A PP risk?
Moderator: Global Moderator
-
Clive
Re: A PP risk?
Clive,
Considering that the PP is basically a customized solution to safe investing within a fiat money world, why are you looking back prior to 1971?
Prior to that I would think that a PP-like approach would need to have different allocations.
Note, too, that the 1936-1970 window has you investing in stocks in two separate secular bear markets, which is also going to depress overall returns.
During the 1936-1970 period, I might be more inclined to just do 65% 10 year treasuries and 35% equities.
When you are on a gold standard, I don't know if it's all that important to personally own a lot of gold.
Considering that the PP is basically a customized solution to safe investing within a fiat money world, why are you looking back prior to 1971?
Prior to that I would think that a PP-like approach would need to have different allocations.
Note, too, that the 1936-1970 window has you investing in stocks in two separate secular bear markets, which is also going to depress overall returns.
During the 1936-1970 period, I might be more inclined to just do 65% 10 year treasuries and 35% equities.
When you are on a gold standard, I don't know if it's all that important to personally own a lot of gold.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
Re: A PP risk?
Indeed, if gold is equivalent to cash, then the PP becomesMediumTex wrote: When you are on a gold standard, I don't know if it's all that important to personally own a lot of gold.
25% stock
25% long term bonds
50% cash (short term bonds)
which is an awful lot like a conservative lazy portfolio of 25% stock, 75% bond index.
Re: A PP risk?
Why does Clive's chart show 97% gold gain in 1979 when Craig's show's 130-something%?
Also, how did you calculate LTT returns?
Also, how did you calculate LTT returns?
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: A PP risk?
Clive,
When I look at a chart of TLT and VTI the last 10 years, I will take LTT's as an excellent mid-to-long term hedge to stocks compared to cash.
The thing is, long-term treasuries DO have a leveraged nature in that they react much more sharply to interest rates... The system we're currently in has people trying to get some sort of return on both the safe (treasury fixed rate of return) and risky (corporate unknown rate of return) scale. This is what so often works to their advantage when combined with stocks.
Not only do long-term rates almost always yield higher than short-term, but it's completely natural to have them suddenly yield less than they did the weeks/months before when stocks are appearing to either be too risky or maybe to have weak future return expectations. Think of a giant yield-curve that has Long-term treasuries on one end Corporate bonds in the middle, and extends past junk bonds to include stocks "expected future yield." Why would one expect anything else but a drop on bond rates from the safest issuer in the country when "expected future yield" of stocks drup. Nice thing is, a you bought the bond at a locked rate.
With the exception of currency issues (which gold is great for), the LTT's appear to me to be much better suited as a partner to stocks than cash. In fact, the very idea that cash doesn't have the volatility needed to offset stock losses says to me that it's inherantly weak as a hedge, especially as its yield is less than LT treasuries (as it very often is).
If you look at several stock-crippling or hiccuping events over the past 25 years (9/11, 1987 crash, May 2010 Flash-Crash, Lehman collapse... and other things I can't remember that I checked), LTT's and Gold have, as a team, done far better than cash could have done to offset stock losses. It's those correlations that keep us in the PP... the expectation of gold and/or LT treasuries, and their leveraged nature, to zig when stocks zag. Cash is a cushion... and if we didn't expect the other two to perform in a leveraged nature against stocks, the PP would be very unreliable.
For someone who likes to take some more risk, I'm surprised you like cash so much as your hedge. If I didn't think gold & treasuries would provide a relatively effective, leveraged counter to severe stock losses while also providing better long-term return than cash, I wouldn't consider the PP much of a success.
When I look at a chart of TLT and VTI the last 10 years, I will take LTT's as an excellent mid-to-long term hedge to stocks compared to cash.
The thing is, long-term treasuries DO have a leveraged nature in that they react much more sharply to interest rates... The system we're currently in has people trying to get some sort of return on both the safe (treasury fixed rate of return) and risky (corporate unknown rate of return) scale. This is what so often works to their advantage when combined with stocks.
