Staying the course with LTTs

Discussion of the Bond portion of the Permanent Portfolio

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dockinGA
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Re: Staying the course with LTTs

Post by dockinGA » Thu Nov 04, 2021 6:17 pm

mathjak107 wrote:
Wed May 12, 2021 5:04 am
I would never compare anything in Europe when it comes to rates ….the govt wants rates negative there ..

Their banking system is terrible when it comes to loaning out money to small borrowers…

Negative rates acts as a tax on bank reserves so it compels the banks to lend ..

We have no such problem here nor do we want negative bond rates.

In any case while we can never say never odds are slim Tlt won’t be a weight ……I think betting so much on Tlt is not going to pan out well …..I would sooner have a higher equity level then so much riding on rates if I have to bet on something.


Odds are on any given day Tlt is down. But worse is a years interest can be gone in one session
And another reminder of your predictions. Just so everyone's aware, on May 12 2021 30 yr rates were 2.40%, today they are 1.96%. So, if you're counting at home, we'll give you credit for predicting a rise in LTT rates leading up to the highs of earlier this year, but no credit for the March 2020 stocks prediction of a further 2/3 decline, and no credit for your prediction that rates will continue to rise after your May 2021 prediction. But hey, 1 out of 3 ain't bad.
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Re: Staying the course with LTTs

Post by dockinGA » Thu Nov 04, 2021 6:27 pm

mathjak107 wrote:
Sun Nov 10, 2019 5:44 pm
The cape ratio is really a poor indicator of short term moves ....the reality is we have no idea what markets will do .

Wait, now I'm getting confused :-\ :-\ :-\

Judging from some of your previous comments, I could've sworn you were actually 100% convinced of what markets will do? But it appears that at this point in 2019, you stated that we have no idea what markets will do. Maybe when you said 'we' you just meant permanent portfolio devotees, and not Fidelity Insight/Growth newsletter subscribers?
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Re: Staying the course with LTTs

Post by l82start » Thu Nov 04, 2021 8:16 pm

vincent_c wrote:
Thu Nov 04, 2021 6:53 pm
vnatale wrote:
Thu Nov 04, 2021 5:39 pm

As a not so long ago newcomer...I will say again that the liberal usage of acronyms with no explanations were far more confusing than reading anything that mathjak has ever written anywhere at any time.
It's not that kind of confusion.

The thing is that MJ presents his analysis of the current and near future economic conditions and says things to the effect of the PP being a poor investment strategy because it is very obvious that one or more components is going to be doing poorly. This is a suggestion that it is better to time the markets because even if you are correct that LTTs or gold will underperform stocks for a period of time, you need to be right twice in order to get back in when it again becomes the right time.

I don't think MJ believes that it is always going to be a bad time for LTTs but he is unlikely to be able to tell us precisely when that is going to happen. These suggestions, if followed, can be reckless for most people who come here looking for the kind of all-weather approach that the PP provides.

He also suggests things that are purely false which is that the portfolio is too skewed in its exposure to one particular type of risk. LTTs react to nominal rates and gold react to real rates. Stocks respond to growing nominal future earnings and can coincide with a period of falling or rising interest rates.

The PP gives you exposure to the only 2 types of risks that exist. Credit risk and duration risk.

The other two components are insurance so that you can capture the risk premium that you should be compensated for in bearing exposure to those risks. The 25% allocation to cash and gold make it easy to rebalance and because gold has a similar degree of volatility to stocks and bonds across various time frames it is a reasonable position to hold to reduce variance.

The general historical return of the PP is reliable enough so that it is easy to calculate whether this portfolio is suitable for you. If the PP does not provide the necessary return that an investor is looking for, they need to understand that both cash and gold are non-productive assets which lead to a long term drag on portfolio returns, this is no secret.

They can either choose to bear more risk by reducing either gold or cash exposure, this is up to them and no one ever said that the 4x25% PP is the be all and end all that all investors should choose. It is more a framework which is suitable for most people who have substantial funds and low requirements for their portfolio returns. But when they do this they increase the risk of their portfolio relative to the 4x25%.

This is a fact because you are taking on more exposure to credit and/or duration risk.

To think of it any other way is just a misunderstanding of the facts and when someone presents their views as facts when they are actually just using their best analysis which is pretty much a guess/estimate/prediction of the future then I consider that potentially damaging to other readers with unknown investment knowledge.

The fact that Vinny did not understand how the things MJ says can be so "confusing" and the fact that I have seen many people respect MJ's "advice" when it comes to things like LTTs show me that if his posts are left unchecked on this forum, it is potentially harmful to some readers and they might not even know it.
well said..
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Re: Staying the course with LTTs

Post by murphy_p_t » Fri Nov 05, 2021 10:58 am

It is interesting to note that as this particular thread has gained interest, 30-year bonds are are having some strong days.
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Re: Staying the course with LTTs

Post by dockinGA » Sat Nov 27, 2021 1:21 pm

dockinGA wrote:
Thu Nov 04, 2021 6:17 pm
mathjak107 wrote:
Wed May 12, 2021 5:04 am
I would never compare anything in Europe when it comes to rates ….the govt wants rates negative there ..

