Out of balance

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Cortopassi
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Re: Out of balance

Post by Cortopassi » Tue Jan 02, 2018 4:29 pm

Don wrote:
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.
You are in the wrong discussion group if that's your thinking. Not saying it is wrong, just not what most here (including me) would do.

If you are rebalancing annually here right now, you are likely taking some of the 20+% gains in stocks and reallocating it to lower performing bonds and gold. If that rebalancing doesn't feel right to you, not sure what to say.

Personally, I think yields on long bonds have an even chance of going up or down from here. Look at other countries long bonds compared to the US, esp. Europe. Many yields there are significantly lower. I still don't understand why.

Look here for example at 10 year bonds. Even Italy is lower than the US. Please explain?

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Re: Out of balance

Post by Kbg » Tue Jan 02, 2018 5:07 pm

Don,

Study up on how bonds actually perform in a rising interest rate environment. You might be surprised.

What we do know, categorically, is if you are siting in cash you are losing 2.2% per year purchasing power per the last annualized CPI reporting.

There's quick risk that might happen and then there's the slow inevitable risk of actual inflation. WAY too many people focus on the first and not enough people focus on the second...you can speculate all day on the former and have a 50% chance of being right or wrong. You don't need to speculate on the latter at all. It's reported thanks to your tax dollars monthly...and is far more problematic over the long haul. If interest rates go up, guess what? Interest rates on new bonds are going up with it.
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Re: Out of balance

Post by Don » Tue Jan 02, 2018 5:54 pm

glennds wrote:
Don wrote:
Don wrote:Who in their right minds thinks that interest rates will be lower in a year? It's the willful suspension of disbelief at work here.

We don't have to live in cocoons to see what's happening in the real world right now. Do we?
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.
I understand the case you're making, but for a subscriber to the Permanent Portfolio as a complete strategy, this recommendation would be attempting to time the market. The idea is to embrace the asset for its negative correlation to other buckets in the portfolio. Even shortening maturities degrades the strategy because we're looking for the increased volatility of the long bond. I think at most times, the PP is requiring you to do something counter-intuitive that would seem out of touch with the real world at the time.
What is being advocated seems almost like a religion. When are we allowed to think for ourselves?
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Re: Out of balance

Post by buddtholomew » Tue Jan 02, 2018 6:03 pm

Don wrote:
glennds wrote:
Don wrote:
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.
I understand the case you're making, but for a subscriber to the Permanent Portfolio as a complete strategy, this recommendation would be attempting to time the market. The idea is to embrace the asset for its negative correlation to other buckets in the portfolio. Even shortening maturities degrades the strategy because we're looking for the increased volatility of the long bond. I think at most times, the PP is requiring you to do something counter-intuitive that would seem out of touch with the real world at the time.
What is being advocated seems almost like a religion. When are we allowed to think for ourselves?
No one is stopping you Don.
We’ve all been around the block enough to know removing a leg from the chair creates an unbalanced seat.

Are you familiar with risk parity...perhaps look there if you are not comfortable holding LTT’s.
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Re: Out of balance

Post by Kbg » Tue Jan 02, 2018 7:17 pm

Don wrote:What is being advocated seems almost like a religion. When are we allowed to think for ourselves?
It's your money. First, last, always...think for yourself.
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Re: Out of balance

Post by Kriegsspiel » Tue Jan 02, 2018 9:50 pm

Don wrote:
glennds wrote:
Don wrote:
One might be a lot better off instead of rebalancing back into the losing bond trade to instead place the funds into cash or a M.M. fund. But definitely not into bonds for the foreseeable future. Or just let it ride in stocks.
I understand the case you're making, but for a subscriber to the Permanent Portfolio as a complete strategy, this recommendation would be attempting to time the market. The idea is to embrace the asset for its negative correlation to other buckets in the portfolio. Even shortening maturities degrades the strategy because we're looking for the increased volatility of the long bond. I think at most times, the PP is requiring you to do something counter-intuitive that would seem out of touch with the real world at the time.
What is being advocated seems almost like a religion. When are we allowed to think for ourselves?
When you are smarter than Harry Browne.
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Re: Out of balance

Post by glennds » Wed Jan 03, 2018 12:48 pm

Don wrote:
glennds wrote:
Don wrote:


What is being advocated seems almost like a religion. When are we allowed to think for ourselves?
Nah, it's not religion, it's just a strategy that appeals to most of the participants here for a whole bunch of technical reasons. My reply was just giving you the theory and rationale behind holding long bonds even though it might not comply with the conventional wisdom of the moment.

