Real Assets vs. Financial Assets

Discussion of the Gold portion of the Permanent Portfolio

Moderator: Global Moderator

Post Reply
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Real Assets vs. Financial Assets

Post by ochotona » Sat Jun 24, 2017 9:50 pm

In a Macro Voices podcast just recorded, Jesse Felder pointed out that real assets are at all-time low prices relative to financial assets. I found the original figure published online, it's Exhibit 2:

https://www.cohenandsteers.com/assets/c ... Assets.pdf

The podcast will show up on YouTube shortly for general release to the public.

This kind of figure motivates me to keep buying gold, and not obsess too much about $1250, $1275, $1300, or whatever price it is next week.


--------------------------------------

notes from below Exhibit 2 and on the back of the flyer

a) Diversified real assets: equal-weighted blend of global real estate securities (FTSE/EPRA Developed Real Estate Index), commodities (S&P GSCI through July 1998 and Bloomberg Commodity Index thereafter), global natural resource equities (S&P Global Natural Resources Index) and global listed infrastructure (Dow Jones Brookfield Global Infrastructure Index). Stocks: S&P 500 Index. (b) Real assets: U.S. and U.K. housing and timberland, commodities (Thomson Reuters/CoreCommodity-CRB Index) and collectibles (art, cars, diamonds, wine). Financial assets: large-cap stocks (S&P 500
Index) and long-term U.S. Treasury bonds. See back page for index definitions and additional disclosures.

The Bloomberg Commodity Index Total Return is a broadly diversified index that tracks the commodity markets through commodity futures contracts. The Dow Jones Brookfield Global Infrastructure Index is a float-adjusted market-capitalization-weighted index that measures performance of globally domiciled companies that derive more than 70% of their cash flows from infrastructure lines of business. The FTSE EPRA/NAREIT Developed Real Estate Index (net) is an unmanaged market-weighted total-return index which consists of publicly traded equity REITs and listed property companies from developed markets and is net of dividend withholding taxes. The S&P 500 Index is an unmanaged index of 500 large-capitalization stocks that is frequently used as a general measure of U.S. stock market performance. The S&P GSCI is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The S&P Global Natural Resources Index includes the largest publicly traded companies in natural resources and commodities businesses that meet specific investability requirements. The Thomson Reuters/CoreCommodity-CRB Index represents a basket of 19 commodities, including energy, agriculture precious metals and industrial metals.
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

Re: Real Assets vs. Financial Assets

Post by sophie » Sun Jun 25, 2017 8:38 am

This is news?

I don't know about you, but I'm buying gold as dictated by the asset allocations I've chosen. This has the natural effect of buying more when the prices are low, which will put me in a really good position when/if the asset takes off. I assume someday it will given that it's already been up around the 2000 mark, which means yes, prices are low right now. But there's nothing preventing gold from dropping further given the right conditions.

The problem is, and always has been, that the time to buy any asset is exactly when everyone hates it the most, which is the underlying cause of low prices (i.e. most people aren't buying). What people tend to do is buy high priced assets instead (like stocks, now) because everyone loves them. This of course is the exact opposite of what you actually want to do. An asset allocation provides you with the discipline needed to do this right, as it's genuinely difficult to take your hard-earned money and buy something that everyone else is saying you should avoid.
User avatar
eufo
Executive Member
Executive Member
Posts: 243
Joined: Mon Dec 05, 2016 7:17 pm

Re: Real Assets vs. Financial Assets

Post by eufo » Sun Jun 25, 2017 11:15 am

That chart in the link was very interesting.

I think the one aberration would be real estate. I know for my market, along with other large coastal cities, prices are inflated beyond pre-great recession levels and the market is still somewhat frenzied for single family homes, where most of the homes affordable to the median household should really just be torn down instead of occupied.

Commodities have been the real loser for quite awhile, especially if you don't consider gold a commodity (which I don't). I'm not sure if this is something that will ever turn around. The thought of it is somewhat scary. Cheap food and gas for the average consumer has been a godsend.

