All PP assets trending down: When has this happened before? Kinda scary...
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All PP assets trending down: When has this happened before? Kinda scary...
I've only known about the PP for a few years and have been keeping an eye on the three PP assets the whole time. Until the past couple weeks, I've never seen all three down simultaneously (defined as below their 200 day moving averages). Usually it has been the case that if one was way down, another would be up. That's kind of the whole idea behind the PP.
I know all being down together is a theoretical possibility with the PP because the assets all have low correlation with each other, not negative correlation, so it's statistically expected that all 3 being down at the same time will happen eventually.
But zooming out, economically, what does this mean? I suppose the combination of PP assets all heading down together means the markets are expecting deflation? Combine this with China having a massive crash, the US about to raise interest rates and Europe just getting past the Greece crisis (which I don't believe is over). Is this the perfect deflation storm?
I'd love to find some historical precedence for what's happening. Does anyone have data that shows when this has happened before and what happened next? Does history give us any reason to believe this is *not* signaling high risk of a massive crash + deflation?
I know all being down together is a theoretical possibility with the PP because the assets all have low correlation with each other, not negative correlation, so it's statistically expected that all 3 being down at the same time will happen eventually.
But zooming out, economically, what does this mean? I suppose the combination of PP assets all heading down together means the markets are expecting deflation? Combine this with China having a massive crash, the US about to raise interest rates and Europe just getting past the Greece crisis (which I don't believe is over). Is this the perfect deflation storm?
I'd love to find some historical precedence for what's happening. Does anyone have data that shows when this has happened before and what happened next? Does history give us any reason to believe this is *not* signaling high risk of a massive crash + deflation?
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Re: All PP assets trending down: When has this happened before? Kinda scary...
while you may find some stagflation period or tight money period the fact is don't bother . these times never happened before ever .
at no time did we have zero interest rates , such high valuations in equity's and bond rates being so low and near the end of the interest rate range before .
these are very unconventional times for ALL investing and is uncharted .
my opinion is all anyone is doing with charts of the past is driving and looking in the rear view mirror and may be developing a false sense of feeling good .
the pp uses opposite asset classes as insurance coverage and needs the ability to have strong trends in one asset class to pay the cost of that insurance .
but with all asset classes being at best part time employed or being unemployed like gold there is no money to eat because the insurance protection is taking it all .
the fact is to date we never had a claim ever so the key going forward may be to consider the fact that having sooooo much insurance may be way to costly and reduce the coverage a bit .
just something to do your own homework on and keep in the back of your mind when we have those big up days and equity's try to run with the ball only to have the pp end in the red .
eventually there is a good chance once again as always equity's will be the first one out of the gate for the real recovery but the pp may be spending his paycheck on more insurance instead of food .
at no time did we have zero interest rates , such high valuations in equity's and bond rates being so low and near the end of the interest rate range before .
these are very unconventional times for ALL investing and is uncharted .
my opinion is all anyone is doing with charts of the past is driving and looking in the rear view mirror and may be developing a false sense of feeling good .
the pp uses opposite asset classes as insurance coverage and needs the ability to have strong trends in one asset class to pay the cost of that insurance .
but with all asset classes being at best part time employed or being unemployed like gold there is no money to eat because the insurance protection is taking it all .
the fact is to date we never had a claim ever so the key going forward may be to consider the fact that having sooooo much insurance may be way to costly and reduce the coverage a bit .
just something to do your own homework on and keep in the back of your mind when we have those big up days and equity's try to run with the ball only to have the pp end in the red .
eventually there is a good chance once again as always equity's will be the first one out of the gate for the real recovery but the pp may be spending his paycheck on more insurance instead of food .
Last edited by mathjak107 on Tue Sep 08, 2015 3:29 am, edited 1 time in total.
Re: All PP assets trending down: When has this happened before? Kinda scary...
I'm pretty sure that the only claims I read about the PP are it's based on a macro model that has yet to be proven false.mathjak107 wrote: my opinion is all anyone is doing with charts of the past is driving and looking in the rear view mirror and may be developing a false sense of feeling good .
Looking backwards that would probably be truemathjak107 wrote: eventually there is a good chance once again as always equity's will be the first one out of the gate for the real recovery ...
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Re: All PP assets trending down: When has this happened before? Kinda scary...
i agree on both counts . but more and more "to me" it is appearing that the macro model may be in a new time frame that like most strategy's , eventually reach their waterloo when things change just enough to make what worked in the past no longer effective .
i think the situation with the pp requires careful watching going forward and forget the past it may not apply anymore .
if you see the pp can't get traction to pull itself out you may have to rethink things and cancel some of that insurance in order to keep eating . .
i think the situation with the pp requires careful watching going forward and forget the past it may not apply anymore .
if you see the pp can't get traction to pull itself out you may have to rethink things and cancel some of that insurance in order to keep eating . .