If you familiarize yourself with the PP and don't feel it's right for you (or if you simply don't agree with the theory), then you shouldn't use it. It's not what's right or wrong, it's what's right or wrong for you.
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Re: Out of balance

Post by stuper1 » Wed Jan 03, 2018 1:21 pm

Think for yourself all you want, but also go back and look at the predictions for many of the last years about long bonds. The "experts" have been saying they will lose value for years, and in fact what has happened is that many years they have been the biggest winner.
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Re: Out of balance

Post by buddtholomew » Wed Jan 03, 2018 2:11 pm

I agree, thinking gets you in trouble as we are our own worst enemies.

The most logical, analytical and intelligent people I know make the most inopportune investing decisions. It pays to know less, not more.
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Re: Out of balance

Post by glennds » Wed Jan 03, 2018 4:20 pm

buddtholomew wrote:I agree, thinking gets you in trouble as we are our own worst enemies.

The most logical, analytical and intelligent people I know make the most inopportune investing decisions. It pays to know less, not more.
I'd say it's not thinking, it's over-thinking that gets us in trouble. It's still important to make informed decisions, even if you're consciously deciding to not think, if that makes sense. Among the many things I like about the Permanent Portfolio is that the auto pilot nature of it, especially the re-balancing regimen, protects us from ourselves.
But it's still an informed decision to choose the strategy because you understand these features and they appeal to you.
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Re: Out of balance

Post by buddtholomew » Wed Jan 03, 2018 4:27 pm

I'm not saying put your head in the sand and ignore.
What I am suggesting is not trying to determine which of the components should be dropped from the portfolio because it is so obvious that rates have to go up. All those geniuses that said bond rates will sky rocket and that stocks are over-valued....these are the people I am talking to.
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Re: Out of balance

Post by glennds » Wed Jan 03, 2018 5:24 pm

buddtholomew wrote:I'm not saying put your head in the sand and ignore.
What I am suggesting is not trying to determine which of the components should be dropped from the portfolio because it is so obvious that rates have to go up. All those geniuses that said bond rates will sky rocket and that stocks are over-valued....these are the people I am talking to.
Got it, thanks for clarifying! I was preaching to the choir, ha.

You brought up an interesting point though. I once heard Warren Buffett say something to the effect that there is a peculiar natural bias among us humans thinking that the more complicated something is the better it must be, and conversely the simpler something is the more primitive and worse it must be. Obviously we all know the opposite is very often the case.
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Re: Out of balance

Post by steve » Thu Jan 04, 2018 9:00 am

Way I look at it I would gladly by long term bonds to re balance , If interest rates keep rising and the value goes down I would just keep tax loss harvesting, No one can predict the future and things do not always go as expected. If the value keeps going down until it once again hit the lower re balance band of 15% I would just re balance again. At some point when things change it would explode to the upside.
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Re: Out of balance

Post by Don » Wed Jan 10, 2018 10:33 am

stuper1 wrote:Think for yourself all you want, but also go back and look at the predictions for many of the last years about long bonds. The "experts" have been saying they will lose value for years, and in fact what has happened is that many years they have been the biggest winner.
http://www.businessinsider.com/bond-mar ... ch-2017-10

"Bond guru Jeffrey Gundlach has been sounding the alarm on a Treasury market selloff for some time now. On Tuesday, the CEO and founder of DoubleLine Capital took his warning to a whole new level, after the US 10-year yield crossed the 2.40% level, putting in its highest print since May.

"The moment of truth has arrived for secular bond bull market!" Gundlach tweeted. "Need to start rallying effective immediately or obituaries need to be written."

The end of the secular bond bull market would be a significant event. For more than three decades, bond investors have enjoyed massive returns as bond yields pressed lower and lower. Since 1981, the 10-year yield has fallen from near 16% to below 2%, luring in more and more investors along the way. "
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Re: Out of balance

Post by Cortopassi » Wed Jan 10, 2018 2:07 pm

I don't think anyone attempted to answer my bond question in another topic, namely, if the bond bull is dead, does that mean a place like Italy, see below, is less risky to park your money?

I don't believe it. I think this is a blip and we'll be back lower soon enough.

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Re: Out of balance

Post by Libertarian666 » Wed Jan 10, 2018 2:14 pm

Cortopassi wrote:I don't think anyone attempted to answer my bond question in another topic, namely, if the bond bull is dead, does that mean a place like Italy, see below, is less risky to park your money?

