Gold / Stock / Bonds at highs or near highs?

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

User avatar
vnatale
Executive Member
Executive Member
Posts: 6228
Joined: Fri Apr 12, 2019 8:56 pm
Location: Massachusetts
Contact:

Gold / Stock / Bonds at highs or near highs?

Post by vnatale » Wed Sep 18, 2019 8:24 pm

I'm in the process of making a plan to go 100% into the Permanent Portfolio.

My understanding is that the 25% cash portion is somewhat like ballast in the overall portfolio while each of the 25% in gold, stock, and bonds each represent an oft times volatile investment wherein one or two of them can be going down in value but the third may well be going up in value, more than offsetting the decrease in value of the other two.

I am looking at where each of the three investments currently are and it seems that two - stock and bonds - are at the all time highs while gold is near an all-time high. This certainly goes counter to buy high / sell low.

For each of the volatile investments I'd be buying quite high.

Here is what I see:

Gold is currently 80% of its 9/5/11 high. It has gone up 26% since 8/13/18 and 17% up since 4/22/19.

The S&P 500 is up 345% since the 3/9/09 low and up 20% since 10/1/18.

Only going back to 2000, I see an interest rate for 20 year Treasury Bonds of 6.94% on 1/3/00. It was down to 1.69% on 7/8/16, 1.78% on 8/30/19, and 2.06% on 9/18/19.

If I were to go all in right now which of those three investments are poised to go yet higher? Or, likely to go higher? Seems like all three are poised to go down!

The bonds are only going to go up if there is deflation or market sentiment that interest rates are go down even farther. But not that much room to go below 2.06%. I have never ever owned long-term bonds in any form. If I bought 30 year bonds today at 2.06% and the rate goes back to near 7% those bonds are going to lose tons of value. Plus, interest received from the bonds is most likely going to be less than inflation.

Stocks can just keep going up. But the higher they go the more likely they are to go down. However, I've been a long stock equity holder so I'm quite familiar with the long-term upwards. On the other hand, though I was not then an investor I am well aware of the 1974 to 1982 time period wherein the market went nowhere during those 8 years.

Back in 1995 I made a small purchase of gold coins. They immediately lost value and stayed a loser for many, many years until the great run up in value culminating in 2011. But what is going to cause gold to surge in value by 25% to match that 2011 high?

In sum I was all set to go full into the Permanent Portfolio and was describing it to someone who then pointed out to me that all three of these were near their all time highs.

For those of you who have FULLY embraced the Permanent Portfolio and made your investment all at once can you reveal where each of the three volatile investments stood at the time of your investment? In other words, how close was each to its market high or low at the time of your investment.

And, do you see any flaws in what I state above?
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats."
User avatar
Tyler
Executive Member
Executive Member
Posts: 2003
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Gold / Stock / Bonds at highs or near highs?

Post by Tyler » Wed Sep 18, 2019 9:52 pm

My first thought is that you need to account for inflation. Even hard assets that do absolutely nothing will reach all-time highs in price almost every year. And that's before you account for things like companies and economies that naturally grow in value and are supposed to regularly set new highs.

My second thought is to ask this: if these are so clearly unsustainable highs, what's the equilibrium price each asset is supposed to remain at? Why is that number so special? Is it a universal law, or just bias of personal experience?

My third thought is that even if we assume you're right, it's always better to diversify your risk across multiple assets rather than bet on just one. To me that's sorta the beauty of the PP. All 3 volatile assets will eventually fall, but they generally don't do it all at once. And even if they do you've got a 4th asset to cover you and buy cheap assets at new lows. ;)
Pet Hog
Executive Member
Executive Member
Posts: 220
Joined: Tue May 28, 2013 4:08 pm

Re: Gold / Stock / Bonds at highs or near highs?

Post by Pet Hog » Thu Sep 19, 2019 2:05 pm

vnatale wrote:
Wed Sep 18, 2019 8:24 pm
For those of you who have FULLY embraced the Permanent Portfolio and made your investment all at once can you reveal where each of the three volatile investments stood at the time of your investment? In other words, how close was each to its market high or low at the time of your investment.
I completed buying all the components of my PP in May 2013. Within about three months I was down 7%. Ouch. I guess I bought at some highs. (I'm now at almost 4% real annualized over the six years.) So I understand your concerns and everything you say sounds reasonable and well thought out.

