David Rosenberg: Long Treasuries Are Still The Safest Asset Around

[mathjak107]

There are just things very unlikely to occur in this country ..not that they can’t happen but the odds are so low you wouldn’t want to bet the same odds of them happening .

This country would stay out of deflation at almost all costs of higher inflation

[dualstow]

... 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%).

I don’t put much money into flood insurance — zero, actually, because I’m not on a flood plain and i know it’s that unlikely that i’m going to experience flooding, whereas fires are fully covered.
I guess I need a good source of the odds of the economic conditions.
Via the vp, I tilt toward stocks. Maybe that’s close to a golden butterfly in disguise. If the Golden Butterfly were called the Monarch Butterfly, I’d call mine the Viceroy.
But, I do it only because I like stocks, i’m comfortable with stocks, and I’ve watched them go up nicely in my lifetime. Not very scientific. I need to read ‘Deep Risk’ and find that source. Maybe Bernstein knows something that Rosenberg doesn’t.

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.

Reading the link now...

[mathjak107]

It is important to just understand that throwing equal amounts of money in to outcomes that are anything but equal as far as playing out does not mean you are not betting on the under dog with the same amount of money as the favorite and that in itself is a pretty heavy bet on the under dog odds

[dualstow]

I’m just glad you didn’t convince me in 2010 when I started buying those bonds.
I also had to ignore a close personal friend who thought I was nuts buying such an instrument with a yield of 4-4.75%.

[mathjak107]

We can all cherry pick a time frame for anything in the past as an example for something that did well ...but times change and conditions change and what was may be no more ...we can even pull out 1929-as a depression time frame .

I don’t think odds are good putting the same money on a depression as prosperity ...despite the fact I pull a time frame out .

So despite what we can drag up from the past odds are quite different making our bet on it quite different and not equal ..

To be equal would take a probability study and then adjust the money to match

[dualstow]

More adventures in bond buying.

There's no auction today, but I went to the secondary market for treasurys at Vanguard and plugged in the CUSIP of one of my recent buys. Peeked at yield-to-worst. Put in an order for 10, pressed the Calculate button.

Saw that the yield-to-worst has grown worse because of my low quantity. But, it was still ok. Am I willing to hold on to this instrument for at least 10 years, come hell or high inflation? Yes. A few more are-you-sure button clicks and now I own some more treasury bonds.

[mathjak107]

More adventures in bond buying.

There's no auction today, but I went to the secondary market for treasurys at Vanguard and plugged in the CUSIP of one of my recent buys. Peeked at yield-to-worst. Put in an order for 10, pressed the Calculate button.

Saw that the yield-to-worst has grown worse because of my low quantity. But, it was still ok. Am I willing to hold on to this instrument for at least 10 years, come hell or high inflation? Yes. A few more are-you-sure button clicks and now I own some more treasury bonds.

CAll me foolish but. I couldn’t help but add more to Tlt to bring it back up to the 600k leve near the low ..closed at 606,043 .00 so it bounced a little from the worst .

[dualstow]

I really need to shore up my pp long bond %. It's timing in that I made no move when it sank below the 15% band*, but I've been waiting for a week like this to do it.

*Due to the fact that I have year-2040ish bonds, not due to the yieldRise/priceDrop.

[Cortopassi]

Funny that there is so much angst after a 20% PP year and we are down about 1.5-2% so far.

At least we are getting a higher dividend!

[dualstow]

so much angst

Mainly from our daytraders, though, right? There's no ulcer poll, but I think a lot of us feel fine.

[buddtholomew]

It is important to just understand that throwing equal amounts of money in to outcomes that are anything but equal as far as playing out does not mean you are not betting on the under dog with the same amount of money as the favorite and that in itself is a pretty heavy bet on the under dog odds

This should be sticky!

[mathjak107]

Funny that there is so much angst after a 20% PP year and we are down about 1.5-2% so far.

At least we are getting a higher dividend!

It may be closer to down over 3% now . Wasn’t the pp up about 15% last year ?

I will look later

[dualstow]

It is important to just understand that throwing equal amounts of money in to outcomes that are anything but equal as far as playing out does not mean you are not betting on the under dog with the same amount of money as the favorite and that in itself is a pretty heavy bet on the under dog odds

This should be sticky!

Right that's what Kevin K said, that it wasn't so much agnostic as merely symmetrical. My follow-up question to that was: What if you don't know what the odds are? Or who are we supposed to look to for those odds? So far that question remains unanswered.

[Xan]

It is important to just understand that throwing equal amounts of money in to outcomes that are anything but equal as far as playing out does not mean you are not betting on the under dog with the same amount of money as the favorite and that in itself is a pretty heavy bet on the under dog odds

This should be sticky!

