Hand Holding

[MachineGhost]

Well I'm not a constant looker, once every week or two it seems so I'll have to look what happened last Friday.

Either way, I'm playing with house money as I'm still up ~6% since May in TLT and feel comfortable that the model will do it's job.

Might been the Friday before last, it was a "Tight Money" day.

[Reub]

A little surprising that you are out of TLT as most of the momentum strategy scenarios I have tested assign weight to TLT starting May (which has worked out well with the Brexit). My personal portfolio is currently 50% TLT/50% non-PP non-cash asset.

I'm sure that at some point interest rates will go up, but until then it seems like TLT is humming along with good returns. Until then I just locked 2.875% for 15 years on my mortgage.

It was a subjective override. I don't feel like suffering a peak-to-sell signal when I have no guarantee I'll make back the losses anytime soon. The panic period when everyone sells everything and their mother for cash can be brutal. Remember last Friday? That was but a small taste.

You been reading Hussman again?

[buddtholomew]

A little surprising that you are out of TLT as most of the momentum strategy scenarios I have tested assign weight to TLT starting May (which has worked out well with the Brexit). My personal portfolio is currently 50% TLT/50% non-PP non-cash asset.

I'm sure that at some point interest rates will go up, but until then it seems like TLT is humming along with good returns. Until then I just locked 2.875% for 15 years on my mortgage.

It was a subjective override. I don't feel like suffering a peak-to-sell signal when I have no guarantee I'll make back the losses anytime soon. The panic period when everyone sells everything and their mother for cash can be brutal. Remember last Friday? That was but a small taste.

Well I'm not a constant looker, once every week or two it seems so I'll have to look what happened last Friday.

Either way, I'm playing with house money as I'm still up ~6% since May in TLT and feel comfortable that the model will do it's job.

The term House Money doesn't sit well with me.
Another one I dislike is, I want to Play in the market.

[MachineGhost]

You been reading Hussman again?

No way, Hussman's a bloody optimist!

Do you realize how screwed he's going to be again when capital flees into cash, equities and gold? It's gonna be "out of sample" for him again because he's "hard negative" given that we're still in that few percents of the time when we've crashed or entered a bear market historically.

Well, in the past the USA wasn't the world's largest debtor nation nor was it the world's reserve currency. 100-years of data will do you very little good if the context is different the next time.

Just a suspicion. We still have room to take out and surpass the 2000 peak in sheer lunacy. Why shouldn't we in a global panic where the USA is the last man standing? If there's one thing I've learned after almost 25 years of being in chronically overvalued markets, the Baby Boomers are absolutely reckless. They are going to be their very own demise. First in bubbly bonds and then after they flee into stocks.

But hey, maybe this time really will be different!

In the meantime, all you can do is follow proper risk controls.

[InsuranceGuy]

[deleted]

[buddtholomew]

Well I'm not a constant looker, once every week or two it seems so I'll have to look what happened last Friday.

Either way, I'm playing with house money as I'm still up ~6% since May in TLT and feel comfortable that the model will do it's job.

The term House Money doesn't sit well with me.
Another one I dislike is, I want to Play in the market.

Just a little banter with MG. Personally I feel the same way as he does... how can bonds yields go any lower?

That said, I trust the model and leave my personal biases out of the investment process.

That's good to hear.
PP advocates hold all 4 assets at all times.
MG holds fewer than the 4 assets at all times.
Yet...the portfolio is performing better than expected.
Hmm...

[InsuranceGuy]

[deleted]

[MachineGhost]

Well I hold fewer than 4 assets at a time using momentum as well, but my model indicates TLT as a holding right now which surprises me.

Valuation only matters when the ignorant fools decide it matters and that really stretches the definition of Keynes' "long run" due to the Baby Boomers' recklessness. But the risk/reward does get compressed at the tail-end of a bubble. I feel like we're at that stage with Treasuries, hence its not worth the abrupt downside risk in my book. Did you see what happened to 40-year Japanese bonds recently? I'd like to know what a Japanese's plan is to get back those crushing losses with their moribund currency, stocks and gold markets, especially if bond yields continue to skyrocket. Rhetorical question.