Sure, I think we're due for some dramatic market turbulence in the next couple of years, but there seems to be so much doom and gloom in the personal finance world these days that perhaps it's already factored in (i.e., if everyone thinks we're going to crash it's unlikely to happen). If I were to make some bold predictions, I think treasury yields could go to zero or negative, gold could double, and stocks could halve. In that case, the PP would do very well and a rebalance or two would happen into then-very-affordable stocks. If we muddle through the next few years, then the PP will probably function as usual.

My experience has been that there wasn't a time during the last six years when it was possible to say, "now is a great time to invest in the PP!" -- it's always been seemingly overvalued/scary. But I'm very content with my holdings and I expect to do OK going forward. I'm not going to cash out my PP today; flip that logic on its head and I would have to be happy to buy into it today. With the three volatile assets seemingly overvalued, I suspect that you prefer to hold 100% cash. Given the two choices, I'll stick with the PP. Who knows what will happen. Not me!
stuper1
Executive Member
Executive Member
Posts: 1148
Joined: Sun Mar 03, 2013 7:18 pm

Re: Gold / Stock / Bonds at highs or near highs?

Post by stuper1 » Thu Sep 19, 2019 3:06 pm

Excellent points made already. If you really can't make yourself pull the trigger, then consider a plan like this. Start out by overweighting cash, maybe at 49% cash and 17% of the other three assets, and then dollar-cost average your way to 4x25 (or whatever final allocation you've decided on) over whatever time period seems good to you, say a year or two. Odds are that it will actually hurt your total return by the end of it (versus just going to your final allocation right now), but then again, maybe not, and at least you'll be headed in the right direction.
User avatar
InsuranceGuy
Executive Member
Executive Member
Posts: 425
Joined: Sun Mar 29, 2015 1:44 pm

Re: Gold / Stock / Bonds at highs or near highs?

Post by InsuranceGuy » Thu Sep 19, 2019 3:38 pm

[deleted]
Last edited by InsuranceGuy on Mon Mar 08, 2021 6:03 pm, edited 1 time in total.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3808
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Gold / Stock / Bonds at highs or near highs?

Post by mathjak107 » Thu Sep 19, 2019 3:58 pm

With markets up 2/3’s of the time and down 1/3 dca has lagged lump sum investing more often than not ..after all , if dca worked better we would all hit our desired allocation, sell everything and start from zero again ....
User avatar
Tortoise
Executive Member
Executive Member
Posts: 2639
Joined: Sat Nov 06, 2010 2:35 am

Re: Gold / Stock / Bonds at highs or near highs?

Post by Tortoise » Thu Sep 19, 2019 6:07 pm

I actually have the opposite problem from you, vantage :)

I'm 100% invested in the PP, and I'd like to transfer my former employer's 401(k) to my current one (at a different financial institution) to simplify things. But doing that will require me to convert the old 401(k) to cash and wait for probably at least a week or two for the funds to be transferred and settled.

During those one or two weeks, that cash will potentially be missing out on growth within the PP. I would be watching the markets like a hawk during that time, and with my luck, gold and LTTs would both skyrocket before I got back in. In the grand scheme of things it probably wouldn't matter, but it would still irritate me.
boglerdude
Executive Member
Executive Member
Posts: 765
Joined: Wed Aug 10, 2016 1:40 am
Contact:

Re: Gold / Stock / Bonds at highs or near highs?

Post by boglerdude » Thu Sep 19, 2019 11:37 pm

I started the PP just before Trumps election and EDV got crushed by the inflation expectations

Yeah everything looks expensive right now, but long term rates will probably go lower just like the rest of the world. Gold would go higher with negative rates, as a way to store value.

Have a mortgage you could pay down? And/or you could start overweight cash, with ibonds and 4% checking with Orion FCU

Commodities look cheap, but I dont understand this contango issue: https://www.bogleheads.org/forum/viewtopic.php?t=243986
glennds
Executive Member
Executive Member
Posts: 779
Joined: Mon Jan 28, 2013 11:24 am

Re: Gold / Stock / Bonds at highs or near highs?

Post by glennds » Fri Sep 20, 2019 8:59 am

If you're uncomfortable going in all at once, why not ease in? For example transition 1/4 of your funds each quarter over the course of a year. Or longer, or shorter, your call.