Last edited by mathjak107 on Tue Sep 08, 2015 5:28 am, edited 1 time in total.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
IMO, if there is a problem with the PP, I don't think it's because the PP's underlying strategy has become obsolete. The reason is that a strategy's lifespan is a function of its simplicity and years of successful history. You really can't beat PP on those fronts. There's also nothing that has logically changed about the world to where equities, gold, bonds and cash no longer cover all major economic conditions. Some say gold is obsolete, but central banks still hold hundreds of tons of it and people still buy tons of it for jewelry, so I don't buy that.
However, like someone else pointed out, times are unprecedented. Who knows how those asset classes will respond? But do QE and ZIRP really change anything fundamentally? Or do they just bias the future toward certain economic conditions? I have to assume the latter. I don't give central banks enough credit that I think they can fundamentally change economics.
If we're about to enter a bear market, all of a sudden the PP starts to look a lot better. All the disgruntlement with the PP has coincided with one of the longest equity bull market stretches in history, after all.
The irony is that this *may* be one of the best times in history to enter the PP since, if it's not permanently broken, and I don't believe it is, then this is would be an opportunity to capture the PP below its long term mean performance and enjoy the reversion.
However, like someone else pointed out, times are unprecedented. Who knows how those asset classes will respond? But do QE and ZIRP really change anything fundamentally? Or do they just bias the future toward certain economic conditions? I have to assume the latter. I don't give central banks enough credit that I think they can fundamentally change economics.
If we're about to enter a bear market, all of a sudden the PP starts to look a lot better. All the disgruntlement with the PP has coincided with one of the longest equity bull market stretches in history, after all.
The irony is that this *may* be one of the best times in history to enter the PP since, if it's not permanently broken, and I don't believe it is, then this is would be an opportunity to capture the PP below its long term mean performance and enjoy the reversion.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
You just have to not stretch the utility of looking into the past. Future and past correlation isn't 1, but it's not 0 either.mathjak107 wrote:my opinion is all anyone is doing with charts of the past is driving and looking in the rear view mirror and may be developing a false sense of feeling good .
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Re: All PP assets trending down: When has this happened before? Kinda scary...
all i know is ii just looked and it is typical of every other time . i show the pp down and stocks up 300 . the pp once again gets stuck in the muck by gold and long term treasury's bogging it down in the mud turning equity's efforts to crap . .
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Re: All PP assets trending down: When has this happened before? Kinda scary...
Amen to that.mathjak107 wrote: all i know is ii just looked and it is typical of every other time . i show the pp down and stocks up 300 . the pp once again gets stuck in the muck by gold and long term treasury's bogging it down in the mud turning equity's efforts to crap . .
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
Re: All PP assets trending down: When has this happened before? Kinda scary...
Isn't the S&P down close to 10% over the last 3 weeks or so?mathjak107 wrote: all i know is ii just looked and it is typical of every other time . i show the pp down and stocks up 300 .
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Re: All PP assets trending down: When has this happened before? Kinda scary...
what the s&p gave up were their gains from a level the pp never got to so in comparison if you were invested since the 1st of the year you had a bigger cushion and merely gave back some of the gains , ytd it is now just a point and a half behind . however many managed funds are up ytd .
Last edited by mathjak107 on Tue Sep 08, 2015 5:48 pm, edited 1 time in total.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
My personal YTD
BH 70/30: down 1.96%
PP: down 1.84%
Disclaimer - I bought equities during the recent correction in both portfolios. I feel like I have to be equity heavy to avoid losses in the PP.
BH 70/30: down 1.96%
PP: down 1.84%
Disclaimer - I bought equities during the recent correction in both portfolios. I feel like I have to be equity heavy to avoid losses in the PP.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
my 50/50 down 1.68% ytd the pp i had owned and track down 2.42%
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Re: All PP assets trending down: When has this happened before? Kinda scary...
Let's not forget that if you bought the S&P500 in 2000, you didn't get to break even until halfway through 2013. Is that cherry picking the worst of times? Yes, but so are we picking the worst of times to criticize the PP.
It's easy to say you'd rather be in equities when the market is going up, or even going down a bit from lofty heights you never got to enjoy, but what about when equities are cratering by 50%? I don't have the stomach for that. Congrats to people who do. But unless you have a crystal ball or amazing luck to start a portfolio at the bottom, then you're going to have to ride out the highs and the lows to enjoy the highs...or more realistic to the average investor, you buy at the high, freak out at the low and sell, and then end up enjoying nothing.
It's no coincidence that the temptation to leave the PP now and go into equities full on is at high risk of being at the high for equities and low for PP.