This is why I don't regret the buy signal earlier this year:



If I had a lot of traditional public equity exposure that wasn't also downside risk managed, I'd be 25% in bonds. When you break one part of the PP, you have to break them all. No halfsies.

[MachineGhost]

This is mostly for budd, but I'll be approximately 25% Prosperity, 19% Deflation, 22% Real and 40% Tight Money in exactly 12 weeks via autoinvesting. I can't get over the sick feeling (gulp!) that investing in T-Bonds right now may turn out to be a huge mistake, but I'm going to let the bird fly free in return for potentially faux solace because hopefully there's bound to be at least one more flight to safety left before the government SHTF. This was not easy to do at all but now that I'm comitted, I find it easier to worry less/almost forget about it. After all, we do know the PP will work given enough time. Nothing else has that platinum assurance that I'm aware of.

What I did to determine the T-Bond weight was just $ hedge all beta risk from Prosperity and Real. So there's still a bit of a cash cushion so I feel comfortable and in case I need to dollar cost average some losses further down the line.

If 2015 was any indication, you really got to be careful about portfolio implementations when you have no job. A -25% MaxDD or worse on the outset will not do any favors for your psyche.

[MachineGhost]

Yields rising on ECB taper tantrum and utilities are getting hammered.

[buddtholomew]

Yields rising on ECB taper tantrum and utilities are getting hammered.

Relax MG, this setup is what you want.
Selling gold and treasuries in advance of stocks tanking and allowing us to buy them on a pullback.

[sophie]

Actually, I'm thinking that long T bonds could well be your best buy right now.

I was thinking about this while writing up the post on Immigration Statistics. The trend in the US is for a population of unskilled workers (or virtually unemployable people) to increase far faster than the productive and wealthy population, who of course are required to pay for the former group's support.

I can't think how this could possibly result in anything but a long, smoldering deflation with continued low interest rates. There will be fluctuations in bond yields that will allow you to reap some profits by rebalancing, but overall I am guessing that yields will stay constant or perhaps decrease. Sort of Japan style.

I could be wrong, but I'm going to hold my nose and buy the bonds. And the gold in physical form, because I think a wealth tax is inevitable in this scenario. Getting a quarter of your wealth off the radar is a jolly good idea. Thank you HB!

[MachineGhost]

Yields rising on ECB taper tantrum and utilities are getting hammered.

Relax MG, this setup is what you want.
Selling gold and treasuries in advance of stocks tanking and allowing us to buy them on a pullback.

I'm actually wondering now if there's a penalty to DCA when an asset is going up vs going down and how either compares with trend following thrown into the mix. My gut feeling is trend following will save you a lot more capital losses than DCAing both up and down. But you could also DCA only when trend was up and not DCA when trend was down -- what would the results be in that case?

[barrett]

This is mostly for budd, but I'll be approximately 25% Prosperity, 19% Deflation, 22% Real and 40% Tight Money in exactly 12 weeks via autoinvesting.

MG, I know you wrote "approximately" but I wanted to point out that your numbers add up to 106%. Do you really just mean 34% cash?

[Cortopassi]

Can someone hold my hand now? Just like those great all assets in PP up days, I suppose there needs to be all assets down days.

But as usual, the most frustrating one is gold.

[buddtholomew]

Can someone hold my hand now? Just like those great all assets in PP up days, I suppose there needs to be all assets down days.

But as usual, the most frustrating one is gold.

1% move from cash to gold at 1250.
1% move from cash to TLT at 134.
20/20/20/40

I consider GLD/TLT as buying opportunities.
I could be wrong so only exchanged a small percentage.
Gold is down ~10% from recent highs do not a bad deal if you participated in the run up this year.
Let's not go back any further.