Their banking system is terrible when it comes to loaning out money to small borrowers…

Negative rates acts as a tax on bank reserves so it compels the banks to lend ..

We have no such problem here nor do we want negative bond rates.

In any case while we can never say never odds are slim Tlt won’t be a weight ……I think betting so much on Tlt is not going to pan out well …..I would sooner have a higher equity level then so much riding on rates if I have to bet on something.


Odds are on any given day Tlt is down. But worse is a years interest can be gone in one session
And another reminder of your predictions. Just so everyone's aware, on May 12 2021 30 yr rates were 2.40%, today they are 1.96%. So, if you're counting at home, we'll give you credit for predicting a rise in LTT rates leading up to the highs of earlier this year, but no credit for the March 2020 stocks prediction of a further 2/3 decline, and no credit for your prediction that rates will continue to rise after your May 2021 prediction. But hey, 1 out of 3 ain't bad.
Mathjak, in the other thread you said you're going to reply if someone mentions you in a post. Well, I mentioned you a few weeks ago in this one, quoted you directly in fact, in a series of posts highlighting the errors of some of your past predictions. And yet you didn't reply, even though rates have only dropped further since I made this update. So it appears that you just don't reply when confronted with words from your past?
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Re: Staying the course with LTTs

Post by Kbg » Sat Nov 27, 2021 1:57 pm

Mj is our resident hand wringer…he’ll be fine, we’ll be fine. :-)
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Re: Staying the course with LTTs

Post by mathjak107 » Sun Nov 28, 2021 5:31 am

you want a reply ? i said last january that long term bonds and likely gold. would be a weight on the pp and kill any traction equities managed to get and that is how it played out ..both have negative returns with a few weeks left to 2021


so i am going to say the same thing again .. this inflation is not going away any time soon unless we have another shut down from the pandemic which is like rolling the dice in vegas as the odds of it so i still hold my opinion that interest rate heavy bets are a poor idea now and likely next year.

that is all that needs to be said by me … i dropped the pp last year and so far i am having a good 2021 in comparison.

lets see if i am correct and the pp has a very hard time getting traction again
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Re: Staying the course with LTTs

Post by seajay » Sun Nov 28, 2021 9:40 am

Trailing 12 months, November 2020 to October 2021, PP +7.48%, +1.2% real. MaxDD -4.33%
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Re: Staying the course with LTTs

Post by mathjak107 » Sun Nov 28, 2021 11:11 am

i show for the 1 year period



tlt down 3.70 with dividends , ytd down 3.32

gld down 1.57,, ytd down 6.45

shy down .47. ytd down .41

vti up 27.56 ytd 22.40


one year for pp up 5.50%

ytd 3.05%
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Re: Staying the course with LTTs

Post by Kbg » Tue Nov 30, 2021 6:00 pm

Give it time, these numbers will reverse. When the market tanks hard PP will catch up for a short period of time before getting left in the dust again...ain't nuthing surprising about the PP way underperforming in a strong bull market.
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Re: Staying the course with LTTs

Post by dualstow » Wed Dec 01, 2021 7:35 am

Kbg wrote:
Tue Nov 30, 2021 6:00 pm

nuthing surprising about the PP way underperforming in a strong bull market.
Yup
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Re: Staying the course with LTTs

Post by jhogue » Wed Dec 01, 2021 9:14 am

Is the PP under-performing, or is the stock market over-performing?
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Staying the course with LTTs

Post by Kbg » Wed Dec 01, 2021 10:47 am

jhogue wrote:
Wed Dec 01, 2021 9:14 am
Is the PP under-performing, or is the stock market over-performing?
It's all relative, right? :-)
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Re: Staying the course with LTTs

Post by Kbg » Wed Dec 01, 2021 11:35 am

vincent_c wrote:
Wed Dec 01, 2021 11:22 am
Is a speculative premium considered over performance?

But if you believe in a long term average growth trend and that there will be reversion to that mean then is it fair to say that anything above that is considered performance or just that if you have exposure above fair value then you're taking on additional speculative risk?
Personally I do think the stock market is quite pricey.

Conceptually though, what is value? I'd argue at its core it's nothing more than pure human perception. There are quantitative measures of perceived "value", some of which are more rational than others, but at the end of the day value is an opinion.
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Re: Staying the course with LTTs

Post by mathjak107 » Thu Dec 02, 2021 3:06 am

it is your opinion
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Re: Staying the course with LTTs

Post by Kbg » Thu Dec 02, 2021 9:09 am

vincent_c wrote:
Wed Dec 01, 2021 7:32 pm
Fair value can be modelled (basically an educated guess) and then confirmed in hindsight by evaluating whether there was a mean. Fair value is market value less speculative excess. The PP allows you over time to essentially be holding assets at their fair value and reducing the speculative excess across the asset classes. I'm not sure if this is just my opinion or not.
Yes, but identifying value in hindsight doesn't help you make money. The CAPE ratio is a great poster boy/example of this. If one went with staying out of the market when the C.R. said the market was "expensive" historically then what, you would have been out of the stock market for like the last two decades?

