you in that 25% was a mid 6 figures amount).

I've been financially fucked, repeatedly (a long story for a different time). There are certainly no guarantees, but the PP has been the closest I've ever seen to a "don't get fucked" portfolio.

If you want to hit triples every year, you'll strike out (repeatedly). If you're OK with hitting singles, ...

I have serious concerns about whether the PP will survive Trump. I'm seriously considering converting my paper gold (ETFs and CEFs) to physical gold. But the structure of the PP more or less guarantees that I'll preserve at least a significant portion of my accumulated wealth no matter what kind of chaos Trump manages to create.

We could be on the verge of a nuclear WWIII. Gold should do OK.

We could be on the verge of a worldwide depression due to trade wars that makes the 1930s look like nirvana. Short term treasuries and gold should do OK.

We could be on the verge of America being great again (whatever the fuck that means). Stocks should do OK.

The whole point of the PP is that you don't get fucked. No matter what.
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Re: Trump's Effect on the PP

Post by Cortopassi » Thu Dec 01, 2016 7:20 am

rickb, exactly!

Worst thing that is going to happen right now is we get a perceived sale on gold and bonds if you rebalance in January.

At least small caps are doing well, for those doing the GB.
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Re: Trump's Effect on the PP

Post by Kevin K. » Thu Dec 01, 2016 9:52 am

Thanks rickb and Cortopassi for your comments and sentiments. I'm in the same boat vis-a-vis 2008, as I suspect a lot of us are.

We all sign on for volatile individual assets when we take on the PP, but it is indeed difficult to see two of them getting hammered every day in unison with no end in sight.

So...there's staying the course as one option, the Golden Butterfly tweak with its higher allocation to equities as another, and beyond that the only portfolios I know of that would be even remotely appealing to those looking for a PP-like "bunker" are iterations of Larry Swedroe's "Larry Portfolio" of which (for me anyway) Desert's latest iteration (60% IT Treasuries, 10% each TSM, SCV, EM and gold) is the most appealing. Its backtested numbers are if anything even more impressive than the PP's in terms of stability of returns and avoiding drawdowns, but as HB and others here (always much gratitude to Craig and Medium Tex!) have taught us one has to look at the design independent of backtesting.

My take it that the intermediate term bonds are a lot easier to deal with in a rising-rate environment while still offering plenty of protection when flight-to-safety events happen. Desert's stock allocation is straight from Swedroe's 70% stable bonds/30% super-volatile stocks playbook and IMO makes a lot more sense than U.S. large caps only given relative valuations (Swedroe's excellent book(let) "Reducing the Risk of Black Swans" has the data and logic). The 10% gold really does make a difference in the returns and reflects Desert's careful study of the PP, but 10% is a whole lot easier to live with than 25% - just enough (as he put it) for "SHTF" insurance.
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Re: Trump's Effect on the PP

Post by Jack Jones » Thu Dec 01, 2016 12:14 pm

At least small caps are doing well, for those doing the GB.
The stock portion of my PP is half SP500, and half Vanguard Small Cap (credit goes to MG for inspiring me to make this modification). I feel like it's a reasonably safe and sensible deviation from a proper PP.
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Re: Trump's Effect on the PP

Post by I Shrugged » Thu Dec 01, 2016 4:36 pm

I am also in the boat RickB described. I only had the one scary loss, in 08/09, though. But it made me go for the PP. I already believed in it, but had not really adopted it. I think the end of ZIRP will dwarf whatever the GOP may do. However ZIRP unwinds, it will be a great test for the PP. I don't love being a guinea pig, but then, at this point, what investor isn't one?
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Re: Trump's Effect on the PP

Post by buddtholomew » Thu Dec 01, 2016 5:13 pm

Investors that chased gold and bond returns have certainly paid the price.
Those of us invested in the PP this year have watched an outsize return evaporate as these same assets declined.
What lies ahead is anyone's guess, but I for one am going to re-balance into gold and treasuries to maintain my allocation.
We have witnessed a remarkable recovery in equities since the depths of 08/09.
If it continues, great, but when it does retract I fully expect gold and/or treasuries to be the main recipients.
Investors are always on the wrong side and I am not going to choose.
I will also be OK if investors flee to cash if interest rates rise and savings begin to pay a decent yield.
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Re: Trump's Effect on the PP

Post by barrett » Fri Dec 02, 2016 6:46 am

buddtholomew wrote:Investors that chased gold and bond returns have certainly paid the price.
Those of us invested in the PP this year have watched an outsize return evaporate as these same assets declined.
What lies ahead is anyone's guess, but I for one am going to re-balance into gold and treasuries to maintain my allocation.
We have witnessed a remarkable recovery in equities since the depths of 08/09.
If it continues, great, but when it does retract I fully expect gold and/or treasuries to be the main recipients.
Investors are always on the wrong side and I am not going to choose.
I will also be OK if investors flee to cash if interest rates rise and savings begin to pay a decent yield.
Yeah, I'm pretty much with you on all points, Budd. One thing of note... When I look at historical data, it seems that investors are willing to deal with higher stock P/E ratios over time. The highs on the historical graph are higher as well as the lows. So, while I believe stocks are coming down at some point, they may not really get hammered as they did in 2008. But, yeah, keeping the four assets pretty much in balance seems likely to be the best approach going forward.

What I struggle with at times is looking at that retirement account # going down when I am trying to get my finances in line to retire (don't HAVE to yet but I would like for it to be an option). It's natural to get "anchored" on the amount of $ one has at a peak and feel, OK, this is where I am at. All is well. Then during the drawdowns, which happen with ANY portfolio, it feels like $ is being taken away. So maybe I work a year or three longer than I had planned. That's hardly a tremendous hardship. Anyway, just blathering here.

But, while I am blathering, I may as well continue! The YTD PP gains three months ago just seemed unsustainable. This portfolio is not supposed to beat inflation by 12-14%. But, to vaguely bring this post back to any effect Trump might be having on the PP, I just don't see that anything much has changed fundamentally since he was elected. I don't see that inflation, prosperity or any other economic condition naturally follows just because we have Trump to deal with for the next 2-4 years (we'll see what happens in the 2018 midterm election).
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