My hybrid is no longer made and is being replaced by a turbocharged gasoline model. People I hear talking about vehicles talk about how many horsepower and how big the vehicle is. Economy is not a discussion I hear at all. Perhaps I'm surrounded by fools, or perhaps oil is just so cheap now that fuel efficiency is not a topic worth discussing to most people. Just an anecdote that leads me to believe oil is way undervalued at the moment.

The market timer in me would like to buy commodities, but he wanted to buy them back when they were 20% higher than current levels, so what does he know?
Don't agree with me too strongly or I'm going to change my mind
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Real Assets vs. Financial Assets

Post by ochotona » Sun Jun 25, 2017 3:31 pm

eufo wrote:I think the one aberration would be real estate. I know for my market, along with other large coastal cities, prices are inflated beyond pre-great recession levels and the market is still somewhat frenzied for single family homes, where most of the homes affordable to the median household should really just be torn down instead of occupied.
Take real estate out, and the low real asset price anomaly becomes even more pronounced.

I have no concept of when this all changes. I think it will, but is it 5 years or 15 or 50?
User avatar
dualstow
Executive Member
Executive Member
Posts: 14232
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Real Assets vs. Financial Assets

Post by dualstow » Sun Jun 25, 2017 11:43 pm

sophie wrote:
I don't know about you, but I'm buying gold as dictated by the asset allocations I've chosen.
Here, here!
The problem is, and always has been, that the time to buy any asset is exactly when everyone hates it the most, which is the underlying cause of low prices (i.e. most people aren't buying). What people tend to do is buy high priced assets instead (like stocks, now) because everyone loves them.
Yup. Look at all the Boglehead threads asking if 100% stocks is ok. That's definitely a seasonal fruit. O0
Sam Bankman-Fried sentenced to 25 years
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

Re: Real Assets vs. Financial Assets

Post by sophie » Mon Jun 26, 2017 6:54 am

dualstow wrote:
sophie wrote:
I don't know about you, but I'm buying gold as dictated by the asset allocations I've chosen.
Here, here!
The problem is, and always has been, that the time to buy any asset is exactly when everyone hates it the most, which is the underlying cause of low prices (i.e. most people aren't buying). What people tend to do is buy high priced assets instead (like stocks, now) because everyone loves them.
Yup. Look at all the Boglehead threads asking if 100% stocks is ok. That's definitely a seasonal fruit. O0
If only I could go back in time to March of 2009, and ask each and every person who has switched from the PP to the Golden Butterfly what they think of increasing their stock allocations. I'm pretty sure most of the responses will be along the lines of "are you insane???"

Not to say that the Golden Butterfly isn't a sound portfolio - it's great and a marvelous contribution by Tyler, and I might well switch to it myself when/if I get full control of my main retirement accounts. It's just that I think a lot of its recent popularity is due to what dualstow has just-now famously dubbed a "seasonal fruit".
User avatar
Tyler
Executive Member
Executive Member
Posts: 2066
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Real Assets vs. Financial Assets

Post by Tyler » Mon Jun 26, 2017 11:32 am

dualstow wrote: Yup. Look at all the Boglehead threads asking if 100% stocks is ok. That's definitely a seasonal fruit. O0
Lol. Yeah, it would be fun to make a trading strategy based on the 200-day trailing count of "why aren't we all 100% stocks?" Bogleheads threads. Once it passes a certain threshold, you buy a boatload of gold. If I can package that with cheap boating insurance for board members here, we're set!
sophie wrote:
If only I could go back in time to March of 2009, and ask each and every person who has switched from the PP to the Golden Butterfly what they think of increasing their stock allocations. I'm pretty sure most of the responses will be along the lines of "are you insane???"... It's just that I think a lot of its recent popularity is due to what dualstow has just-now famously dubbed a "seasonal fruit".
I honestly couldn't tell you how the GB has performed relative to the PP lately and I completely agree that nobody should be switching to anything simply based on recent performance. It's important to always look at the big picture, and fortunately there are ways to do that. ;)
User avatar
dualstow
Executive Member
Executive Member
Posts: 14232
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Real Assets vs. Financial Assets