Either way, there's no real way to answer your questions except in 20/20 hindsight. But I would think easing in would substantially flatten out the risk of buying in to the PP at the "wrong time".
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3808
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Gold / Stock / Bonds at highs or near highs?

Post by mathjak107 » Fri Sep 20, 2019 9:07 am

glennds wrote:
Fri Sep 20, 2019 8:59 am
If you're uncomfortable going in all at once, why not ease in? For example transition 1/4 of your funds each quarter over the course of a year. Or longer, or shorter, your call.

Either way, there's no real way to answer your questions except in 20/20 hindsight. But I would think easing in would substantially flatten out the risk of buying in to the PP at the "wrong time".
if i had to guess , i think rates are headed higher once the trade crap ends .. i think back up to 3% range for the 30 year .

my guess is that if the trade war is resolved stocks will have a knee jerk rise , bonds will see rates rise , gold has been following bonds . I think the rise in rates will spook stocks . I think when all is said and done all 3 assets will fall 10-20% …… I think only cash will hold up ….it can act like a stock option later on but with no expiration date .
User avatar
jhogue
Executive Member
Executive Member
Posts: 622
Joined: Wed Jun 28, 2017 10:47 am

Re: Gold / Stock / Bonds at highs or near highs?

Post by jhogue » Fri Sep 20, 2019 9:46 am

vnatale,
If there is any “flaw” in your thinking, it is that you have not fully considered the role that Cash plays in the HBPP. You are correct: all of the “volatile” PP assets are at/near all time highs. On the other hand, Cash is at/near an all time low. Years of ZIRP have convinced the consensus-driven herd on Wall Street that cash is trash. That should be the signal to you to invest in a high level of safe and liquid cash as you transition your portfolio to the HBPP.

I don’t worship at the altar of Warren Buffett, but I will note that there is a good and simple reason why this famous value investor is reportedly holding over $100 billion in Treasurys: he can’t find anything cheap to buy either. So don’t just be fearful when others are greedy. Be patient while others are impatient. Hold Cash and lots of it. You won't sorry when one of those high-flying assets comes crashing back to earth.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
User avatar
sophie
Executive Member
Executive Member
Posts: 4544
Joined: Mon Apr 23, 2012 7:15 pm

Re: Gold / Stock / Bonds at highs or near highs?

Post by sophie » Sat Sep 21, 2019 7:08 am

At any given time, at least one of the PP assets will be at an "all time high". That's called "getting returns on your investments". It kind of makes me laugh, because the phrase "all time high" suggests an exceptional situation, not something that's expected - it's why you're buying that asset in the first place, isn't it?

The problem is you can't predict where each asset will go, except you can be pretty confident that at least one asset will go down. There's no pre-defined ceiling on any of the assets. Did anyone at the start of this year predict the transient bump in bonds, with the 30 year dropping to a 2% yield? I bet not. We all thought bonds were at their bottom. Similarly, no one thought gold would be going up. Might it go up further? Sure, why not? The current shock in the money market system might well trigger something like that, and if it doesn't, something else could. A week ago we didn't have any idea that a crisis was about to hit money markets.

So what if gold and bonds do go down? If they are, it means stocks are rising, probably a lot. Cash also provides a good ballast. In 2013 there was a big drop in gold, but with the PP's structure the portfolio was (as usual) quite stable. My own PP was actually flat for the year, plus I got to tax loss harvest.

If you're a bit skittish about buying in, then transferring in gradually over time might be easier than holding your nose and jumping all in. It does help to set things up in a way that will let you tax loss harvest when appropriate.
User avatar
InsuranceGuy
Executive Member
Executive Member
Posts: 425
Joined: Sun Mar 29, 2015 1:44 pm

Re: Gold / Stock / Bonds at highs or near highs?

Post by InsuranceGuy » Sat Sep 21, 2019 10:12 am

[deleted]
Last edited by InsuranceGuy on Mon Mar 08, 2021 6:03 pm, edited 1 time in total.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3808
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Gold / Stock / Bonds at highs or near highs?

Post by mathjak107 » Sat Sep 21, 2019 1:46 pm

How many times were gold ,equities and bonds bid way up at the same time ? Especially so close to 1 and 2% rates
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 3761
Joined: Sun Sep 16, 2012 5:28 pm

Re: Gold / Stock / Bonds at highs or near highs?

