2012 performance

[murphy_p_t]

I just did a quick "eyeball" of the year to date performance of the 4x25 HBPP...looks like we're up about 4% year to date....nicely on track to achieve the steady returns we all expect. Stocks are leading the way this year.

[MediumTex]

If you just leave it alone and let it do its thing, it does pretty well.

[chrish]

The UK PP is not doing as well as that unfortunately - only up about 0.8%. The UK stock market has not performed as well as the US (only up 5.7%), and the pound has strengthened against the dollar, so gold is only up 1.1% when priced in GBP.

And since I jumped in at the end of January, it is actually down over 2% 

[Jake]

The UK PP is not doing as well as that unfortunately - only up about 0.8%. The UK stock market has not performed as well as the US (only up 5.7%), and the pound has strengthened against the dollar, so gold is only up 1.1% when priced in GBP.

And since I jumped in at the end of January, it is actually down over 2% 

It's official: we are in the double dip of the great recession here in the UK http://www.economist.com/node/21553485 so our stocks and bonds aren't helping us. No tight money to give the cash element a boost, and gold isn't doing much this year yet.

[MediumTex]

The UK PP is not doing as well as that unfortunately - only up about 0.8%. The UK stock market has not performed as well as the US (only up 5.7%), and the pound has strengthened against the dollar, so gold is only up 1.1% when priced in GBP.

And since I jumped in at the end of January, it is actually down over 2% 

It's official: we are in the double dip of the great recession here in the UK http://www.economist.com/node/21553485 so our stocks and bonds aren't helping us. No tight money to give the cash element a boost, and gold isn't doing much this year yet.

The UK needs a huge tax cut.  Right now, there isn't enough money in consumers' pockets to get things going again.  It seems obvious from where I am sitting.

What is the probability that this will occur?

Do any of the political leaders in the UK agree with what I am suggesting?

What sort of dumb ideas are floating around to head off the recession?  Is anyone talking about needing to balance the budget?

[chrish]

The UK needs a huge tax cut.  Right now, there isn't enough money in consumers' pockets to get things going again.  It seems obvious from where I am sitting.

What is the probability that this will occur?

I'd say the probability is very low - the government is trying to balance the budget by reducing spending, and politically it is difficult to cut taxes and slash spending at the same time: Cutting taxes is seen as helping the rich, and cutting spending is seen as harming the poor.

So, instead they are tinkering around the edges of the tax system, without actually reducing the overall taxation level. The ONLY idea they seem to have to get the economy moving is to cut government spending. I would have thought we also need either tax cuts or some sort of stimulus, such as infrastructure investment, to get things moving again.

[gizmo_rat]

The UK PP is not doing as well as that unfortunately...
And since I jumped in at the end of January, it is actually down over 2%  :(

It's been a little bit grim, the only way to have a reasonable return this quarter would have been heavily weighted to stocks. Clearly we havent been heading into a period of prosperity so I really wouldn't have been comfortable with that kind of exposure.  

It's quite distressing to be treading the path to economic contraction predicted by the MMT'ers, even more distressing (if unsurprising) that all major political parties seem to be wedded to the idea. 

[chrish]

Clive,

If you are right then the UK PP should do OK though, right? A weakening GBP should push up gold prices, and more QE should push up gilt prices. Stocks will probably do poorly, and cash will lose to inflation, but it makes the PP a better investment than a more conventional stock heavy portfolio.

[MediumTex]

The UK needs a huge tax cut.  Right now, there isn't enough money in consumers' pockets to get things going again.  It seems obvious from where I am sitting.

What is the probability that this will occur?

I'd say the probability is very low - the government is trying to balance the budget by reducing spending, and politically it is difficult to cut taxes and slash spending at the same time: Cutting taxes is seen as helping the rich, and cutting spending is seen as harming the poor.

Oh boy.  I was kidding.  It didn't occur to me that anyone would actually be talking about this right now.

A government trying to balance its budget as the economy heads into a recession is not a smart thing to do.

This whole "austerity" narrative is absurd.  Everywhere it is tried it only seems to make things worse, sometimes far worse.

[chrish]

Oh boy.  I was kidding.  It didn't occur to me that anyone would actually be talking about this right now.

A government trying to balance its budget as the economy heads into a recession is not a smart thing to do.

