Staying the course with LTTs

Discussion of the Bond portion of the Permanent Portfolio

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foglifter
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Staying the course with LTTs

Post by foglifter » Sat Oct 30, 2021 6:42 pm

Over the last couple of years this forum has seen lots of discussions about the current environment of historically low rates, unprecedented money printing and growing inflation and how it affects their attitude towards long-term Treasury bonds as part of PP. Some people stay the course and keep buying LTTs, while others tune their bonds bucket by adding intermediate and short-term bonds/TIPS/cash or even drop Treasurys altogether. One of the key concerns is that the 40-years old bond bull market ended and long Treasurys no longer have the capability to play their unique role in the portfolio as well as Harry Browne originally envisioned.

I want to stay the course, but I'm confused and alarmed after reading all the numerous posts on the topic. I don't want to make any changes to my bond bucket, but at the same time I don't want to be oblivious to the risks. In order to understand the situation and make an informed decision so I can stop worrying about Treasurys in my portfolio I would like to ask all the smart folks who frequent this forum: what are your thoughts on LTTs? Are you staying the course? Are you tweaking your bonds bucket?

Usual disclaimer: I'm not going to treat your responses as a financial advice, I simply want to gauge the collective opinion about LTTs as part of PP.
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Re: Staying the course with LTTs

Post by I Shrugged » Sat Oct 30, 2021 6:55 pm

In a nutshell, I’m going to stick with PP until it breaks. Which includes LTTs.
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Re: Staying the course with LTTs

Post by vnatale » Sat Oct 30, 2021 8:29 pm

I Shrugged wrote:
Sat Oct 30, 2021 6:55 pm

In a nutshell, I’m going to stick with PP until it breaks. Which includes LTTs.


When did you last buy any?
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Re: Staying the course with LTTs

Post by Xan » Sat Oct 30, 2021 8:38 pm

I did move to the Golden Butterfly for money in retirement accounts, which I won't touch for a long time. Other than that I haven't made any changes to LTTs.

Without the PP I would never have bought any long-term treasuries, and would have missed out on a lot. To be honest I have no idea how to tell when it's a bad idea to include them in the portfolio.
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Re: Staying the course with LTTs

Post by boglerdude » Sun Oct 31, 2021 12:39 am

Are they dead in Japan? If so what did the date of their death correspond with. Demographics is destiny
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Re: Staying the course with LTTs

Post by mathjak107 » Sun Oct 31, 2021 3:56 am

There is little difference between a individual bond and say Tlt ….getting repaid 1k 20 years later is still a loss of half or more of what that 1k buys .

There is no smoke and mirrors that makes a bond held any better than a fund of the same duration .

You all know what I think of long term bonds , as I stated last year , they are a big big risk and likely will sand bag a portfolio .

That turned out to be the case as long bonds including all interest are negative both over the year and ytd .

This inflation is not going to be so transitory .as while supply chain issues may correct , services that went up as well as most goods will not fall in price once they go up …so I do see inflation being a sticky problem .

you can’t fix shortages and labor problems with fed actions …
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Re: Staying the course with LTTs

Post by mathjak107 » Sun Oct 31, 2021 7:50 am

Cash instruments still are not reflecting what the commodity markets and CPI are seeing ……so one of them is going to turn out wrong

2% rates on 30 year bonds, and zero on cash and 6% inflation increases in ss says something is wrong
Last edited by mathjak107 on Sun Oct 31, 2021 8:16 am, edited 1 time in total.
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Re: Staying the course with LTTs

Post by drumminj » Sun Oct 31, 2021 8:07 am

Xan wrote:
Sat Oct 30, 2021 8:38 pm
Without the PP I would never have bought any long-term treasuries, and would have missed out on a lot. To be honest I have no idea how to tell when it's a bad idea to include them in the portfolio.
Funny, without the PP I likely wouldn't have had as much equities exposure over the last 3-4 years. That exposure has helped me a lot towards my goals (technically I just "retired" on Friday).