Post by dualstow » Mon Jun 26, 2017 12:58 pm

Tyler wrote: ...
it would be fun to make a trading strategy based on the 200-day trailing count of "why aren't we all 100% stocks?" Bogleheads threads. Once it passes a certain threshold, you buy a boatload of gold. If I can package that with cheap boating insurance for board members here, we're set!
We could call it the Shoeshine Boy/Chatter" strategy.
Sam Bankman-Fried sentenced to 25 years
Libertarian666
Executive Member
Executive Member
Posts: 5994
Joined: Wed Dec 31, 1969 6:00 pm

Re: Real Assets vs. Financial Assets

Post by Libertarian666 » Mon Jun 26, 2017 1:46 pm

dualstow wrote:
sophie wrote:
I don't know about you, but I'm buying gold as dictated by the asset allocations I've chosen.
Here, here!
The problem is, and always has been, that the time to buy any asset is exactly when everyone hates it the most, which is the underlying cause of low prices (i.e. most people aren't buying). What people tend to do is buy high priced assets instead (like stocks, now) because everyone loves them.
Yup. Look at all the Boglehead threads asking if 100% stocks is ok. That's definitely a seasonal fruit. O0
Just 100%? That is for wimps!

If you haven't read the classic BH thread on buying stocks on thin margin, you should. It's hilarious.
User avatar
Tyler
Executive Member
Executive Member
Posts: 2066
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Real Assets vs. Financial Assets

Post by Tyler » Mon Jun 26, 2017 6:15 pm

True. I agree with the observation that the most of the questions come from the younger crowd and not the more seasoned guys who more clearly represent the Bogleheads zeitgeist. I'm always impressed that for every young poster asking about 100% VTSAX there are several experienced Bogleheads who explain the feeling of going through a market drop and argue for at least a bit of diversification. And that's even from the guys who were lucky enough to reap the full rewards of the 80's and 90's stock boom.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14232
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Real Assets vs. Financial Assets

Post by dualstow » Mon Jun 26, 2017 7:01 pm

Aw man, I have to add Rick to the list of people who thinks infers means implies. (I know, he's retired, rich, and does not care).
Sam Bankman-Fried sentenced to 25 years
User avatar
dualstow
Executive Member
Executive Member
Posts: 14232
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Real Assets vs. Financial Assets

Post by dualstow » Mon Jun 26, 2017 7:22 pm

O0 O0
Sam Bankman-Fried sentenced to 25 years
User avatar
Dieter
Executive Member
Executive Member
Posts: 655
Joined: Sat Sep 01, 2012 10:51 am

Re: Real Assets vs. Financial Assets

Post by Dieter » Thu Jul 06, 2017 12:58 am

sophie wrote:If only I could go back in time to March of 2009, and ask each and every person who has switched from the PP to the Golden Butterfly what they think of increasing their stock allocations. I'm pretty sure most of the responses will be along the lines of "are you insane???"

Not to say that the Golden Butterfly isn't a sound portfolio - it's great and a marvelous contribution by Tyler, and I might well switch to it myself when/if I get full control of my main retirement accounts. It's just that I think a lot of its recent popularity is due to what dualstow has just-now famously dubbed a "seasonal fruit".
Ha -- I went 'GBish' from within a Boglehead account that was 60% stocks, reducing stocks to ~42%.

In late 2012 after my stocks had made back their 2008/2009 losses (I didn't get out while down!)

Although instead of that 18% in stock going up ~33% in 2013, it went down 28% as Gold. 2014 and 2015 weren't great either.

What *%(&^& crappy timing.

(I do generally worry less about my investments, so I've got that going for me. My gold allocation is higher now than then.)
Post Reply