It's easy to say you'd rather be in equities when the market is going up, or even going down a bit from lofty heights you never got to enjoy, but what about when equities are cratering by 50%? I don't have the stomach for that. Congrats to people who do. But unless you have a crystal ball or amazing luck to start a portfolio at the bottom, then you're going to have to ride out the highs and the lows to enjoy the highs...or more realistic to the average investor, you buy at the high, freak out at the low and sell, and then end up enjoying nothing.
It's no coincidence that the temptation to leave the PP now and go into equities full on is at high risk of being at the high for equities and low for PP.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
Those are all valid points and the reason I stay invested in the PP. I do however feel compelled to purchase equities during stock declines. I believe in holding all 4 assets and fine tuning percentages to meet your risk/reward profile.
Last edited by buddtholomew on Tue Sep 08, 2015 8:48 pm, edited 1 time in total.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
I will point out that drawdowns are not uncommon even with the PP. On average there have been 7 drawdowns of over 10% since 1975 and 42 drawdowns of over 5%. So a 5% drawdown is not really a significant event (happening almost once a year for the last 40 years).
Hopefully you can handle a small 3-5% drawdown now and then without worrying too much - the portfolio very rarely finishes the year in the negative (3 of the last 40 years were negative or roughly one in 10 years).
Hopefully you can handle a small 3-5% drawdown now and then without worrying too much - the portfolio very rarely finishes the year in the negative (3 of the last 40 years were negative or roughly one in 10 years).
Re: All PP assets trending down: When has this happened before? Kinda scary...
Budd I've done similar. Have reduced my PP and increased equities and cash.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
I've been overweight at equities compared to the PP, and now after a six year stock-run I'm slowly decreasing my equity allocation to bring it more in line with the 4x25.It's no coincidence that the temptation to leave the PP now and go into equities full on is at high risk of being at the high for equities and low for PP.
Not selling anything, just adding more new money to the other assets.
Re: All PP assets trending down: When has this happened before? Kinda scary...
Yes... but I think that applies even more to all the mainstream diversified strategies relying on stock/bond dynamics. At least with the PP I have glacial conceptual model to distract me from day to day correlation.mathjak107 wrote:
i think the situation with the pp requires careful watching going forward and forget the past it may not apply anymore .
if you see the pp can't get traction to pull itself out you may have to rethink things and cancel some of that insurance in order to keep eating . .
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Re: All PP assets trending down: When has this happened before? Kinda scary...
so far the main stream models are doing okay on the recovery .
looking at the fidelity insight models i see as of yesterday
the growth model is up .35 ytd growth and income model just down .69% and the income and capital preservation model down .31%
looks like today will hopefully be a strong up day again from the looks of the futures so all three models should be positive again for the year . it looks like bonds may get whacked again today but an intermediate term bond fund never really falls much in these run ups , no where near the damage the long treasury bond sees .
i think yesterday TLT was down almost 1.50% , fidelity total bond was down .28%. big difference in the drag on stocks on those up days . i also see the yield is higher on the total bond fund then TLT .
as typically happens stocks lead the pack out of the gate . they may fall more but as you see the cushion from the up cycle is usually greater so the fall is better cushioned hence while the growth model fell more it actually pulled a head faster in the recovery .
looking at the fidelity insight models i see as of yesterday
the growth model is up .35 ytd growth and income model just down .69% and the income and capital preservation model down .31%
looks like today will hopefully be a strong up day again from the looks of the futures so all three models should be positive again for the year . it looks like bonds may get whacked again today but an intermediate term bond fund never really falls much in these run ups , no where near the damage the long treasury bond sees .
i think yesterday TLT was down almost 1.50% , fidelity total bond was down .28%. big difference in the drag on stocks on those up days . i also see the yield is higher on the total bond fund then TLT .
as typically happens stocks lead the pack out of the gate . they may fall more but as you see the cushion from the up cycle is usually greater so the fall is better cushioned hence while the growth model fell more it actually pulled a head faster in the recovery .
Last edited by mathjak107 on Wed Sep 09, 2015 4:39 am, edited 1 time in total.
Re: All PP assets trending down: When has this happened before? Kinda scary...
The current drawdown is about 7.2%. A 7% drawdown has happened a bit less than every two years on average. The fact that January was such a strong month for the PP makes the current performance look much worse than if one were to use 1/1/15 as a starting date. But it's still a pretty big drawdown.mortalpawn wrote: I will point out that drawdowns are not uncommon even with the PP. On average there have been 7 drawdowns of over 10% since 1975 and 42 drawdowns of over 5%. So a 5% drawdown is not really a significant event (happening almost once a year for the last 40 years).
Hopefully you can handle a small 3-5% drawdown now and then without worrying too much - the portfolio very rarely finishes the year in the negative (3 of the last 40 years were negative or roughly one in 10 years).
