David Rosenberg: Long Treasuries Are Still The Safest Asset Around

[mathjak107]

Going to listen the the podcast. The one thing I thing that LTT’s may be very good for is the 30x spike they will provide of we have deflationary shock.

But if we turn inflationary they will be one big heavy anchor ...so it is a gamble ...actually better odds though as the fed will opt for inflation over deflation every time ..so you will be fighting the fed by counting on deflation, which is never a good thing

[dualstow]

Going to listen the the podcast. The one thing I thing that LTT’s may be very good for is the 30x spike they will provide of we have deflationary shock.

But if we turn inflationary they will be one big heavy anchor ...so it is a gamble ...actually better odds though as the fed will opt for inflation over deflation every time ..so you will be fighting the fed by counting on deflation, which is never a good thing

But that’s why the pp has 3 other assets. One that would see higher interest rates, another that is a bet on prosperity, and one that may very well eventually rise with inflation.

[mathjak107]

Going to listen the the podcast. The one thing I thing that LTT’s may be very good for is the 30x spike they will provide of we have deflationary shock.

But if we turn inflationary they will be one big heavy anchor ...so it is a gamble ...actually better odds though as the fed will opt for inflation over deflation every time ..so you will be fighting the fed by counting on deflation, which is never a good thing

But that’s why the pp has 3 other assets. One that would see higher interest rates, another that is a bet on prosperity, and one that may very well eventually rise with inflation.

Gold has been quite poor at just rising with inflation ..it needs either quite high inflation or pretty negative interest rates ...bonds typically tend to level out at inflation which makes gold not so likely to do well either...


People tend to think gold does well with normal inflation increasing but that is a myth.

The perception of future inflation creeping up has both my Tlt and Gld sucking wind right now

[Kevin K.]

I still haven't seen anything on gold that's as good as Tyler's writeup from last year:

https://portfoliocharts.com/2020/08/21/ ... #inflation

Regarding just one part of it, he points out that the positive correlation is to negative real interest rates rather than inflation per se. And we've got those of course, along with the near-certainty of much further currency debasement/money printing/"quantitative easing" yet to come.

So at the risk of sounding like a broken record, it seems to me that the PP-derived idea of having assets to deal with key economic conditions still makes sense, but that 4 x 25% has never made sense given that the four conditions aren't equally likely and have very different costs to insure against (paraphrasing William Bernstein). Thus the Golden Butterfly, or switching out some or all of the LTT's for ITT's and some iBonds, looking beyond the FAANG-driven total U.S. Stock market and other possible modifications. But I'm not letting my gold go below 20%.

[dualstow]

People tend to think gold does well with normal inflation increasing but that is a myth.

The perception of future inflation creeping up has both my Tlt and Gld sucking wind right now

I was careful to put “may” and “eventually” in there, but the point stands that even if long bonds are a bet against the fed, they’re only 25%-of-your-money bet.

[dualstow]

btw, I think this think will open up the podcast linked in the OP on your Apple device, for those of you that prefer that:
https://podcasts.apple.com/us/podcast/m ... 0500278432

[ppnewbie]

I agree with Kevin. I’m just letting my LTTs fade a bit - they are at about 20 percent at the moment and my PP is tilting towards a bet that we will see inflation. But if there is another major crash I think the LTT’s will help keep the ship upright.

[mathjak107]

Cash under rising but low inflation is sucking wind too ..so it could be cash , bonds and gold.

I hope not as I have multiple 7 figures in the pp but it can happen

[dualstow]

I agree with Kevin. I’m just letting my LTTs fade a bit - they are at about 20 percent at the moment and my PP is tilting towards a bet that we will see inflation. But if there is another major crash I think the LTT’s will help keep the ship upright.

is there a percentage that you guys are shooting for? % of pp? % of pp+vp?

[dualstow]

Several years ago, there was a post from...I want to say either 6 Iron or Lonestar, saying, “I feel incredibly stupid right now because I’m selling long bonds to buy new ones.” The message was clear and I was sympathetic to it: bond yields looked like they had nowhere to go but up. The pp calls for replacing bonds with 20 years left for 30-year ones to get that powerful volatility back that 20-year ones, like brownish ageing SCOBYs in a vat of kombucha, no longer have.

