Trump's Effect on the PP

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MachineGhost
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Re: Trump's Effect on the PP

Post by MachineGhost » Thu Nov 17, 2016 6:17 pm

I had a spark of inspiration this morning and am mulling over a fix for the PP's Achilles' Heel.

What most of us didn't realize until just this very atomic moment is that "Tight Money" is the same thing as "Liquidity Crisis" aka 2008. The PP got destroyed in 2008 before just barely recovering on a calendar year basis.

Gesundheit!
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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: Trump's Effect on the PP

Post by rickb » Thu Nov 17, 2016 6:28 pm

dutchtraffic wrote:So let me get this straight.

Everybody is whining like crazy for ages that rates are waayyyyy too low, and when they finally rise a tiny tiny bit, everybody goes full-mental mode...? Look at the longterm chart, it barely moved, it's still a loonnnnggg way down to get to normal rates. And it's still a very big "IF", if rates even go back to 'normal' anytime soon.

Why are you guys investing?
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.
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Re: Trump's Effect on the PP

Post by MachineGhost » Thu Nov 17, 2016 7:24 pm

rickb wrote: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.
Are you referring to Congress not raising the debt ceiling? They always use that as ploy to get concessions from the other side of the aisle. Can't imagine why they would fight themselves now not to raise it. It only affects new spending anyway, not debt oustanding. They're gonna have to raise it for Trump's planned spending.
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.
SDR isn't a financial asset. It's internal accounting Monopoly money like the Fed's bank reserves. Is of no real world consequence. Even if the dollar dose lose it's reserve currency status (which is already ongoing gradually because no one has a vested interest in a shock therapy approach), it won't displace Treasuries as the widest, deepest and most liquid financial asset in the world anytime soon.

You're getting a tax cut too. Why are you obsessed that those with higher incomes (i.e. job creators and capitalists that do more for the economy than you ever will) will get a bigger relative reduction? Deficit spending + lower taxes = inflationary. Isn't that what we've been trying to stoke for 8 years now without success?

P.S. I hope you read "You Are Still Crying Wolf" in the other thread. It is not mentally healthy to be publically ranting against delusions that exist only in your own mind.
"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: Trump's Effect on the PP

Post by rickb » Thu Nov 17, 2016 8:30 pm

MachineGhost wrote:
rickb wrote: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.
Are you referring to Congress not raising the debt ceiling? They always use that as ploy to get concessions from the other side of the aisle. Can't imagine why they would fight themselves now not to raise it. It only affects new spending anyway, not debt oustanding. They're gonna have to raise it for Trump's planned spending.
Yes - I'm referring to Congress not raising the debt ceiling. I suspect the Tea Partiers will continue to try to prevent this, not to get concessions from the "normal" Republicans but because they're zealots who believe increasing the federal debt is inherently evil. The question is whether the rational Republicans will prevail (and, IMO, "rational Republican" at this point seems to be nearly an oxymoron).
MachineGhost wrote:SDR isn't a financial asset. It's internal accounting Monopoly money like the Fed's bank reserves. Is of no real world consequence. Even if the dollar dose lose it's reserve currency status (which is already ongoing gradually because no one has a vested interest in a shock therapy approach), it won't displace Treasuries as the widest, deepest and most liquid financial asset in the world anytime soon.
A major reason Treasures are the widest, deepest, most liquid financial asset in the world is because the US dollar is the (still dominant) reserve currency. If countries start using SDRs instead of Treasuries, demand for Treasuries decreases (even though SDRs are about 50% Treasuries).
MachineGhost wrote:You're getting a tax cut too. Why are you obsessed that those with higher incomes (i.e. job creators and capitalists that do more for the economy than you ever will) will get a bigger relative reduction? Deficit spending + lower taxes = inflationary. Isn't that what we've been trying to stoke for 8 years now without success?
My concern about tax cuts for the rich in this context is how it affects the deficit. The deficit ballooned under Reagan's tax cuts (and Bush's), which increases the need to sell Treasuries. I think it's been shown over and over that tax cuts for the rich (as opposed to tax cuts or even rebates for the non-rich) do not stimulate the economy - they just increase the debt (and the gap between the haves and the have-nots, which I think is dangerously high already, see https://en.wikipedia.org/wiki/French_Revolution).
MachineGhost wrote:P.S. I hope you read "You Are Still Crying Wolf" in the other thread. It is not mentally healthy to be publically ranting against delusions that exist only in your own mind.
Yes I've read it.
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Re: Trump's Effect on the PP

Post by dutchtraffic » Thu Nov 17, 2016 8:41 pm

Why would the tax cuts only be for "the rich"....?
That's a total false statement, watching a bit too much of the left media?