This whole "austerity" narrative is absurd.  Everywhere it is tried it only seems to make things worse, sometimes far worse.

Actually all we hear from the government at the moment is "there is no money left, the last government spent it all".

I also don't know much about economics, but from my limited understanding, we either need to cut taxes or increase spending (or both) to get the economy moving again. The Conservative party is idealogically opposed to more state spending, and it's politically difficult for them to cut taxes, and so we end up with an austerity drive instead.

As Clive said, originally the plan was to balance the budget by 2014/15, but due to the complete absence of growth in the economy that target has already been pushed back a couple of years I think.

[moda0306]

The UK needs a huge tax cut.  Right now, there isn't enough money in consumers' pockets to get things going again.  It seems obvious from where I am sitting.

What is the probability that this will occur?

I'd say the probability is very low - the government is trying to balance the budget by reducing spending, and politically it is difficult to cut taxes and slash spending at the same time: Cutting taxes is seen as helping the rich, and cutting spending is seen as harming the poor.

Oh boy.  I was kidding.  It didn't occur to me that anyone would actually be talking about this right now.

A government trying to balance its budget as the economy heads into a recession is not a smart thing to do.

This whole "austerity" narrative is absurd.  Everywhere it is tried it only seems to make things worse, sometimes far worse.

For all the babbling I do on this forum that may seem like I'm on the Keynesian "built an army against an alien invasion" mindset, I actually think as long as we keep speinding about where it's at, taxes could very well, if not more preferably, be where we look to attack this recession next.  This is why I thought the payroll tax holiday was such a good idea, and was disappointed to not see it enacted earlier.  It is a relatively evenly applied tax based on income, so a couple making $200k per year could have saved $4,000 with a 2% holiday (should have been bigger), while a person making $50k per year would only be at $1,000 in tax savings.  Hardly the most big-gov't socialist policy that could have come out of the administration.  I think everyone should have taken that and run with it to the point of a full payroll tax cut for two years.

[magneto]

The treasury aren't issuing Inflation bonds (index linked savings certificates).



JMHO.

Is it definite that there will be no IL Savings Certs this year?  I was waiting and hoping for some news soon of a new issue.

[MediumTex]

Is anyone talking about needing to balance the budget?

Yep! Why does that have a particular meaning MT?

A recession is what happens when you have weakening private sector demand relative to the productive capacity of the economy.

In such periods if the government also contracts spending in attempts to balance the budget it acts to dampen aggregate demand even more, since reducing government spending is nothing more than reducing public sector demand for the goods and services produced by the economy.

Many people think of this process as a zero-sum game, and that all government spending is essentialy foregone private sector spending, and thus it doesn't matter whether it is the government or the private sector doing the spending, but there is a key difference between government spending and private sector spending, and it is that private sector spending must be based upon real money or real credit, while the government can simply spend money when it gets ready by creating it out of thin air.  In other words, while the private sector can "run out of money", the government cannot, so long as it controls its own currency.  Can bad things result from excessive government spending?  Sure.  But I would say that since 2008, bad things have already happened, and if there was ever a time for aggressive governmental action in the areas of spending, economic stimulus and liquidity, it would be now. 

A great idea right now would be for the government to send every household a check for $5,000.  If this didn't jumpstart the economy, send another $5,000 check in six months, and continue this process until these direct injections of money into consumers' pockets started to show up in strengthening aggregate demand.

For reasons that I don't fully comprehend, very few politicians seem to grasp this basic economic dynamic.

I figured in Keynes' home country these ideas would have more traction, but I guess they don't.

I think that the basic misunderstanding starts with the idea that seems to grip the mind of the typical politician that "we are going to run out of money."  A government that controls its own currency can't run out of money.

If I were the teacher and the politicians were my pupils, I would have them write this sentence on the board 100 times:

"A government that controls its own currency can't run out of money."

[gizmo_rat]

Is it definite that there will be no IL Savings Certs this year?  I was waiting and hoping for some news soon of a new issue.

Me too, Clive's post bought a tear to my eye.