[barrett]

Can someone hold my hand now? Just like those great all assets in PP up days, I suppose there needs to be all assets down days.

Hey Cortopassi, If I recall correctly, you posted your AA recently as 35% stocks, 30% gold, 25% LTT and 10% cash. That's the Corto Porto, right? Or maybe the CortPort?

You've also posted on here that you have your house paid off and your kids college paid for. Hopefully you realize that those are both awesome things to have on your "done" list. And you have a good job, right?

Assuming all the above is more or less correct, I think you just need to realize that you have positioned yourself so that over time you should be able to do well during periods of prosperity (stocks and your employment), deflation (LTTs and more cash than most people hold), and inflation (gold and owning your home). There is absolutely nothing you can do about the daily fluctuations. Up days will occur about 60% of the time and down days maybe 40%. Same for weeks and months. In your place I would look at the drops as buying opportunities and the up days as... well, I think we all feel OK on up days, right?

Maybe set yourself up a tracking system for how many shares of the S&P (or TSM) you own, how many treasuries (or maybe shares of TLT), how many ounces of gold (or shares of IAU), and how many units you have in dry powder (cash). As long as you are working, THAT is something you can control.

And the other thing is to take a big step back and see if you have more assets that you did at the beginning of the year. What about at the the end of 2013 or 2014? I would think the trend is up, and not just up, but up significantly. You're a cheap guy, right? Me too! You probably save like a maniac with the aforementioned expenses out of the way.

Just some thoughts. I check my numbers way to frequently as well so some of this post is for my benefit.

[MachineGhost]

MG, I know you wrote "approximately" but I wanted to point out that your numbers add up to 106%. Do you really just mean 34% cash?

Thanks for catching that! I actually have a bug in Excel where the $ totals of all four quadrants adds up to the correct amount, yet for the life of me, cannot find out where the extra 6% in Cash comes from because each quadrant adds up to 100% by hand, but 106% via Excel! It is very maddening. So just take off 6% from the 40%.

[Cortopassi]

Can someone hold my hand now? Just like those great all assets in PP up days, I suppose there needs to be all assets down days.

Hey Cortopassi, If I recall correctly, you posted your AA recently as 35% stocks, 30% gold, 25% LTT and 10% cash. That's the Corto Porto, right? Or maybe the CortPort?

You've also posted on here that you have your house paid off and your kids college paid for. Hopefully you realize that those are both awesome things to have on your "done" list. And you have a good job, right?

Assuming all the above is more or less correct, I think you just need to realize that you have positioned yourself so that over time you should be able to do well during periods of prosperity (stocks and your employment), deflation (LTTs and more cash than most people hold), and inflation (gold and owning your home). There is absolutely nothing you can do about the daily fluctuations. Up days will occur about 60% of the time and down days maybe 40%. Same for weeks and months. In your place I would look at the drops as buying opportunities and the up days as... well, I think we all feel OK on up days, right?

Maybe set yourself up a tracking system for how many shares of the S&P (or TSM) you own, how many treasuries (or maybe shares of TLT), how many ounces of gold (or shares of IAU), and how many units you have in dry powder (cash). As long as you are working, THAT is something you can control.

And the other thing is to take a big step back and see if you have more assets that you did at the beginning of the year. What about at the the end of 2013 or 2014? I would think the trend is up, and not just up, but up significantly. You're a cheap guy, right? Me too! You probably save like a maniac with the aforementioned expenses out of the way.

Just some thoughts. I check my numbers way to frequently as well so some of this post is for my benefit.

Barrett, I always feel better after your comments, thanks! The CortPort is correct. Still a couple % heavy on cash, going to fix that at the end of the year.

I do look at ounces, but not shares for the other stuff. Good idea.

Regards!

[MachineGhost]

Can someone hold my hand now? Just like those great all assets in PP up days, I suppose there needs to be all assets down days.

But as usual, the most frustrating one is gold.