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Re: Trump's Effect on the PP

Post by I Shrugged » Thu Nov 17, 2016 9:25 pm

Rick, a person I knew well based his investment decisions on his political beliefs. It did not work. I don't knock you if you don't think the PP will work. But take a chill pill. (I'm assuming you're serious, and not using this thread just to bitch about Trump. And I realize I have done a lot of gratuitous bitching about Obama, so I can't be too high and mighty.) But anyway, if you are seriously concerned about the PP, I'd say count to 10. Months.

One thing I felt before the election: We are due for a recession, probably another debt crash. No matter who won. The PP held up well in the big one. So we shall see.
Last edited by I Shrugged on Thu Nov 17, 2016 9:33 pm, edited 1 time in total.
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Re: Trump's Effect on the PP

Post by I Shrugged » Thu Nov 17, 2016 9:32 pm

MachineGhost wrote:I had a spark of inspiration this morning and am mulling over a fix for the PP's Achilles' Heel.

What most of us didn't realize until just this very atomic moment is that "Tight Money" is the same thing as "Liquidity Crisis" aka 2008. The PP got destroyed in 2008 before just barely recovering on a calendar year basis.

Gesundheit!
For the past year or so I have been saying here that Tight Money is impossible to imagine now. Therefore throwing the 25% cash into question.

I don't agree that it is the same as the Liquidity Crisis. That was deflation. IMO.

The only way I can see tight money is if the money creation finally succeeds in igniting inflation, it starts to get out of hand, and the Fed goes Volker. Otherwise, we are so far removed from normal Fed/business cycles that I don't see it.

Something bad is coming. We just can't see it. I still like the PP.
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Re: Trump's Effect on the PP

Post by MachineGhost » Thu Nov 17, 2016 9:53 pm

rickb wrote:Yes - I'm referring to Congress not raising the debt ceiling. I suspect the Tea Partiers will continue to try to prevent this, not to get concessions from the "normal" Republicans but because they're zealots who believe increasing the federal debt is inherently evil. The question is whether the rational Republicans will prevail (and, IMO, "rational Republican" at this point seems to be nearly an oxymoron).
They have 48 of 435 seats in the House and 4 out of 100 in the Senate. There should be a lot more than 48 Democrats willing to support fiscal spending under Trump since there's never a tax or spend program they don't like.
A major reason Treasures are the widest, deepest, most liquid financial asset in the world is because the US dollar is the (still dominant) reserve currency. If countries start using SDRs instead of Treasuries, demand for Treasuries decreases (even though SDRs are about 50% Treasuries).
You can't use SDR's -- they're not investable financial assets and the IMF has no legal authority nor is a sovereign. Because of economic growth over the last 60 years (which goes hand in hand with debt issuance), there is so much capital now sloshing around the world that it has no place to go but into Treasuries because no other market is simply large enough. That fact is just not going to change anytime soon. A hell of a lot needs change in terms of structure before Treasuries can no longer be a safe haven. That will take decades and if Trump is successful in revitalizing the economy, it is going to push it back even more.
My concern about tax cuts for the rich in this context is how it affects the deficit. The deficit ballooned under Reagan's tax cuts (and Bush's), which increases the need to sell Treasuries. I think it's been shown over and over that tax cuts for the rich (as opposed to tax cuts or even rebates for the non-rich) do not stimulate the economy - they just increase the debt (and the gap between the haves and the have-nots, which I think is dangerously high already, see https://en.wikipedia.org/wiki/French_Revolution).
Tax cuts promote economic growth, increase GDP and thus general tax revenues, but the effect is stronger when the economy is doing poorly or marginal income tax rates are way too high. This has been shown in the peer reviewed literature. But unless you also restrain spending to be under the newly increased level of revenues, you sure aren't going to decrease a deficit. So spending is the real problem for that claim, not the tax cuts. But the problem with decreasing the deficit during a moribund economy as we have now is it acts deflationary and not inflationary because a deficit provides badly needed savings and income to the private sector. That is what the last eight years has demonstrated. Now, you can't be worried about growing the deficit and the Tea Party at the same time. It's one of the other.

The French Revolution?!! That happened not because of the gap between the rich and the poor, but because the rich aristocratic elites didn't share their ill-gotten wealth with the mass, toiling poor aka socialism or deficit spending... the exact same kind of negative forces that elected Trump against all of the ruling Democratic elitists (and Establishment Republicans). Unlike in the 1700's, we no longer tolerate that kind of self-centered aristocracy -- again as Trump's recent win illustrated. So once again, its deficit spending or the Tea Party. You can pick one or the other, but not both.
"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: Trump's Effect on the PP

Post by MachineGhost » Thu Nov 17, 2016 10:05 pm

I Shrugged wrote:For the past year or so I have been saying here that Tight Money is impossible to imagine now. Therefore throwing the 25% cash into question.