NS&I has confirmed that its popular Index-linked Savings Certificates will not be returning this year.

http://www.telegraph.co.uk/finance/pers ... cates.html

[metta2006]

My Canadian pp (with some US asset) is down more than 3% since I started in two months ago. I expected some downside risk but not this much in a short period time.   I guess it was a good thing I put in only half of my money but it is pretty discouraging and I wonder if I should invest the rest into a pp or not...
Can I ask a newbie question. I feel that stocks and bonds do often cancel each other then a pp is so much dependent on how gold is doing. PP has been doing so well with the gold price soaring...Now if gold does terribly, what would the return be....I think the reason why I have negative return was that gold wasn't doing well...Thanks for your advice.

[moda0306]

MT,

I think it helps to point out that both my idea of payroll tax cuts and your idea of $5,000 checks (I almost like yours better), doesn't really expand the role of gov't into new areas... it basically falls in the realm of managing a monetary system... now some may say that gov't shouldn't manage money, that money should be private, and that's fine to argue, but the worsts thing a gov't can do is pretend it's going to manage a sector a certain way, and then completely fail at that effort... I may have problems with the USPS, but I'm glad they're not deciding to only deliver to every other house to reduce their role in the economy.  Could private freeways work?  I can't see how, but I'd love to read up from someone on how they could... however, currently, I definitely wouldn't want to have the government design a freeway system, but then choose not to paint lines on the road or put up signs so they can encourage freedom on the roads and save money.

[Gosso]

If I were the teacher and the politicians were my pupils, I would have them write this sentence on the board 100 times:

"A government that controls its own currency can't run out of money."

But then the common retort is that government spending increases the debt, will lead to inflation, and a worthless dollar.  I think this argument is bunk simply because the debt should never be repaid.  If it ever were then there would no longer be any "base money" in the system.

One important aspect of Keynesianism is that the government needs to pull back dramatically once the private sector recovers, and possibly raise taxes to help prevent bubbles from forming.  If not, then that is when federal spending will start to matter and could lead to inflation.

The only limit on federal government spending is inflation.  Inflation can be controlled by higher taxation, higher interest rates, lower government spending, or the private sector blowing its brains out (ie 2008).  To prevent deflation the government can do the exact opposite.  The government has a strong incentive to control inflation, since uncontrolled inflation would lead to its demise.

Seems like a pretty good system.  It's too bad very few people understand how it works -- and I may not even have it all together.

I almost feel bad for guys like Bernanke.

[Gosso]

My Canadian pp (with some US asset) is down more than 3% since I started in two months ago. I expected some downside risk but not this much in a short period time.   I guess it was a good thing I put in only half of my money but it is pretty discouraging and I wonder if I should invest the rest into a pp or not...
Can I ask a newbie question. I feel that stocks and bonds do often cancel each other then a pp is so much dependent on how gold is doing. PP has been doing so well with the gold price soaring...Now if gold does terribly, what would the return be....I think the reason why I have negative return was that gold wasn't doing well...Thanks for your advice.

You're looking at the trees and not the forest.  Three months is not enough time for the PP to work properly.  The Canadian PP has actually been flat over the past 9 months.  It's possible we may see a lean year in 2012, and this is something you need to be mentally prepared for.

I understand your pain since during my first three months I also experienced a drop into negative territory.  But right after that there was a big move up.  A have a feeling that we're due for something stupid to happen, which will move one or two of the PP assets.  It seems we have simply hit a period of low volatility, which does not normally last for long.

[MediumTex]

My Canadian pp (with some US asset) is down more than 3% since I started in two months ago. I expected some downside risk but not this much in a short period time.   I guess it was a good thing I put in only half of my money but it is pretty discouraging and I wonder if I should invest the rest into a pp or not...
Can I ask a newbie question. I feel that stocks and bonds do often cancel each other then a pp is so much dependent on how gold is doing. PP has been doing so well with the gold price soaring...Now if gold does terribly, what would the return be....I think the reason why I have negative return was that gold wasn't doing well...Thanks for your advice.

You're looking at the trees and not the forest.  Three months is not enough time for the PP to work properly.  The Canadian PP has actually been flat over the past 9 months.  It's possible we may see a lean year in 2012, and this is something you need to be mentally prepared for.

I understand your pain since during my first three months I also experienced a drop into negative territory.  But right after that there was a big move up.  A have a feeling that we're due for something stupid to happen, which will move one or two of the PP assets.  It seems we have simply hit a period of low volatility, which does not normally last for long.

I would say the same thing.

It's very hard to do when you are first starting out, but I would say just leave it alone and let it do its thing.