Post by Kriegsspiel » Sat Sep 21, 2019 2:52 pm

When I started the PP:

VTI was at $75.04
30 year Treasuries were at 2.95%
Gold spot was $1,730
1 year Treasuries were at 0.18%

VTI was over $154 July this year. I think it was about at it's peak at the time I started the PP, around what it was in 2007 before it crashed.

Bonds hit 2.09% in July 2016, and recently were at 1.95% earlier this month. I think 2.95%, was considered very low then.

Gold was pretty much at its peak when I bought my first hoard, then it crashed in 2013 and kinda bobbed around between 1100 and 1400 until its recent gains this year.

Prior to 2017, cash was yielding below 1%. Hell, for the first few years I used the PP, a 1 year Treasury yielded about 0.12% ;D It's steadily crept up since then.
"You haven't, I suppose, ever mixed with politicians at close quarters. They're awful. I think some of these must have been the dregs anyhow, but I've discovered, what previously I didn't believe possible, that politicians behave in private life and say exactly the same things as they do in public. Their stupidity is inhuman.
- John Maynard Keynes
User avatar
InsuranceGuy
Executive Member
Executive Member
Posts: 425
Joined: Sun Mar 29, 2015 1:44 pm

Re: Gold / Stock / Bonds at highs or near highs?

Post by InsuranceGuy » Sat Sep 21, 2019 3:07 pm

[deleted]
Last edited by InsuranceGuy on Mon Mar 08, 2021 6:03 pm, edited 1 time in total.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3808
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Gold / Stock / Bonds at highs or near highs?

Post by mathjak107 » Sun Sep 22, 2019 3:52 am

exactly my point ... we have little in the way of data points with all 3 moving up together when bond rates are so low . bonds at this level are the ones i worry about the most ..we saw tlt plunge 7% in a matter of days before a bounce ...at these levels i would be very careful with long term treasuries and go mostly intermediate term ...
zosoo7
Junior Member
Junior Member
Posts: 2
Joined: Sun Sep 22, 2019 11:36 pm

Re: Gold / Stock / Bonds at highs or near highs?

Post by zosoo7 » Sun Sep 22, 2019 11:52 pm

I understand your hesitation. I am in a similar situation with my non-retirement accounts and decided to move forward and go all in on PP last week. I personally feel the PP can be entered into at any time because the underlying belief is to remove speculation, and the 4 assets classes theoretically give you protection against drastic losses.

While purely anecdotal and historical, I moved all my retirement accounts into the PP ~ 1 year ago. At the time, it was against all logic to put 25% of my savings into long term treasuries, I mean interest rates could only go up causing bond prices to drop, right? At the time, TLT was trading for $119 a share, and now look at it (~ $141). It's an example of why I like the PP so much, it accepts the irrationality of the market and prevents you from having to worry about it. So I agree it's unsettling seeing stocks, gold, and long term treasuries "high" right now, but the truth is nobody knows what's going to happen next.
User avatar
jhogue
Executive Member
Executive Member
Posts: 622
Joined: Wed Jun 28, 2017 10:47 am

Re: Gold / Stock / Bonds at highs or near highs?

Post by jhogue » Mon Sep 23, 2019 11:39 am

mathjak107 wrote:
Sun Sep 22, 2019 3:52 am
exactly my point ... we have little in the way of data points with all 3 moving up together when bond rates are so low . bonds at this level are the ones i worry about the most ..we saw tlt plunge 7% in a matter of days before a bounce ...at these levels i would be very careful with long term treasuries and go mostly intermediate term ...
If we have so few data points, what makes you so sure that intermediate term Treasurys are a good buy right now?
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3808
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Gold / Stock / Bonds at highs or near highs?

Post by mathjak107 » Mon Sep 23, 2019 1:49 pm

I don’t think they are a good buy either right now ...... but once they got back to 3% or so I would mix them with long term bonds instead of all long term bonds
User avatar
KevinW
Executive Member
Executive Member
Posts: 945
Joined: Sun May 02, 2010 11:01 pm

Re: Gold / Stock / Bonds at highs or near highs?

Post by KevinW » Mon Sep 23, 2019 11:34 pm

All I can say is, I've been talking about the PP online since 2008 (11 years and counting!) and the entire time, people have been constantly asking this question. "I like the PP but this moment seems like a bad time to buy in because reasons, what should I do?"