I don't believe it. I think this is a blip and we'll be back lower soon enough.

Image
The Federal Reserve cannot allow the Treasury rate to rise significantly because that would send the "budget" into a death spiral.

So they will always choose to print more "money", even if that means hyperinflation.

Of course in the latter case bonds will be useful primarily to light cigars with.
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Re: Out of balance

Post by Tortoise » Wed Jan 10, 2018 5:08 pm

If LTT rates rise gradually, then of course existing bond prices would fall, but wouldn't a bond ladder (say, 20-30 year maturities) benefit as the older bonds get rolled into new ones at the higher rate?

Those two effects counter each other, and I don't know which one would dominate. I'm guessing it depends on the rate, rate of increase in the rate, and how often bonds get rolled over in the ladder.

Would be interesting to run an analysis on different scenarios to see how quickly LTT rates would have to rise in order for an LTT ladder to take a big hit in overall return.
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Re: Out of balance

Post by dualstow » Wed Jan 10, 2018 5:38 pm

MangoMan wrote:Corto,

What does the last column "1 day" refer to?
Change. in basis points?
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Re: Out of balance

Post by Cortopassi » Wed Jan 10, 2018 5:47 pm

dualstow wrote:
MangoMan wrote:Corto,

What does the last column "1 day" refer to?
Change. in basis points?
Yes I believe so. Here is the link:

https://www.bloomberg.com/markets/rates-bonds
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Re: Out of balance

Post by dualstow » Fri Jan 12, 2018 10:32 am

for Don:
Mr. Edwards believes yields will push higher over time but not too much, because if they rose enough to hurt equity markets, fearful investors would scoop the bonds right back.

“There’s almost a natural cap on government bond yields,” he added
{
https://www.wsj.com/articles/asia-stock ... 1515723926
}
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Re: Out of balance

Post by ochotona » Wed Jan 17, 2018 4:41 pm

We're in a little equity melt-up here. If you are somewhat close to rebalancing, I'd take my stocks back to policy percentages soon, before the opportunity is lost. Be fearful when others are greedy, be greedy when others are fearful.
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Re: Out of balance

Post by I Shrugged » Wed Jan 24, 2018 8:25 pm

ochotona wrote:We're in a little equity melt-up here. If you are somewhat close to rebalancing, I'd take my stocks back to policy percentages soon, before the opportunity is lost. Be fearful when others are greedy, be greedy when others are fearful.
The question I have to address is, are we looking at balances often with an eye to rebalancing, or willing to let them exceed limits for the short term?

I'm over 35% on stocks, but if they have a correction, I'm probably back under 35%. Not being a market timer, I won't try to guess the short term. But I will have to decide whether to do something now or kick the can down the road.

I suppose I should view the 35% as a hard limit, and once I know it's been topped, do something about it.
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Re: Out of balance

Post by buddtholomew » Wed Jan 24, 2018 8:28 pm

No alternative options available like offsetting gains/losses on select purchases or contributing to lagging assets to restore the balance.

Maybe we can put some figures together on a 100K gain taxed at 20% or not rebalancing and equities falling 10%.

200000 initial investment
100000 gain x .2 = 20000 taxes, 80000 net
Remaining investment 100000 loses .1 = 90000
80K + 90K = net 170K

200000 loses 10% = 20000, net 180K

Hardly seems worth the trouble to sell for 10K savings if I didn’t mess up something in the calc.
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Re: Out of balance

Post by ochotona » Wed Jan 24, 2018 8:30 pm

I Shrugged wrote:
ochotona wrote:We're in a little equity melt-up here. If you are somewhat close to rebalancing, I'd take my stocks back to policy percentages soon, before the opportunity is lost. Be fearful when others are greedy, be greedy when others are fearful.
The question I have to address is, are we looking at balances often with an eye to rebalancing, or willing to let them exceed limits for the short term?

I'm over 35% on stocks, but if they have a correction, I'm probably back under 35%. Not being a market timer, I won't try to guess the short term. But I will have to decide whether to do something now or kick the can down the road.

I suppose I should view the 35% as a hard limit, and once I know it's been topped, do something about it.
Several active market timing strategies only check once a month (Faber's Ivy, GEM, AlphaArchitect). Choose the same day of the month every time, or maybe every 4th week, like Saturday morning with your cup of coffee. Continuous checking would wear you down.
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Re: Out of balance

Post by steve » Thu Jan 25, 2018 7:05 am

If I hit the 35% band I would re-balance.
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