Ray Dalio - Paradigm Shifts article recommending gold

Discussion of the Gold portion of the Permanent Portfolio

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bitcoininthevp
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Ray Dalio - Paradigm Shifts article recommending gold

Post by bitcoininthevp » Thu Jul 18, 2019 10:25 am

https://www.linkedin.com/pulse/paradigm ... ray-dalio/

Lots of good information and background. With a concluding paragraph recommending gold:
"I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold. Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier."
Curious about this groups opinion about the article, gold or otherwise.
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Re: Ray Dalio - Paradigm Shifts article recommending gold

Post by Smith1776 » Thu Jul 18, 2019 2:31 pm

It's great article. The logic is sound, and the evidence is compelling. Dalio also has a great record of reading the macro economy successfully (2008 as just one example).

The article has been shared on the Bogleheads forum. It's honestly hilarious watching the intellectual contortion those fellows are going through to try and convince themselves to not hold gold.
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Re: Ray Dalio - Paradigm Shifts article recommending gold

Post by Ad Orientem » Thu Jul 18, 2019 2:46 pm

That gold makes for a good diversifier is something that Harry Browne was arguing for back before it was even legal to own the stuff. So I doubt there would be any argument from most of the denizens of this board. Dalio's market predictions definitely fall under the heading of speculation. But as speculations go, I don't think the thesis is unreasonable. When looking at various asset classes... stocks and real estate have been looking a bit frothy and I view them as being on the high end of fair market valuation. The bond market has been the object of aggressive manipulation by central banks for a very long time and IMO is seriously inflated well above fair market valuations. Unless you are prepared to go way out on the yield curve or way down in credit quality, chances are your inflation adjusted yield is around zero... or less. And I have never been a fan of paying people to lend them money.

If someone offered me $50,000 in 30 year US Treasuries (currently yielding 2.56%) or $50,000 in gold, with the only condition being that I had to hold whichever I chose for 30 years... I'd take the gold without hesitation. I do own some bonds in the PP because the future is not predictable and I have enough other stuff so that if/when bonds take it on the chin, I will be OK. But my gut says the bond market is a bug waiting for its windshield.

That kinda leaves precious metals.
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Re: Ray Dalio - Paradigm Shifts article recommending gold

Post by dualstow » Thu Jul 18, 2019 5:01 pm

(Ad O) ⇢ If someone offered me $50,000 in 30 year US Treasuries (currently yielding 2.56%) or $50,000 in gold, with the only condition being that I had to hold whichever I chose for 30 years... I'd take the gold without hesitation.
But wouldn’t you get your principal back, exactly $30,000, plus the interest payments, even if bonds “take it on the chin?” Or you mean you expect that to be ruined by inflation, its purchasing power eroded?

As long as I *have* to hold for the duration, I think I’d take the bonds.
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Re: Ray Dalio - Paradigm Shifts article recommending gold

Post by ochotona » Thu Jul 18, 2019 5:20 pm

You have to worry about default. Gold won't default.
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Re: Ray Dalio - Paradigm Shifts article recommending gold

Post by Ad Orientem » Thu Jul 18, 2019 7:15 pm

dualstow wrote:
Thu Jul 18, 2019 5:01 pm
(Ad O) ⇢ If someone offered me $50,000 in 30 year US Treasuries (currently yielding 2.56%) or $50,000 in gold, with the only condition being that I had to hold whichever I chose for 30 years... I'd take the gold without hesitation.
But wouldn’t you get your principal back, exactly $30,000, plus the interest payments, even if bonds “take it on the chin?” Or you mean you expect that to be ruined by inflation, its purchasing power eroded?

As long as I *have* to hold for the duration, I think I’d take the bonds.
Bond yields are close to zero when adjusted for inflation. Your principal is all but certain to be eroded by inflation. While volatile in the near term, gold has historically held its own against inflation. With even a very slight uptick in inflation your looking at a severe erosion of your investment in bonds.
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Re: Ray Dalio - Paradigm Shifts article recommending gold

Post by Kevin K. » Thu Jul 18, 2019 7:16 pm

The Dalio article is indeed superb.