Gold's probably useful for what, the 5% of the time that confidence is loss in government? Why be frustrated over a low probability event -- reframe your perceptions. At least gold also goes up on higher demand and higher inflation, otherwise it would really be a huge lump of coal in the portfolio.

[Cortopassi]

Can someone hold my hand now? Just like those great all assets in PP up days, I suppose there needs to be all assets down days.

But as usual, the most frustrating one is gold.

Gold's probably useful for what, the 5% of the time that confidence is loss in government? Why be frustrated over a low probability event -- reframe your perceptions. At least gold also goes up on higher demand and higher inflation, otherwise it would really be a huge lump of coal in the portfolio.

I think my biggest hangup with gold is still getting over the gold bugs thinking and zerohedge thinking that every possible bad event in the world, economic, political, etc. should pump up the price of gold. It just doesn't happen for more than a blip. I still jump to those sites, hard to resist the doom porn.

I have gotten a whole lot better at rethinking that position, however, it has been quite a lump of coal when looking at my cost basis. I am still negative, after having first bought some in 2008. 8 years is a freaking long time. Sure, I was flying in 2011, but for the past 5 years it has generally sucked. This year has not been bad, but my vision is myopic and I am swayed most by what's happening recently.

[MachineGhost]

I have gotten a whole lot better at rethinking that position, however, it has been quite a lump of coal when looking at my cost basis. I am still negative, after having first bought some in 2008. 8 years is a freaking long time. Sure, I was flying in 2011, but for the past 5 years it has generally sucked. This year has not been bad, but my vision is myopic and I am swayed most by what's happening recently.

Gold bug doom porners never act as if the powers that be have any self-interest in self-perpetuating their own power and control. That's why gold never goes up for long because reality eventually reaasserts itself. What we really own gold for in the long-term, besides short-term government implosion protection, is its correlation to being a high[er] inflation hedge along with other commodities and real assets. I'm not a gold bug but I can handle the capital losses knowing that its a real, tangible assets instead of metaphysical paper/electrons like everything else. At the end of the day, I know gold is real, literally. Call me deluded, but I don't worry about gold as I seem to do about the other assets. Stocks get nearly wiped out or go to zero, Bonds are defaulted upon and payments repudiated, Cash gets replaced with new Cash at 1:10,000 ratio, but Gold is... eternal! Priceless.

[MachineGhost]

MG, I know you wrote "approximately" but I wanted to point out that your numbers add up to 106%. Do you really just mean 34% cash?

Thanks for catching that! I actually have a bug in Excel where the $ totals of all four quadrants adds up to the correct amount, yet for the life of me, cannot find out where the extra 6% in Cash comes from because each quadrant adds up to 100% by hand, but 106% via Excel! It is very maddening. So just take off 6% from the 40%.

I squashed the bug. Turns out I was using my net worth less outstanding debt for my PP total and that was throwing off the quadrant weights. So in other words, my actual PP is 6% higher than I thought! So in 12 weeks, I will be approximately 23.48% equity, 17.81% T-Bonds, 20.89% real and 37.82% cash. My hedged beta exposure (with the T-Bonds) will be approximately 50.36% of the total equity and real.

[MachineGhost]

"That is because with interest rates having declined, the effective durations of all assets have lengthened, so they are more price-sensitive. For example, it would only take a 100-basis-point rise in Treasury bond yields to trigger the worst price decline in bonds since the 1981 bond market crash." -- Ray Dalio

[barrett]

"That is because with interest rates having declined, the effective durations of all assets have lengthened, so they are more price-sensitive. For example, it would only take a 100-basis-point rise in Treasury bond yields to trigger the worst price decline in bonds since the 1981 bond market crash." -- Ray Dalio

Source, MG? Looks like the 30-year bond lost about 6% in 1981. Hardly a crash. I'd be really curious to hear what Dalio is recommending these days. The version of the All Weather Portfolio that I saw from a couple of years back had 40% in 30-year treasuries and another 15% in 10-year bonds.