Reducing the 50% US Dollar allocation Exposure? Reason for 3x33

Discussion of the Bond portion of the Permanent Portfolio

Moderator: Global Moderator

Post Reply
Jim Taylor
Junior Member
Junior Member
Posts: 7
Joined: Sat Aug 04, 2018 6:33 pm

Reducing the 50% US Dollar allocation Exposure? Reason for 3x33

Post by Jim Taylor » Sun Aug 05, 2018 12:50 pm

I like the idea of 25%x4, but with cash held in short term treasures, and bonds held in long term treasuries half the portfolio is devoted to US government paper. I heard someone call into Browne's show complaining about this. Browne said he could buy long term corporate bonds instead, but that would not be as good. We know this to be true due to past history in 2008, as well as them being callable and more risky. If the treasury really defaulted I have trouble believing that corporate bonds would really do that well, but does anyone have any history on this from other countries?

But my main question is what other choice do we have? Would hedged international bonds help? I looked at BNDX and 20% of their holdings are in Japan, which prints more than us, so that doesn't seem smart.

Any ideas on alternatives to diversify the Treasuries?

In a sense I feel this could be an argument for the 3x33 approach where cash is taken out. Many people go to this for the backtested higher return, but in a way it may be a more harmoniously split between the core assets in reality?
User avatar
Desert
Executive Member
Executive Member
Posts: 3609
Joined: Sat Jun 26, 2010 2:39 pm

Re: Reducing the 50% US Dollar allocation Exposure? Reason for 3x33

Post by Desert » Sun Aug 05, 2018 1:05 pm

I'm don't believe that the 4x25% HBPP is the optimum portfolio for everyone, but I'd have a hard time conceiving of a lower risk portfolio. If the U.S. defaulted on its obligations, the world would be in a very bad place, and the 25% gold allocation would have risen in value tremendously. You'd probably be so much richer than anyone around you, you'd have to be more concerned with defending your wealth than worrying about the demise of the treasury.
Jim Taylor
Junior Member
Junior Member
Posts: 7
Joined: Sat Aug 04, 2018 6:33 pm

Re: Reducing the 50% US Dollar allocation Exposure? Reason for 3x33

Post by Jim Taylor » Sun Aug 05, 2018 2:27 pm

Desert wrote:
Sun Aug 05, 2018 1:05 pm
You'd probably be so much richer than anyone around you, you'd have to be more concerned with defending your wealth than worrying about the demise of the treasury.
Very good point and this is actually one of my main concerns. If the Gold is held at home then there is risk or robbery. If the Gold is held in ETF or a depository those custodians could have major disruptions. Same as with Safe boxes at Banks.

So my thinking in another thread was to actually reduce Gold holdings for these reasons, but then I got worried about not having enough gold to counter act the high level of treasuries, so I was thinking of ways to reduce those as well. But I guess if you cant trust US treasuries and the safe keeping of Gold then there really isn't anything safer out there as you pointed out as well.

So then I have to accept that the PP should have one protected for the unthinkable as Browne said, so long as one is able to safe guard their gold. Its the beauty of Gold having no counterparty risk and being unhackable that is so critical to the inclusion in the PP. In turn this ultimately leads to the additional onus and care being on the owner to keep it safe. The luxury of having someone to complain to if a bank account or brokerage makes a mistake or goes under does not apply to gold. I think this last part is the one I am searching to mitigate, by searching for another asset or allocation that does afford these protections.
User avatar
I Shrugged
Executive Member
Executive Member
Posts: 530
Joined: Tue Dec 18, 2012 6:35 pm

Re: Reducing the 50% US Dollar allocation Exposure? Reason for 3x33

Post by I Shrugged » Sun Aug 05, 2018 5:59 pm

I agree with Desert.

Although, I have diversified into intl bonds for the past several years. Probably not worth it, at least not if things go bad.
I do see the concern over how to hold gold securely. Each method of holding gold has some risk, and/ or costs quite a bit to mitigate the risk. Still, gold is the ace in the hole.
Jim Taylor
Junior Member
Junior Member
Posts: 7
Joined: Sat Aug 04, 2018 6:33 pm

Re: Reducing the 50% US Dollar allocation Exposure? Reason for 3x33

Post by Jim Taylor » Sun Aug 05, 2018 11:19 pm

I Shrugged wrote:
Sun Aug 05, 2018 5:59 pm
I agree with Desert.

Although, I have diversified into intl bonds for the past several years. Probably not worth it, at least not if things go bad.
I do see the concern over how to hold gold securely. Each method of holding gold has some risk, and/ or costs quite a bit to mitigate the risk. Still, gold is the ace in the hole.
If you don't mind sharing I would be interested how you added the int bonds. Did you use a hedged or unhedged fund? Did you target certain countries or the general index like BNDX? What percentage did you allocate?
User avatar
I Shrugged
Executive Member
Executive Member
Posts: 530
Joined: Tue Dec 18, 2012 6:35 pm

Re: Reducing the 50% US Dollar allocation Exposure? Reason for 3x33

Post by I Shrugged » Mon Aug 27, 2018 6:04 pm

Jim Taylor wrote:
Sun Aug 05, 2018 11:19 pm
I Shrugged wrote:
Sun Aug 05, 2018 5:59 pm
I agree with Desert.

Although, I have diversified into intl bonds for the past several years. Probably not worth it, at least not if things go bad.
I do see the concern over how to hold gold securely. Each method of holding gold has some risk, and/ or costs quite a bit to mitigate the risk. Still, gold is the ace in the hole.
If you don't mind sharing I would be interested how you added the int bonds. Did you use a hedged or unhedged fund? Did you target certain countries or the general index like BNDX? What percentage did you allocate?
I used an imperfect solution. A closed end fund, Templeton Global Income (GIM). It did great though. I still have it but after a manager change and market forces etc, it's so-so. I don't know if I would repeat the international allocation today. I have to admit I was bearish on the Fed and dollar, and let my political inclinations affect my investment decisions.
Post Reply