Re: Trump's Effect on the PP
Posted: Fri Nov 18, 2016 3:50 pm
Why does your chart (first one) show it higher then?dutchtraffic wrote:The drawdown can never be higher than buy and hold
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Why does your chart (first one) show it higher then?dutchtraffic wrote:The drawdown can never be higher than buy and hold
I think there's something wrong with it, the second chart is also from a much more credible source.MachineGhost wrote:Why does your chart (first one) show it higher then?dutchtraffic wrote:The drawdown can never be higher than buy and hold
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.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.
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?Kevin K. wrote: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.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.
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.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?
No, that would be the Democrat platform.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.
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.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.
+1,000,000sophie wrote:Or maybe something completely different from all of the above will happen. Right?
You meant gold, not stocks, right?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.
Seems like gold and LTT's are in a race to the bottom wherever that may be...Cortopassi wrote:You meant gold, not stocks, right?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.
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.
It will. It never feels like it at these points, but it will.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?
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.Cortopassi wrote:It will. It never feels like it at these points, but it will.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?
What would you have done otherwise? More stock? More active trading? Just curious.
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.At least small caps are doing well, for those doing the GB.
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.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.