[steve]

My Canadian pp (with some US asset) is down more than 3% since I started in two months ago. I expected some downside risk but not this much in a short period time.   I guess it was a good thing I put in only half of my money but it is pretty discouraging and I wonder if I should invest the rest into a pp or not...
Can I ask a newbie question. I feel that stocks and bonds do often cancel each other then a pp is so much dependent on how gold is doing. PP has been doing so well with the gold price soaring...Now if gold does terribly, what would the return be....I think the reason why I have negative return was that gold wasn't doing well...Thanks for your advice.

If it were me I would put in the other half. Time is on your side.  This maybe a buying opportunity.
I am not making any predictions but I would want to be all in.
Some think gold will really take off, who knows
http://youtu.be/7iZvQEhQsGE

[6 Iron]

My Canadian pp (with some US asset) is down more than 3% since I started in two months ago. I expected some downside risk but not this much in a short period time.   I guess it was a good thing I put in only half of my money but it is pretty discouraging and I wonder if I should invest the rest into a pp or not...
Can I ask a newbie question. I feel that stocks and bonds do often cancel each other then a pp is so much dependent on how gold is doing. PP has been doing so well with the gold price soaring...Now if gold does terribly, what would the return be....I think the reason why I have negative return was that gold wasn't doing well...Thanks for your advice.

We will eventually have a full year of negative returns, and I genuinely feel for our future fellow permport investor that started at that point. It will try his soul, without a longer rear view mirror. I hope you can have patience, because this method really will eventually offer genuine peace of mind. Good luck, metta, just keep buying the loser, and rebalance when you need to.

[Coffee]

I'm showing 3.37% YTD in my Schwab account.  That's with: VTI, SHY, SGOL and TLT.

[AdamA]

A great idea right now would be for the government to send every household a check for $5,000.  If this didn't jumpstart the economy, send another $5,000 check in six months, and continue this process until these direct injections of money into consumers' pockets started to show up in strengthening aggregate demand.

But there has to be a downside to this.  There are no free lunches. 

What are the negative effects of a policy like this, and at would point would they become worse than the problem we already have?

[CA PP]

CA PP ytd: 1.2% (xic/xlb/xsb/igt)

Do not worry metta.  If I were you I would actually be scared not to be 100% in.  Your call.

[MediumTex]

A great idea right now would be for the government to send every household a check for $5,000.  If this didn't jumpstart the economy, send another $5,000 check in six months, and continue this process until these direct injections of money into consumers' pockets started to show up in strengthening aggregate demand.

But there has to be a downside to this.  There are no free lunches. 

What are the negative effects of a policy like this, and at would point would they become worse than the problem we already have?

Well, what I am describing is really just an amped up version of what the U.S. has been doing since about 1981--i.e., running larger and larger deficits as tax rates have been pushed lower and lower.  Contrary to what a lot of people like to complain about, federal tax rates right now are quite low from a historical perspective, and millions of people pay no taxes at all.

All a tax cut is is a more subtle version of what I am describing.  They're both just a way to put more money in consumers' pockets. 

The macro risk with this policy, of course, is that in theory it can lead to inflation, but as long as your economy is operating at less than full output, inflation is not usually going to be a significant problem.

When thinking about inflation generally, tune out all of the Peter Schiff-style inflation hand-waving Chicken Little thinking and just consider this: Prior to 1981, the U.S. had experienced very bad inflation for a decade and during this period the U.S. had small budget deficits and the national debt was also small.  After 1981, however, budget deficits have alternated between being large or very large and the national debt has exploded upward, and yet during this period inflation has never been a problem.

In other words, there appears to be zero correlation between inflation and budget deficits and the national debt, at least in the last 40 years or so.

And when you look at Japan, you see that even when the government runs up what appear to be obscene levels of debt and deficits, there still is no inflation that one might have anticipated.  When you do find countries with high rates of inflation, it is often surprising how little debt their government has and how small their deficits are compared to the U.S.

Overall, I think that the whole "out of control government spending leads to inflation" narrative doesn't match up well to reality, even though it has great intuitive appeal.

Am I talking about a free lunch?  No, I think I am just talking about a way to get the real economy--i.e., the real workers, plant and equipment--closer to full utilization so that we can all come closer to enjoying the full potential output that our economy could be generating.