Not only do long-term rates almost always yield higher than short-term, but it's completely natural to have them suddenly yield less than they did the weeks/months before when stocks are appearing to either be too risky or maybe to have weak future return expectations. Think of a giant yield-curve that has Long-term treasuries on one end Corporate bonds in the middle, and extends past junk bonds to include stocks "expected future yield." Why would one expect anything else but a drop on bond rates from the safest issuer in the country when "expected future yield" of stocks drup. Nice thing is, a you bought the bond at a locked rate.
With the exception of currency issues (which gold is great for), the LTT's appear to me to be much better suited as a partner to stocks than cash. In fact, the very idea that cash doesn't have the volatility needed to offset stock losses says to me that it's inherantly weak as a hedge, especially as its yield is less than LT treasuries (as it very often is).
If you look at several stock-crippling or hiccuping events over the past 25 years (9/11, 1987 crash, May 2010 Flash-Crash, Lehman collapse... and other things I can't remember that I checked), LTT's and Gold have, as a team, done far better than cash could have done to offset stock losses. It's those correlations that keep us in the PP... the expectation of gold and/or LT treasuries, and their leveraged nature, to zig when stocks zag. Cash is a cushion... and if we didn't expect the other two to perform in a leveraged nature against stocks, the PP would be very unreliable.
For someone who likes to take some more risk, I'm surprised you like cash so much as your hedge. If I didn't think gold & treasuries would provide a relatively effective, leveraged counter to severe stock losses while also providing better long-term return than cash, I wouldn't consider the PP much of a success.
Last edited by moda0306 on Wed Jul 27, 2011 7:10 pm, edited 1 time in total.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: A PP risk?
To add to my post... I think we can assume that over any 30-year period of time, long-term treasuries are going to be more likely to have yielded more than cash or short-term treasuries during that same time. So all alone, if we can assume long-term treasuries are going to yield more, then it's about correlation.
Not every year was a 2008, but if you look at the last 10 years of stock & long-term bond performance, and accept that holding gold (or commodities) is a good option to hedge against inflationary recession, then in very few ways does cash seem like anywhere close to being a good pair to a leveraged asset like stocks.
So Long-term CAGR: LTT's win
and Correlation: LTT's win
Throw in some gold and you've got yourself a little leveraged firecracker of a hedged investing system.
Not every year was a 2008, but if you look at the last 10 years of stock & long-term bond performance, and accept that holding gold (or commodities) is a good option to hedge against inflationary recession, then in very few ways does cash seem like anywhere close to being a good pair to a leveraged asset like stocks.
So Long-term CAGR: LTT's win
and Correlation: LTT's win
Throw in some gold and you've got yourself a little leveraged firecracker of a hedged investing system.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."
- Thomas Paine
- Thomas Paine
Re: A PP risk?
Plus, in the USA, it would not have been possible for most people to own a significant amount of gold in the form of coins and bullion between 1936 and 1970. Gold was confiscated in 1933, and individuals working in only a handful of occupations--jewelers and dentists come to mind--had personal access to much of it. The government did not demand all the gold coins, but the amount an individual could keep was (by some measures) miniscule. So one could not develop a PP with gold during that era, and it probably would not have made sense to develop one with silver, either.MediumTex wrote: Clive,
Considering that the PP is basically a customized solution to safe investing within a fiat money world, why are you looking back prior to 1971?
Prior to that I would think that a PP-like approach would need to have different allocations.
Note, too, that the 1936-1970 window has you investing in stocks in two separate secular bear markets, which is also going to depress overall returns.
During the 1936-1970 period, I might be more inclined to just do 65% 10 year treasuries and 35% equities.
When you are on a gold standard, I don't know if it's all that important to personally own a lot of gold.
Re: A PP risk?
Clive, have you ever looked at how the PP compared to fat tail minimization portfolio for countries undergoing long term currency value erosion? For many "third world" countries the exchange rate (compared to USD) halved and halved again and again and again during the 1980s and 1990s. That process seems to have started reversing. I can only see gold as hedging against that. Cash in USD or GBP won't do any good. Inflation linked bonds are all very well but the "basket" of goods changes so that it could change from flat screen TVs, steak and cars to a future with a "basket" of a turnip, some barley and the toll to walk on the pavement.
"Good judgment comes from experience. Experience comes from bad judgment." - Mulla Nasrudin