Right that's what Kevin K said, that it wasn't so much agnostic as merely symmetrical. My follow-up question to that was: What if you don't know what the odds are? Or who are we supposed to look to for those odds? So far that question remains unanswered.

I would think the default assumption would have to be that the odds are 50/50 for any PP asset to go up or down. If it were CERTAIN that long bonds were going to crater, they would have already, right? The current price is what the market thinks is fair.

[buddtholomew]

Risk parity tells us about the odds.

[Cortopassi]

Funny that there is so much angst after a 20% PP year and we are down about 1.5-2% so far.

At least we are getting a higher dividend!

It may be closer to down over 3% now . Wasn’t the pp up about 15% last year ?

I will look later

My variant seemingly is doing a bit better than the standard 25/25/25/25.

[Cortopassi]

so much angst

Mainly from our daytraders, though, right? There's no ulcer poll, but I think a lot of us feel fine.

Agreed. But mj is really good at making me question all my decisions!

[jalanlong]

so much angst

Mainly from our daytraders, though, right? There's no ulcer poll, but I think a lot of us feel fine.

Agreed. But mj is really good at making me question all my decisions!

The issue I deal with is that TLT is down 10% over the last 12 months and is up only 6% in the last 5 years. That is very poor return long term to take up 25% of my portfolio just to insure against 2008 or March 2020 type scenarios which seem to be short in nature.

[yankees60]

so much angst

Mainly from our daytraders, though, right? There's no ulcer poll, but I think a lot of us feel fine.

Agreed. But mj is really good at making me question all my decisions!

The issue I deal with is that TLT is down 10% over the last 12 months and is up only 6% in the last 5 years. That is very poor return long term to take up 25% of my portfolio just to insure against 2008 or March 2020 type scenarios which seem to be short in nature.

....until they are NOT!

[mathjak107]

Investing is all about the odds despite what many want to believe ...there are not equal odds or equal chances of the economic outcomes playing out ...if I had to bet on just one asset class it would be equities just based on odds and the fact that as fast as we now go down with all this high frequency trading, it seems to apply to up too

[yankees60]

Investing is all about the odds despite what many want to believe ...there are not equal odds or equal chances of the economic outcomes playing out ...if I had to bet on just one asset class it would be equities just based on odds and the fact that as fast as we now go down with all this high frequency trading, it seems to apply to up too

Except as you pointed out if you end up retiring into the start of an equity down period...like 1974 to 1982...We've not had such a prolonged one since then....we had 2000 to 2002, 2008 to 2009, and last year for some months...but nothing like 1974 to 1982....nothing stopping the future for having an even longer time period than that....the odds of that happening?

[mathjak107]

But like I said odds are odds ....we have had really few prolonged ones ..

Most have been pretty short ,especially the more recent ones ....

Would I bet on them in retirement, no, because I don’t have to but that does not change my opinion if I had to bet one asset it would be equities..if I was in my accumulation stage I would do it all over again ...

By the way ,so far 100% equities in retirement has done almost the same as 50/50 simply because the higher balances in up markets cushion spending in the down but so far 129 30 year rolling periods show that there really has been no problem spending down from it in retirement....100% fixed income actually is unsafe while 100% equites failed two additional cycles compared to 50/50

I don’t believe there are the same odds in all the pp asset classes at all so if I did have to pick one it would be equities

[mathjak107]

Investing is all about the odds despite what many want to believe ...there are not equal odds or equal chances of the economic outcomes playing out ...if I had to bet on just one asset class it would be equities just based on odds and the fact that as fast as we now go down with all this high frequency trading, it seems to apply to up too

Except as you pointed out if you end up retiring into the start of an equity down period...like 1974 to 1982...We've not had such a prolonged one since then....we had 2000 to 2002, 2008 to 2009, and last year for some months...but nothing like 1974 to 1982....nothing stopping the future for having an even longer time period than that....the odds of that happening?

Actually those who retired in 1974 are fine ...a retirement time frame is usually looked at not in terms of just a few years it’s 30 years . But it is actually decided in the first 15 years ..

The problem has been those who retired in 1965/1966. But out of 129 rolling 30 year periods more than 90% of them have been fine with 100% equities, 60/40 , 75/25 ,50/50 and 40/60

[jalanlong]

But like I said odds are odds ....we have had really few prolonged ones ..

By the way ,so far 100% equities in retirement has done almost the same as 50/50 simply because the higher balances in up markets cushion spending in the down

To me that is one of the strongest arguments towards a 100% stock portfolio. Yes you can argue that a 35% drawdown at some point is tough to take compared to the 4% drop of the PP. However, if you look at a graph over a 20 year period, the all stocks portfolio has surpassed the balanced portfolio by such a large amount that even with periodic large drops it is still ahead (see below stocks vs PP). I know that is tough psychological justification when you are in the middle of such a large drop though.

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