It's important to remember that the PP has had so few negative years in nominal terms because inflation tends to make performance of almost all portfolios seem better than it actually is. This is why Tyler's real returns charts are so helpful. I know I sound like a broken record (f anyone is actually reading these posts!), but we should expect a lot more nominal negative years in the PP with inflation near zero.
Whatever annual returns we are able to squeeze out of this low-rate environment are going to be clustered around 0%, not the usual 4% or so. If we assume that 2015 finishes in negative territory, that makes two of the last three years negative. I don't think that is unusual at all in this environment if we consider that 2010, 2011 and 2014 were all strongly positive. This comes back to what Sophie has stated a few times... that the PP is probably just reverting to its historical mean with real (and currently nominal) returns in the 3% to 6% range.
Many of us tend to zoom way in and look at granular gains or losses. Even if the PP has positive returns 2/3 of the time, looking at it through a magnifying glass is bound to not feel good a lot of the time.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
Stocks up, gold and treasuries down as usual. More pain for the PP.
Sure looks like one of the assets is in a positive uptrend, yet at 25% of portfolio it cannot counterbalance the decline in the other assets. I have been forced to increase stock exposure in an attempt to stop the losses.
Sure looks like one of the assets is in a positive uptrend, yet at 25% of portfolio it cannot counterbalance the decline in the other assets. I have been forced to increase stock exposure in an attempt to stop the losses.
Last edited by buddtholomew on Wed Sep 09, 2015 8:27 am, edited 1 time in total.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
Now posters come out of the woodwork and admit that they never held a 4x25PP allocation. Gee how surprising...koekebakker wrote:I've been overweight at equities compared to the PP, and now after a six year stock-run I'm slowly decreasing my equity allocation to bring it more in line with the 4x25.It's no coincidence that the temptation to leave the PP now and go into equities full on is at high risk of being at the high for equities and low for PP.
Not selling anything, just adding more new money to the other assets.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
hmmmmm , this sounds like something I heard before lol.buddtholomew wrote: Stocks up, gold and treasuries down as usual. More pain for the PP.
Sure looks like one of the assets is in a positive uptrend, yet at 25% of portfolio it cannot counterbalance the decline in the other assets. I have been forced to increase stock exposure in an attempt to stop the losses.
looks like the treasury's and gold are taking it on the chin again today . equity's in another rally
Last edited by mathjak107 on Wed Sep 09, 2015 8:42 am, edited 1 time in total.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
Yeah...I've been sceptical for the last 3 years.mathjak107 wrote:hmmmmm , this sounds like something I heard before lol.buddtholomew wrote: Stocks up, gold and treasuries down as usual. More pain for the PP.
Sure looks like one of the assets is in a positive uptrend, yet at 25% of portfolio it cannot counterbalance the decline in the other assets. I have been forced to increase stock exposure in an attempt to stop the losses.
looks like the treasury's and gold are taking it on the chin again today . equity's in another rally
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
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Re: All PP assets trending down: When has this happened before? Kinda scary...
I don't even think the griping about the PP is because of the draw down, more because of tracking error.barrett wrote:The current drawdown is about 7.2%. A 7% drawdown has happened a bit less than every two years on average. The fact that January was such a strong month for the PP makes the current performance look much worse than if one were to use 1/1/15 as a starting date. But it's still a pretty big drawdown.mortalpawn wrote: I will point out that drawdowns are not uncommon even with the PP. On average there have been 7 drawdowns of over 10% since 1975 and 42 drawdowns of over 5%. So a 5% drawdown is not really a significant event (happening almost once a year for the last 40 years).
Hopefully you can handle a small 3-5% drawdown now and then without worrying too much - the portfolio very rarely finishes the year in the negative (3 of the last 40 years were negative or roughly one in 10 years).
It's important to remember that the PP has had so few negative years in nominal terms because inflation tends to make performance of almost all portfolios seem better than it actually is. This is why Tyler's real returns charts are so helpful. I know I sound like a broken record (f anyone is actually reading these posts!), but we should expect a lot more nominal negative years in the PP with inflation near zero.
Whatever annual returns we are able to squeeze out of this low-rate environment are going to be clustered around 0%, not the usual 4% or so. If we assume that 2015 finishes in negative territory, that makes two of the last three years negative. I don't think that is unusual at all in this environment if we consider that 2010, 2011 and 2014 were all strongly positive. This comes back to what Sophie has stated a few times... that the PP is probably just reverting to its historical mean with real (and currently nominal) returns in the 3% to 6% range.
Many of us tend to zoom way in and look at granular gains or losses. Even if the PP has positive returns 2/3 of the time, looking at it through a magnifying glass is bound to not feel good a lot of the time.