6 iron or lonestar did what I aspire to. I wouldn’t characterize it as slavish devotion to dogma but as discipline. Sure, if you know where interest rates are going, you’re taking a calculated risk which is not as bad as acting on emotions. I don’t know where interest rates are going nor where stocks are going so as an agnostic, the best thing I can do is stay the course.

When I started out, I bought some bonds at with the low, low yield of 4.75%. Some bonds. I didn’t go all in like crawlingroad.com (later to spawn gyroscopicinvesting) founder craigr because I was hesitant. I had heard that bond yields were low and I thought, nothing wrong with easing into the pp. I’ll just add bonds gradually as the yield rises. That hesitancy did cost me, even though I was being passive and not making an active bet that yields would rise. I wish I had been agnostic and disciplined.

[Kevin K.]

I have no idea where interest rates are going either but I've replaced the LTT's with ITT's in my GB.

Over long periods of time ITT's have been a wash with the LTT/MM barbell but with less volatility. But that's looking at the historic 40 year bull market in bonds in the rear view mirror. The risk:reward ratio for LTT's at this point is, as any number of others have said, such that it's hard to imagine Harry Browne advocating owning them at all. YMMV.

https://www.portfoliovisualizer.com/bac ... tion6_3=20

[mathjak107]

In flight to safety the long treasuries tend to trade far more like stocks based on greed , fear and perception...so the long term treasuries and short term barbell tend to have more oomph than just intermediate term bonds

[Kevin K.]

Not sure how you’re defining “oomph” but pure ITTs outperform the barbell 1978-2021 and 2000-2021 for CAGR and drawdowns.

Whatever oomph there was seems to have been used up last year, leaving a soupçon of deflation protection and a Mt. Everest of interest rate risk.

[mathjak107]

Not sure how you’re defining “oomph” but pure ITTs outperform the barbell 1978-2021 and 2000-2021 for CAGR and drawdowns.

Whatever oomph there was seems to have been used up last year, leaving a soupçon of deflation protection and a Mt. Everest of interest rate risk.

Do 2008 How does that compare..over time things may level out but when the shtf I think you will find the long term treasuries have more lift

[Kevin K.]

Yeah 2008 is the year we all talk about and probably half the reason there’s such interest in the PP when the stock market tanks. But when you look at that year and what’s happened since you see just how little gas is left in the tank.

I’m guessing the only way we see that kind of situation with LTT’s rescuing the portfolio is if rates go deeply negative and stay there.

https://www.macrotrends.net/2521/30-ye ... ield-chart

[jalanlong]

Going to listen the the podcast. The one thing I thing that LTT’s may be very good for is the 30x spike they will provide of we have deflationary shock.

But if we turn inflationary they will be one big heavy anchor ...so it is a gamble ...actually better odds though as the fed will opt for inflation over deflation every time ..so you will be fighting the fed by counting on deflation, which is never a good thing

Can anyone here make a legitimate argument that deflation is a real possibility over the next 20 years? With a citizenry that believes its a right that stock and house values always go up to politicians and a central bank that will apparently throw any amount of money out there to make it happen, does anyone believe deflation has even a 25% chance of occuring?

[Kevin K.]

Going to listen the the podcast. The one thing I thing that LTT’s may be very good for is the 30x spike they will provide of we have deflationary shock.

But if we turn inflationary they will be one big heavy anchor ...so it is a gamble ...actually better odds though as the fed will opt for inflation over deflation every time ..so you will be fighting the fed by counting on deflation, which is never a good thing

Can anyone here make a legitimate argument that deflation is a real possibility over the next 20 years? With a citizenry that believes its a right that stock and house values always go up to politicians and a central bank that will apparently throw any amount of money out there to make it happen, does anyone believe deflation has even a 25% chance of occuring?

It seems to me that any of the weak statements I've read warning of deflation invoke Japan in the 80's just as a smokescreen for the real modus operandi which is holding LTT's in hope of one last "dead cat bounce" from them veering into negative interest rate territory during the next stock market meltdown. Decent argument for having some, lousy argument for 25% IMHO.