My thinking is similar to I Shrugged in that I plan to stick with it until it's broken -- the philosophy works for me and keeps me invested in things I might otherwise shy away from ( = it protects me from myself).
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Re: Staying the course with LTTs

Post by mathjak107 » Sun Oct 31, 2021 8:17 am

Ss is social security.. because the CPI was averaging so high we just got a whopping 6% increase in it
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Re: Staying the course with LTTs

Post by mathjak107 » Sun Oct 31, 2021 8:21 am

People collecting social security just got a 6% increase in what they get because inflation is so high ….it is the highest increase in decades .

Zero on cash instruments, 1.6% on the ten year and 2% on the 30 year says things are not reflecting inflation by a lot …

The commodities market is soaring too ..my dbc commodity fund is up 68% over the one year and 48% ytd ..

So you have conflicting markets looking out at what is going on
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Re: Staying the course with LTTs

Post by mathjak107 » Sun Oct 31, 2021 9:02 am

Don’t know the answers to any of that but my personal plan is to avoid long term bonds and hold no more than 5% tops if that.

So far I have been right with that decision …based on all I see I am weighting for inflation heavier than long term bonds
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Re: Staying the course with LTTs

Post by PrimalToker » Sun Oct 31, 2021 11:33 am

I am staying the course. Part of the portfolio is rebalancing non correlated assets. Not including LTTs would remove some of the magic.
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Re: Staying the course with LTTs

Post by mathjak107 » Sun Oct 31, 2021 11:35 am

I like rebalancing in to non correlated assets too. A commodities etf A gold etf and a Bitcoin fund as well as short term and intermediate term bonds
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Re: Staying the course with LTTs

Post by murphy_p_t » Sun Oct 31, 2021 5:00 pm

Good thread. I have taken bonds to shy of 15%. Have traded in and out of the bonds a bit at opportune times over the last 2 years. I've been tempted to take it a bit lower, but a recent day where it was up almost 2%, at least intraday, left me thinking maybe leave things alone for now.

My view is that 50% in treasuries (25 tbills, 25 tbonds) is far too much in this inflationary environment, for me.

That talmudic suggestion ( third's metal, stocks, cash) I've seen in somebody's signature looks pretty sensible to me at the moment, as a general principle.
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Re: Staying the course with LTTs

Post by dualstow » Sun Oct 31, 2021 5:58 pm

foglifter wrote:
Sat Oct 30, 2021 6:42 pm
I want to stay the course, but I'm confused and alarmed after reading all the numerous posts on the topic. I don't want to make any changes to my bond bucket, but at the same time I don't want to be oblivious to the risks.
I hate that staying the course can now be seen as failing to adapt while the “this time it’s different people” successfully tinker. It’s supposed to be the permanent portfolio after all. But it’s certainly one possible scenario, obviously.

You called for the smart people but I’ll chime in anyway. For a long time, I’ve been growing the vp instead of contributing to the pp. That makes it easy enough to stay the course, but its an exercise in mental accounting. If the pp is too small a portion of the total, I may as well not have one.

For a while I’ve kept a fixed dollar amount in a treasury money market instead of a %. I don’t withdraw from it but I don’t add to it either. I’m trying to keep up with buying fresh long bonds, however. I’m about 50, so I figure if my wife has a bunch of principal returned to her around the time I kick off or go senile, that’s not the end of the world. Inflation is nothing compared to equities getting cut in half. I’ve felt ridiculous buying them in the past, and they’ve only been good to me.

I agree with murphy- the guidelines in your sig look good. But, i have no land to speak of. Only REITs.
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Re: Staying the course with LTTs

Post by I Shrugged » Sun Oct 31, 2021 8:06 pm

vnatale wrote:
Sat Oct 30, 2021 8:29 pm
I Shrugged wrote:
Sat Oct 30, 2021 6:55 pm
In a nutshell, I’m going to stick with PP until it breaks. Which includes LTTs.
When did you last buy any?
I don’t think we’ve bought any LTT, stocks, or gold since 2009. And surprisingly our portfolio has stayed within 15-35 rebalance bands the whole time. Although if I were to check right now, I bet our stocks are almost 40%. I guess I’m treating the name “permanent” quite literally.

Okay that’s not actually true, all LTT interest gets re-invested. So we are buying more regularly. Stocks, all of their dividend income goes to cash. I don’t like having uncontrollable transactions, such as automatic reinvestments, in my taxable area. We use index funds which almost never pay out gains. So between those two things, we have not bought stocks since 09. I don’t think.

