Slowly bleeding

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

User avatar
ochotona
Executive Member
Executive Member
Posts: 2369
Joined: Fri Jan 30, 2015 5:54 am

Re: Slowly bleeding

Post by ochotona » Sun Oct 16, 2016 8:47 pm

Europe and Japan realizing NIRP is not working as hoped. I think the rubber band is near to fully stretched and it will come back in a nasty way on a new buyer of long bonds... someday.
User avatar
ochotona
Executive Member
Executive Member
Posts: 2369
Joined: Fri Jan 30, 2015 5:54 am

Re: Slowly bleeding

Post by ochotona » Sun Oct 16, 2016 8:49 pm

Oh and everything is a bet on something. Every position is based on some assumption. Buy and hold is not somehow ideologically purer than any other way to allocate
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 11136
Joined: Sat Nov 12, 2011 9:31 am

Re: Slowly bleeding

Post by MachineGhost » Sun Oct 16, 2016 10:47 pm

craigr wrote:So yes there is a potential for gain, but it's not the out of the ballpark figure as it would be if yields started higher. If LT bonds go negative (which I am not assuming, but maybe that's wrong), then there is potential for larger gain. But how negative will LT go before people just don't want them outside of financial institutions shuffling money around?
But calculate it for .75%, .5% and .25% yields and it still holds up because the duration is also increasing to make up for the "missing" yields, i.e. it just becomes more like a zero coupon bond. At 0% nominal yields it will definitely be objectively questionable as to any future capital gains. But, worrying about the potential losses on a rise in yields is market timing and I'm going to argue with the way the PP is constructed, you don't want to manage the duration exposure based on what yield levels "should" and "should not" be (because frankly, we'd be all in cash right now which offers no capital loss protection to stocks or gold).

We only have a historical record of rates rising from "low" yields on 20-year bonds so if you want a quantifiable yield level to stop buying under, here it is (it is 30yr 1977+):

Image

20yr was last under that rate on Oct. 3rd so I guess we're there already. Allow a 1% margin to account for a different macro-environment and I guess 1% doesn't sound that unreasonble as a battle stations point if we actually get there. But you guys better figure out what exactly you're going to do to hedge your stocks and gold if you go to all cash.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
craigr
Administrator
Administrator
Posts: 3181
Joined: Sun Apr 25, 2010 9:26 pm

Re: Slowly bleeding

Post by craigr » Sun Oct 16, 2016 10:56 pm

MachineGhost wrote:But calculate it for .75%, .5% and .25% yields and it still holds up because the duration is also increasing to make up for the "missing" yields, i.e. it just becomes more like a zero coupon bond. At 0% nominal yields it will definitely be objectively questionable as to any future capital gains. But, worrying about the potential losses on a rise in yields is market timing and I'm going to argue with the way the PP is constructed, you don't want to manage the duration exposure based on what yield levels "should" and "should not" be (because frankly, we'd be all in cash right now which offers no capital loss protection to stocks or gold).
I totally get it.

But each investor has to make their own judgment call on this. At 1% or lower I'm simply not a buyer of long-bonds and I will not likely hold onto them. For people in Europe with yields under 0.50%, they should definitely not be buying them. There is just no juice left vs. the risk.

I couldn't in good conscience tell someone to buy and hold onto long-bonds under 1% in yield. I wouldn't do it myself so I wouldn't recommend someone else to do it.

Again, each person needs to make up their own mind based on the risks they see.
AnotherSwede
Senior Member
Senior Member
Posts: 124
Joined: Mon May 11, 2015 10:24 pm

Re: Slowly bleeding

Post by AnotherSwede » Sun Oct 16, 2016 11:18 pm

How horrible would a return to 5-10% interest rate be? What would happen to pension funds, real estate prices?

I suppose pensions would have to be fully funded by tax money.
dutchtraffic
Executive Member
Executive Member
Posts: 259
Joined: Sat Apr 11, 2015 7:28 am

Re: Slowly bleeding

Post by dutchtraffic » Mon Oct 17, 2016 1:19 am

AnotherSwede wrote:How horrible would a return to 5-10% interest rate be? What would happen to pension funds, real estate prices?

I suppose pensions would have to be fully funded by tax money.
5-10% ? :o
As of right now, the world's financial system would pretty much implode entirely.
dutchtraffic
Executive Member
Executive Member
Posts: 259
Joined: Sat Apr 11, 2015 7:28 am

Re: Slowly bleeding

Post by dutchtraffic » Mon Oct 17, 2016 1:22 am

Looking at this, the PP would have been totally destroyed in quite a few cases. Some more evidence for geographic diversification.