I don't agree that it is the same as the Liquidity Crisis. That was deflation. IMO.
But they're both the same thing. Cash becomes more valuable relative to all other assets. What's different is the source. In theory, the Fed causes tight money (i.e. high yields) which makes cash more attractive relative to all other assets and panic selling causes liquidation of all assets other than cash which is why bonds and gold can go down along with stocks under either scenario.

We're witnessing minor tight money right now as the Fed continues to raise the FFR and some minor panic selling as the bond market continues to increase yields on expectations of future economic growth. This is what the PP doesn't like. I say rather than gamble on the vagaries of timing to offset the losses, there must be a better way to protect 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: Trump's Effect on the PP

Post by doodle » Fri Nov 18, 2016 8:26 am

MachineGhost wrote:
I Shrugged wrote:For the past year or so I have been saying here that Tight Money is impossible to imagine now. Therefore throwing the 25% cash into question.

I don't agree that it is the same as the Liquidity Crisis. That was deflation. IMO.
But they're both the same thing. Cash becomes more valuable relative to all other assets. What's different is the source. In theory, the Fed causes tight money (i.e. high yields) which makes cash more attractive relative to all other assets and panic selling causes liquidation of all assets other than cash which is why bonds and gold can go down along with stocks under either scenario.

We're witnessing minor tight money right now as the Fed continues to raise the FFR and some minor panic selling as the bond market continues to increase yields on expectations of future economic growth. This is what the PP doesn't like. I say rather than gamble on the vagaries of timing to offset the losses, there must be a better way to protect the PP.
Long time away here, just getting back into this again. I'm not sure how to magnify the volatility of cash, but I agree this is definitely an area of concern for me regarding this portfolio. In this present environment im about 40 percent cash at the moment....and having trouble rebalancing.

One strategy that I was surprised that never gained traction here was selling calls and puts as a way to boost returns. It seems like there should be a way devise some sort of algorithm around the rebalancing bands that gives an indication of what level to sell calls and puts. With highly volatile assets that the portfolio holds it seems that a decent return should be able to be generated by this. Am I missing something?
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Re: Trump's Effect on the PP

Post by sophie » Fri Nov 18, 2016 8:35 am

MachineGhost wrote: We're witnessing minor tight money right now as the Fed continues to raise the FFR and some minor panic selling as the bond market continues to increase yields on expectations of future economic growth. This is what the PP doesn't like. I say rather than gamble on the vagaries of timing to offset the losses, there must be a better way to protect the PP.
The Fed will do what it wants, but it has only limited effect on bond yields compared to market forces. We are still in a deflation/de-leveraging phase, with too much debt at all levels and too large a proportion of the US population barely managing to stay afloat financially. This latter is due to a variety of causes (warning: unsupported speculation follows): high levels of unskilled immigration (plus the use of H1B visas to fill STEM jobs at low salaries), high birth rates in the lowest economic classes, continuous downward pressure on wages, the evaporation of full time skilled manufacturing jobs and their replacement with part time/unskilled/service jobs, local taxes and health care costs vastly outpacing inflation and wage increases, increased state spending on welfare programs, etc. None of these are going to change anytime soon, Trump's election notwithstanding.

The thing that I like the most about the PP is that it reacts to the real market, not the one that pundits think we have. It's quite possible the current increase in bond yields is only a blip. When the yields go up and stay up, then I'll believe that the economic environment is truly changing.
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Re: Trump's Effect on the PP

Post by MachineGhost » Fri Nov 18, 2016 8:41 am

doodle wrote:One strategy that I was surprised that never gained traction here was selling calls and puts as a way to boost returns. It seems like there should be a way devise some sort of algorithm around the rebalancing bands that gives an indication of what level to sell calls and puts. With highly volatile assets that the portfolio holds it seems that a decent return should be able to be generated by this. Am I missing something?
Two things. The rebalancing bands would be so far out of the money there wouldn't be any premium to collect. And the assets are not "highly volatile" -- they're only all about 15% average in the long-term. When you sell insurance all you are doing is taking on the outsized risk of having to payout a claim when there is any kind of Black Swan event. That is not compatible with the PP philosophy.

You could continously short VIX for the essentially the same thing and while you would make double or triple digit returns each year, you would incur high double digit losses during inclemental weather. So in the end selling volatility doesn't offer anything to the PP in terms of risk control, just leverages it up to the wrong direction.
Last edited by MachineGhost on Fri Nov 18, 2016 8:49 am, edited 2 times in total.
"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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