We have a good sized nest egg, and only spend out of the cash portion. So it just rolls along.
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Re: Staying the course with LTTs

Post by foglifter » Sun Oct 31, 2021 9:09 pm

dualstow wrote:
Sun Oct 31, 2021 5:58 pm
foglifter wrote:
Sat Oct 30, 2021 6:42 pm
I want to stay the course, but I'm confused and alarmed after reading all the numerous posts on the topic. I don't want to make any changes to my bond bucket, but at the same time I don't want to be oblivious to the risks.
I hate that staying the course can now be seen as failing to adapt while the “this time it’s different people” successfully tinker. It’s supposed to be the permanent portfolio after all. But it’s certainly one possible scenario, obviously.

You called for the smart people but I’ll chime in anyway. For a long time, I’ve been growing the vp instead of contributing to the pp. That makes it easy enough to stay the course, but its an exercise in mental accounting. If the pp is too small a portion of the total, I may as well not have one.

For a while I’ve kept a fixed dollar amount in a treasury money market instead of a %. I don’t withdraw from it but I don’t add to it either. I’m trying to keep up with buying fresh long bonds, however. I’m about 50, so I figure if my wife has a bunch of principal returned to her around the time I kick off or go senile, that’s not the end of the world. Inflation is nothing compared to equities getting cut in half. I’ve felt ridiculous buying them in the past, and they’ve only been good to me.

I agree with murphy- the guidelines in your sig look good. But, i have no land to speak of. Only REITs.
dualstow, don't be so shy! :) I think the nature of this forum pretty much assures that people who join and stay here are smart.

Speaking of the "land" part of my signature: I think owning real estate (even if that's just your primary residence) checks that box. While I'm not considering my house a part of PP, it still plays a role in the ultimate "Portfolio" that includes ALL assets (PP, VP, cash, real estate, art, etc.).
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Re: Staying the course with LTTs

Post by foglifter » Sun Oct 31, 2021 9:22 pm

Wow, so many replies in just a couple of days, thanks everyone! Let's keep the thread alive, I'm sure there's much to talk about. I really appreciate everybody's input. I'm 90% in GB PP and 10% in VP, which helps me not to tinker with my GB too much as I have that VP playground.

Mathjak, your attitude towards LTTs is well-known and I thank you for sharing your opinion. I think hearing the ideas and especially the real-life investment decisions that deviate from the classic PP is beneficial for any investor as it makes them to pause and think. Otherwise it would be like preaching to the choir. :D
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Re: Staying the course with LTTs

Post by mathjak107 » Mon Nov 01, 2021 4:08 am

Everything works , until it doesn’t ….

The same 40 year trends that allowed something to work eventually can hit a point where they reverse and just sand bag things ..

At least for the foreseeable future , until this inflation thing winds down I think there is more pain to come from being to rate sensitive…

Gold is sensitive enough to Rates but double teaming it up with bonds can pull you down severely ….

A year ago I said any traction stocks got would be grabbed by the collar by long term bonds and even gold and yanked back and so far that is just what has happened ..

I don’t even feel like if stocks fall from inflation scares that long term bonds will be the benefactor . It could be a flight to cash or commodities, Bitcoin or perhaps gold.


If you remember before the fed went to quantitative easing they did everything but drop leaflets from helicopters telling us don’t count on cash instruments as an investment .

If you paid attention you were rewarded in other assets…if you didn’t you paid the price .

Well the fed is telling us they will start tapering and want higher bond rates and will allow higher inflation.

It is never a good idea to fight the fed
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Re: Staying the course with LTTs

Post by sophie » Mon Nov 01, 2021 9:55 am

Yes, I'm with foglifter here : I have the same question. And came to the same conclusion: I did switch to the Golden Butterfly, somewhat reducing the problem, but I'm going to stay the course.

The reason is that we don't really know how the inflationary environment is going to unfold, and when the economy might shift to one of the other conditions. In other words, you can't predict the future. Even people who claim to be able to do so by reason of expertise in the markets, can't do that. Finally, don't buy the argument that bonds are at a low point. They are low yes, but they can go lower - and the value of the bonds will respond very sharply indeed to even small interest rate decreases, due to convexity at this end of the yield curve.