Image
User avatar
craigr
Administrator
Administrator
Posts: 3181
Joined: Sun Apr 25, 2010 9:26 pm

Re: Slowly bleeding

Post by craigr » Mon Oct 17, 2016 1:28 am

dutchtraffic wrote:Looking at this, the PP would have been totally destroyed in quite a few cases. Some more evidence for geographic diversification.

Image

Certainly, a widely diversified portfolio like the Permanent Portfolio is way better in those cases than one just using stocks/bonds which is what many would recommend.

But to your point, yes geographic diversification (especially with gold), is not such a bad idea when you can see what can happen to sovereign debt.
dutchtraffic
Executive Member
Executive Member
Posts: 259
Joined: Sat Apr 11, 2015 7:28 am

Re: Slowly bleeding

Post by dutchtraffic » Mon Oct 17, 2016 1:32 am

craigr wrote:
dutchtraffic wrote:Looking at this, the PP would have been totally destroyed in quite a few cases. Some more evidence for geographic diversification.

Certainly, a widely diversified portfolio like the Permanent Portfolio is way better in those cases than one just using stocks/bonds which is what many would recommend.

But to your point, yes geographic diversification (especially with gold), is not such a bad idea when you can see what can happen to sovereign debt.
With 50% of the portfolio at -100% (bonds and bills), and stocks at -90% or worse, I'm not sure if the portfolio would be doing "ok" ;D
Only thing you have left at that point is gold, and you better have phydical bars at that point, because it would be a massive questionmark if your fancy ETF would be working at that point.
User avatar
craigr
Administrator
Administrator
Posts: 3181
Joined: Sun Apr 25, 2010 9:26 pm

Re: Slowly bleeding

Post by craigr » Mon Oct 17, 2016 1:40 am

dutchtraffic wrote:
craigr wrote:
dutchtraffic wrote:Looking at this, the PP would have been totally destroyed in quite a few cases. Some more evidence for geographic diversification.

Certainly, a widely diversified portfolio like the Permanent Portfolio is way better in those cases than one just using stocks/bonds which is what many would recommend.

But to your point, yes geographic diversification (especially with gold), is not such a bad idea when you can see what can happen to sovereign debt.
With 50% of the portfolio at -100% (bonds and bills), and stocks at -90% or worse, I'm not sure if the portfolio would be doing "ok" ;D
Only thing you have left at that point is gold, and you better have phydical bars at that point, because it would be a massive questionmark if your fancy ETF would be working at that point.
Yeah I understand. But you know no other portfolio is going to be doing any better, and most a lot worse. Iceland was a recent example where most people got pummeled, but if you were widely diversified across four assets you did a heck of a lot better than your countrymen.

And yes again, not many portfolios advocated holding gold assets outside the country where you live as a back up plan. I don't recommend using ETFs for gold unless you have no other choice or for a small allocation for rebalancing purposes. Physical gold held in a far off first-world stable country is a better idea.
dutchtraffic
Executive Member
Executive Member
Posts: 259
Joined: Sat Apr 11, 2015 7:28 am

Re: Slowly bleeding

Post by dutchtraffic » Mon Oct 17, 2016 1:46 am

A global PP (using https://www.ishares.com/uk/individual/e ... -ucits-etf for the bonds), and using a total world ETF for stocks would have never broken down completely.

It does break the PP concept entirely though.
Hal
Executive Member
Executive Member
Posts: 184
Joined: Tue May 03, 2011 1:50 am

Re: Slowly bleeding

Post by Hal » Mon Oct 17, 2016 2:10 am

stuper1 wrote:There was a controversial guy who used to post on here whose portfolio was basically 50% stocks and 50% gold. He claimed it was less volatile than one might imagine. If you have a fairly long time horizon to ride out some volatility, you might consider that portfolio, since you seem to want to avoid long bonds and short bonds.

Another idea is a foreign currency ETF as a separate asset class. Would that have the same tax problems for you?
Vaguely remember that..... Here is an analysis on that theory.

http://www.merkinvestments.com/download ... cation.pdf

and if all else fails go back to the fundamentals

https://en.wikiquote.org/wiki/Benjamin_Graham

and my favourite

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
― Benjamin Graham
Post Reply