Throughout this time the PP has worked as predicted. After some time passes, it almost always turns out that the moment in question was a fine time to buy in. While it's true that there have been a few brief single-digit dips, the portfolio recovered and reverted to the mean. (And this modest negative volatility is predicted as well.)

The market clearing price is the one that puts bull and bear attitudes in balance. So at any given moment one can make a bearish argument that convinces roughly half of market participants, or a bullish argument that accomplishes the same. The premise of the PP is that it allows you to act without necessarily buying into any of these narratives.
zosoo7 wrote:
Sun Sep 22, 2019 11:52 pm
While purely anecdotal and historical, I moved all my retirement accounts into the PP ~ 1 year ago. At the time, it was against all logic to put 25% of my savings into long term treasuries, I mean interest rates could only go up causing bond prices to drop, right? At the time, TLT was trading for $119 a share, and now look at it (~ $141).
This is a good example of how this usually pans out.
zosoo7
Junior Member
Junior Member
Posts: 2
Joined: Sun Sep 22, 2019 11:36 pm

Re: Gold / Stock / Bonds at highs or near highs?

Post by zosoo7 » Tue Sep 24, 2019 1:04 am

I've been trying to think about what else you could do to enter the portfolio with confidence. If you plan on using various ETFs in the portfolio (e.g. SPY, TLT, IAU), you may be able to use options if and only if you understand them and are comfortable with them. Of course I would consider this strategy speculating, but if you're bearish on the non-cash allocations, and your end goal is to actually be in the PP, you could sell OTM puts for each PP ETF at the strike price you feel is a safer entry price. Additionally the premium collected on the sale of the option would lower your cost basis to own the ETF should you get assigned if the option is in the money. There's upside risk here because if the stock works against you and goes up, you miss out on the gains that you would have had in the PP. It also requires that you are able to purchase 100 shares of the stock per options contract you sell because you are wanting to be assigned the underlying stock after expiration.

An alternative, and probably a far better option, is to enter the PP and buy some deep in-the-money protective puts to act as insurance for whatever duration you feel is necessary (3 months to a year our expiration maybe?). I think this is a decent use of funds in the variable portion that Harry Browne supported. This would be an all out hedge against the PP that would eat into your total account, but it does provide some peace of mind and could really come in handy if there is an untimely meltdown.

As I mentioned, only explore these ideas if you know how options work. I'm not a fiduciary, so take it all with a grain of salt, lol, but I do think these are legit options that provide known risk. I do think however that the PP is well hedged in itself.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3808
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Gold / Stock / Bonds at highs or near highs?

Post by mathjak107 » Tue Sep 24, 2019 2:36 am

The kryptonite to the pp today is rising rates .. in that case time will tell but it may not be very well hedged under todays conditions and that is the scary part ...as rates go lower and lower the odds of them reversing course become greater and greater ... i think counting on negative rates here would be the long shot... as Bernstein said , the problem is you are placing equal amounts of money on outcomes that stand anything but equal amounts of chances of playing out ... so as much as we like to think the pp is neutral , at times it may not be as rising rates can hurt all 3 asset classes at once and with the pull each asset class has act like a 75% equities portfolio would under the wrong outcome as the 3 classes get yanked down together . we saw that recently when rates headed up past 3% ... . .

for most of the pp history , except for some speed pumps along the way , the trend was for rates to fall .

Image
User avatar
mathjak107
Executive Member
Executive Member
Posts: 3808
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Gold / Stock / Bonds at highs or near highs?

Post by mathjak107 » Wed Sep 25, 2019 11:12 am

Nasty day today for gold and long term treasuries....this is what scares me about the way they seem to be joined at the hip...the supposed yin and yang can be quite powerful and nasty when things that are supposedly uncorrelated stay bedfellows
User avatar
Tyler
Executive Member
Executive Member
Posts: 2003
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Gold / Stock / Bonds at highs or near highs?

Post by Tyler » Wed Sep 25, 2019 11:49 am

mathjak107 wrote:
Tue Sep 24, 2019 2:36 am

for most of the pp history , except for some speed pumps along the way , the trend was for rates to fall .
The 1970's were one helluva speed bump. ;)

Image

FWIW, the PP did just fine then as well. Surviving terrible situations for individual components is one of the great benefis of the built-in firewalls. They protect the portfolio when rates rise in the same way they do when stocks crash or gold tanks.
Post Reply