Our good ole HBPP gold component...good luck coming up with anything that indicates "value" and works in a forward test.

Another example...when is a company that is going to go out of business ever a good value? Lots of people try to figure that out and make money off of it, but if the company ends up toast then nothing previous to zero could in hindsight be considered a good value.

On the PP and rebalancing...for me a more technically correct explanation is that we have a set of assets that have low or negative correlations. We hope they increase in value, but we know we can make money mathematically if they go up and down relative to each other (unless the slope for all or a majority of them is down simultaneously).

It's all basically an educated guess (with emphasis on the guess part).
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Re: Staying the course with LTTs

Post by Kbg » Thu Dec 02, 2021 11:04 am

v_c,

Agree on all points.

I use the PP as a benchmark for a similar though leveraged portfolio.

I chuckled on your last two sentences...very true. Kinda like using Formula 1 racing speeds to evaluate rally car race speeds. Yes, they both have engines but not really the same thing.
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Re: Staying the course with LTTs

Post by vnatale » Fri Dec 03, 2021 9:44 am

vincent_c wrote:
Thu Dec 02, 2021 10:30 am

There are probably certain things that you can say that for sure makes one model better than another when trying to come up with an educated guess about the value of something. At some point you get diminishing returns and errors that make any modelling that educated guess but if you're modelling various assets and those errors cancel each other out in the long term (which we know for example if you own part of a business that makes a profit in nominal terms then you should receive a positive cash flow in nominal terms), I think that's as close as you can get.

So in my opinion the PP is a good enough proxy for this allocation that we think represents fair value ownership in the underlying assets in the long term and so it can be used as a benchmark if you wished and so any under or out-performance of a manager can be measured against a benchmark and only if that alpha was created deliberately.

Just saying stocks had better return vs the PP as a whole doesn't mean it outperformed the PP. An outperformance to me ought to only be used to refer to someone's action that they deliberately took that goes against the benchmark they are measuring themselves. Is it rational to choose any other benchmark other than the PP or similar enough allocations?

Some on here would prefer to take the best returning asset class and measure the PP's return against that and say that those of us who use the PP have underperformed. My opinion is that using the PP as a benchmark is closer to an objective measure, what do you guys think?


This happens all the time with sports fans, particularly Yankees fans.

The Yankees have not had a losing team for about 30 years. But each year the Yankees get compared to the most successful teams of the day. There is never a comparison to how these today successful teams compare to the Yankees over the long run.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Staying the course with LTTs

Post by mathjak107 » Fri Dec 03, 2021 10:52 am

however with portfolios it is very easy to compare over any time frames you like
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Re: Staying the course with LTTs

Post by mathjak107 » Fri Dec 03, 2021 2:25 pm

wait for it then ..if i am wrong i will admit it but i dont think so ..three out of 4 assets are bet on rates and or inflation and gold does not respond well to plain low to moderate inflation , as far as my opinion goes. so it will likely follow rates inversely until real returns are poorer than now
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Re: Staying the course with LTTs

Post by mathjak107 » Fri Dec 03, 2021 3:30 pm

bond investors will want to be compensated when this inflation stays and is not just a flash in the pan …whether the fed can keep bond investors at bay with short term hikes remains to be seen.
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Re: Staying the course with LTTs

Post by Cortopassi » Fri Dec 03, 2021 3:48 pm

vincent_c wrote:
Thu Dec 02, 2021 2:30 pm
I think it's interesting to note that TLT is trading near the lows of the week of March 1 2020 and even eyeing the levels at the close of the following week which kind of puts into perspective our current situation.
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Re: Staying the course with LTTs

Post by mathjak107 » Fri Dec 03, 2021 4:37 pm

those lows back then were with no where near the inflation issues today
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Re: Staying the course with LTTs

Post by ppnewbie » Wed Dec 15, 2021 9:47 pm

If my understanding of the PP is correct is that you have three violative assets and 4 non correlated assets. It works because you have big swings down but even bigger swings up (which moves the portfolio forward at about a 4 percent real return rate). So my question is how far can LTT’s swing UP from a mathematical stand point? Basically is there enough upside volatility left in LTT to counteract a downward force in stocks and gold.

I know Tyler wrote about bond convexity in a negative interest rate environment but I have some dissonance around this concept.

Quick edit here. I just looked at the 30 year rates at 1.857 which tell me they still have some juice left to swing up.
Last edited by ppnewbie on Wed Dec 15, 2021 9:50 pm, edited 1 time in total.
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Re: Staying the course with LTTs

Post by ppnewbie » Thu Dec 16, 2021 2:45 am

Mathkak - if you dont mind can you throw out the name of the commodities etf you are using?
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