Before dumping bonds from the PP (which is I guess what this thread is contemplating) it would be worthwhile to backtest that combo over time, and during a variety of economic conditions. As always, deflationary periods (e.g. Japan in the 1990s/2000s, or our own economy in the wake of 2008) or the entry into a recession (falling interest rates) will wreak some havoc without the bond component. But, if you're comfortable with that, then maybe dropping bonds is something you could consider.
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Re: Staying the course with LTTs

Post by jalanlong » Mon Nov 01, 2021 11:09 am

I Shrugged wrote:
Sat Oct 30, 2021 6:55 pm
In a nutshell, I’m going to stick with PP until it breaks. Which includes LTTs.
Can you define "breaks"? CPI is over 6% this year and the PP has returned 2% at best and that is only coming from the stock component. Gold has returned -6% and TLT has returned -5%.

I understand that is a short term outlook because last year 3/4 of the assets had positive returns. But my question is what is your definition of the PP breaking? How many years or by what % would it have to underperform your expectations in order for you to consider it broken?
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Re: Staying the course with LTTs

Post by mathjak107 » Mon Nov 01, 2021 11:12 am

I guess for some it will take lagging behind a conservative more conventional portfolio for more than just a year …
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Re: Staying the course with LTTs

Post by murphy_p_t » Mon Nov 01, 2021 11:44 am

"I hate that staying the course can now be seen as failing to adapt while the “this time it’s different people” successfully tinker. It’s supposed to be the permanent portfolio after all. But it’s certainly one possible scenario, obviously."


I think any investor will be fine holding the traditional 4x25 PP. By being fine I mean, the investor will not be wiped out. I deviate from it because I think I can improve my returns. Essentially, I view the 4x25 as suboptimal, for me.
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Re: Staying the course with LTTs

Post by mathjak107 » Mon Nov 01, 2021 3:40 pm

MangoMan wrote:
Mon Nov 01, 2021 11:45 am
jalanlong wrote:
Mon Nov 01, 2021 11:09 am
I Shrugged wrote:
Sat Oct 30, 2021 6:55 pm
In a nutshell, I’m going to stick with PP until it breaks. Which includes LTTs.
Can you define "breaks"? CPI is over 6% this year and the PP has returned 2% at best and that is only coming from the stock component. Gold has returned -6% and TLT has returned -5%.

I understand that is a short term outlook because last year 3/4 of the assets had positive returns. But my question is what is your definition of the PP breaking? How many years or by what % would it have to underperform your expectations in order for you to consider it broken?
I don't have an answer to defining 'break', but I will say that is a design rather than a bug that at least one of the components will suck. If you can't accept that fact, you should not be in a PP.

One asset lagging is no problem , but when gold and long term bonds are both lagging or at a loss and cash is at zero or at a loss in shy then that is most un good and not acceptable in my opinion if it keeps up.

The swings when all assets react together to rate perceptions can be as much as a high equity level portfolio…just the opposite of why one chooses the pp
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Re: Staying the course with LTTs

Post by seajay » Tue Nov 02, 2021 5:19 pm

sophie wrote:
Mon Nov 01, 2021 9:55 am
Before dumping bonds from the PP (which is I guess what this thread is contemplating)
If you dump one of the assets, when do you get back in again. I recall some not buying LTT's in the 1980's when yields were high in fear of higher yields to come, missed opportunities.

1981 Dow/Gold was down at 1.0 levels, could equally have been a dump gold from PP stance and indeed over the next couple of decades the price declined from $590//ounce to $270/ounce levels, but as part of a PP over those years you accumulated nearly 11 times more ounces of gold in your safe.

Jan 1981 to Dec 2000 $10K PP value rose to $50K, so $2.5K initial gold allocation at $590/ounce = 4.25 ounces. Dec 2000 $12.5K PP gold value at $270/ounce = 46.3 ounces (10.9 times more ounces of gold). Which over the 20 years = 12.7% annualized more ounces of gold having been accumulated. Later that accumulation paid dividends. As might accumulation of LTT's over the next x years subsequently reap dividends, even if that does mean starting out from where you are more likely to accumulate/average-in as was the case for gold in 1980.
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