Also found this piece comparing the simplified version of Dalio’s All Weather portfolio with the Golden Butterfly to be worthwhile.

[url]https://www.listenmoneymatters.com/ray- ... olio//[url]
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Re: Ray Dalio - Paradigm Shifts article recommending gold

Post by Ad Orientem » Thu Jul 18, 2019 7:17 pm

ochotona wrote:
Thu Jul 18, 2019 5:20 pm
You have to worry about default. Gold won't default.
As long as Treasury debt is denominated in fiat dollars there is no real danger of overt default. But inflation is a longstanding form of soft default. Paul Krugman has practically bragged about how the United States inflated away much of its World War II debt.
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Re: Ray Dalio - Paradigm Shifts article recommending gold

Post by Kevin K. » Thu Jul 18, 2019 7:18 pm

Kevin K. wrote:
Thu Jul 18, 2019 7:16 pm
The Dalio article is indeed superb.

Also found this piece comparing the simplified version of Dalio’s All Weather portfolio with the Golden Butterfly to be worthwhile.

https://www.listenmoneymatters.com/ray- ... portfolio/
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Re: Ray Dalio - Paradigm Shifts article recommending gold

Post by Ad Orientem » Thu Jul 18, 2019 9:02 pm

For those inclined to buy into this but who still wanted to hedge a bit, this could revive interest in PRPFX. The early incarnation of Harry's permanent portfolio, but it is weighted in favor of the inflationary scenario.
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Re: Ray Dalio - Paradigm Shifts article recommending gold

Post by Tyler » Fri Jul 19, 2019 10:53 am

Smith1776 wrote:
Thu Jul 18, 2019 2:31 pm
The article has been shared on the Bogleheads forum. It's honestly hilarious watching the intellectual contortion those fellows are going through to try and convince themselves to not hold gold.
Yeah, I'm honestly not sure why gold in particular gets some people so worked up. There's nothing at all wrong with preferring different investments and people can talk all day about the pluses and minuses of international or value stocks, but even casually bring up the measurable benefits of gold and it's like you crossed a red line and must be struck down. Granted, I do think some of the loudest gold voices over the years have hurt the general perception of the asset, such as the skeezy bullion commercials on the radio that sound no better than a manipulative stock broker pitching a hot stock tip. So I'm always happy to see prominent respected voices like Dalio speaking up to help spread the word and break the conditioning.
Kevin K. wrote:
Thu Jul 18, 2019 7:16 pm
The Dalio article is indeed superb.

Also found this piece comparing the simplified version of Dalio’s All Weather portfolio with the Golden Butterfly to be worthwhile.

https://www.listenmoneymatters.com/ray- ... portfolio/
Nice. 8)
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Re: Ray Dalio - Paradigm Shifts article recommending gold

Post by pmward » Fri Jul 19, 2019 11:16 am

Tyler wrote:
Fri Jul 19, 2019 10:53 am
Smith1776 wrote:
Thu Jul 18, 2019 2:31 pm
The article has been shared on the Bogleheads forum. It's honestly hilarious watching the intellectual contortion those fellows are going through to try and convince themselves to not hold gold.
Yeah, I'm honestly not sure why gold in particular gets some people so worked up. There's nothing at all wrong with preferring different investments and people can talk all day about the pluses and minuses of international or value stocks, but even casually bring up the measurable benefits of gold and it's like you crossed a red line and must be struck down. Granted, I do think some of the loudest gold voices over the years have hurt the general perception of the asset, such as the skeezy bullion commercials on the radio that sound no better than a manipulative stock broker pitching a hot stock tip. So I'm always happy to see prominent respected voices like Dalio speaking up to help spread the word and break the conditioning.
Hero worship also has a large part to play. Because Buffett or Bogle said something it not only must be taken as blind truth, but is something that they must fight to the death to defend. Too many people fail to do their own research. They find one or two heroes, adopt all their opinions blindly, and then argue those second hand opinions as if they are fact. There is good and bad to heroes. The good is they put people at least on a reasonable path. The bad of them is evident in the misinterpretation of opinion as fact, and the dogmatic closing of the mind to alternative opinions.
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