[dualstow]

What about 15%?

Now that a lot of my bonds only have 20 years left on them, I really don’t have enough long bonds. And if you divide by pp+vp, not even 10% of that. uh oh.

[mathjak107]

Until things stop tanking I got plenty in bonds , more than I should have put in when the fed is saying they want higher inflation and don’t mind higher rates.. we may never look back on those lows we had in our lifetime.

While I do have 25% of the portfolio in long term treasuries treasuries it is about 17% of total investable assets ....I won’t go any higher than I am in them.

I think betting on deflation or negative rates is way way way betting against the house

[dualstow]

I think betting on deflation or negative rates is way way way betting against the house

I guess a bet on deflation would be more than 25% (or not rebalancing at 35%, but who’s hitting that mark right now )

[mathjak107]

I think betting on deflation or negative rates is way way way betting against the house

I guess a bet on deflation would be more than 25% (or not rebalancing at 35%, but who’s hitting that mark right now )

There is a difference between the amount of money you bet on something vs the actual odds of that something panning out ...

You can bet equal amounts on the favorite and the under dog ...but the odds of each playing out are very very different

[dualstow]

I think betting on deflation or negative rates is way way way betting against the house

I guess a bet on deflation would be more than 25% (or not rebalancing at 35%, but who’s hitting that mark right now )

There is a difference between the amount of money you bet on something vs the actual odds of that something panning out ...

You can bet equal amounts on the favorite and the under dog ...but the odds of each playing out are very very different

To invest equal amounts is not a bet at all. It’s an anti-bet. The whole point is that the odds are unknown. If you think deflation is unlikely, you might make a smart, calculated bet against it, and that’s cool. But to characterize a portfolio that is agnostic by definition as “betting on deflation” when it has 25% or an equal share invested in long bonds would be wrong, is what I’m saying.

[mathjak107]

As Bernstein said . Investing equal amounts of money in outcomes that are anything but equal chances of playing out is one of the flaws of the pp. deflation or depression are not the same odds as prosperity as well as with the feds tools as yellen said for fighting inflation high inflation is not the same odds either .

So It does not mean you are not speculating on the underdog in practice as you certainly would be ....the fact it is equal dollars does not mean you may not be betting the long shot with to much money on the underdog.

That was Bernstein’s point in his book deep risk .. while we think we are not making bets on outcomes in the pp the fact the odds have been different means your bets carry different weights playing out and we really are making weighted bets

[dualstow]

Very smart man, and not exactly a proponent of the pp. I don’t know the chances of things playing out. Is Bernstein presupposing that we all do? I don’t.
My fix is to have a large, stock-heavy vp. I’m making an overt bet on prosperity and, i guess, manipulation.

[Kevin K.]

As Bernstein said . Investing equal amounts of money in outcomes that are anything but equal chances of playing out is one of the flaws of the pp. deflation or depression are not the same odds as prosperity as well as with the feds tools as yellen said for fighting inflation high inflation is not the same odds either .

So It does not mean you are not speculating on the underdog in practice as you certainly would be ....the fact it is equal dollars does not mean you may not be betting the long shot with to much money on the underdog.

That was Bernstein’s point in his book deep risk .. while we think we are not making bets on outcomes in the pp the fact the odds have been different means your bets carry different weights playing out

Exactly. "Deep Risk" really should be required reading for PP fans. It's essentially a summary of reflections on the PP and market history spurred by Dr. Bernstein's many conversations with Craig Rowland and reading of Harry Browne. And IMHO it makes the case quite persuasively that allocating equal amounts of one's assets to hedge against economic conditions that are by no means equally likely to occur, and that entail very different costs to insure against, isn't agnostic - it's merely symmetrical (i.e. 4 x 25%).

Good summary of the key points in this review:

https://jasonzweig.com/shallow-risk-and ... the-woods/

So far Tyler's Golden Butterfly is the most elegant solution to these issues I've seen but there are obviously many other viable options.