Gyroscopic Investing

pershing83 wrote: 2008? Nothing like it for another generation? Heh... the triumph of hope over reason.

MT can speak for himself on this, but my interpretation of what he's saying is this: while there may be other shocking events, economic or otherwise in the very near future, they are likely to be different types of shocks.  This is down to a) people being paranoid about the bad event occurring again that they work to prevent it and b) they are desensitized to that type of shock and thus react differently when it occurs.

Once you've spotted the rara avis that is the black swan, it's not so shocking to see another literally black swan.  It's the purple swan that really shocks you.  Something like hyperinflation.  Or the sudden birth of strong AI and disruptive prosperity.  Or perhaps there is no purple swan.  The whole point is that you don't even know what color the thing is going to be but it won't be the same color.

Pershing,

Our fear of black swans and aversion to actually let our predictions control our investing decisions is exactly what attracted us to the PP.  MT "predicts" that we'll have a sustained deflation much like Japan, and that we're still in a secular bear market (and will continue to suffer for decades).  He simply is saying he doesn't see us in another situation where the dow is going down 700 points in a day without blinking as a result of a collapsing financial sector.

That may be incorrect, but to call it naive is a stretch.

Further, given the diversity of opinions here, I'm surprised you could note a certain level of any one trait.  We've got inflationists, deflationists, optimists, pessimists, Americans, foreigners, conservatives, liberals, libertarians, old, and young.

What are some naive opinions, predictions or lines of logic you see here?  There are probably plenty here who disagree with MT on his prediction of another 2008 type crash, but none would go to the lengths to call him naive.  In fact, his observations have shaped much of how I view the economy today.  I may disagree with some of his logic at times, but unless I can vastly improve upon it I'm not even close to being in a position to call him naive.

You seem to jump way too quickly onto insulting others here, rather than offering up logical, mathmatical or historical contexts for your disagreeing with "us" (I quote that because there's no "us" to disagree with... we disagree with each other constantly).  

Take a look at Clive's posts... he constantly challenges some of the PP's assumptions or ability to return into the future, but does so with an absolute wealth of historical context, charts, etc, sparking engaging conversations on the nature of the economy or the assets.  If you think we're in some kind of coolaid-induced forum-wide circle-j&%k here, you're mistaken.

I'd love to hear a reasoned, sarcasm-free post on why we're naive, why the PP is flawed, and what you suggest as an alternative.

Lone Wolf wrote:

pershing83 wrote: 2008? Nothing like it for another generation? Heh... the triumph of hope over reason.

MT can speak for himself on this, but my interpretation of what he's saying is this: while there may be other shocking events, economic or otherwise in the very near future, they are likely to be different types of shocks.  This is down to a) people being paranoid about the bad event occurring again that they work to prevent it and b) they are desensitized to that type of shock and thus react differently when it occurs.

Once you've spotted the rara avis that is the black swan, it's not so shocking to see another literally black swan.  It's the purple swan that really shocks you.  Something like hyperinflation.  Or the sudden birth of strong AI and disruptive prosperity.  Or perhaps there is no purple swan.  The whole point is that you don't even know what color the thing is going to be but it won't be the same color.

That's what I'm getting at.

Bad things happen all the time; it's our reactions to these bad things that differ.  Remember the first Space Shuttle crash?  It was a national tragedy.  Remember the second Space Shuttle crash?  Far less damaging to the collective psyche.

In early 2008 no one would have believed you if you had said that LT treasuries would be yielding 2.7% by the end of the year and that a deflationary collapse of the world economy was a very real possibility.  If you think back to the beginning of 2008, inflation was all anyone was talking about, and the imminent rise in long term rates was considered obvious.

Sitting here today, I think people believe that almost any bad thing could happen at almost any time.  Thus, any bad thing that does happen in the next few years is unlikely to really take anyone by surprise.  Once people get this broadened view of the range of possible outcomes (with a tilt toward the nightmarish), it's much harder to shock them.

I fully expect another 10-20 years of rough sledding (and I think that's probably the best case scenario) for the U.S. economy and most other advanced economies (I don't know if emerging markets will have it any better), but I think that the shock and horror that many felt in 2008 is very hard for most people to experience more than once (and I think that explains the once-in-a-generation timing that these types of events tend to have).

I thought I posted something here again this morning but can't find it. Have not mastered this MB, I guess.

Anyway, I've got all my money in cash, PRPFX (35%) and VWINX with  some in CEF's, a small bank etc. I don't have a plan. If things get down to 10-11K on the Dow I would buy XOM, BHP, UTX, ECA, CAT and ABT, even BA. I've thought it might be a good idea to start my own pp and add in those stocks.

I recall buying PRPFX when its assets were 700 mln. Now look at it.

Sarcasm? I'm on 2 other MB's and things really get nasty at times.

Pershing,

I'm sure it does, but I have trouble interpreting your posts sometimes, because instead of using logic to poke holes in our arguments, you call us naive or accuse us of blindly defending the PP.

I guess you tend to see a certain amount of groupthink on this forum that I just don't see.

pershing83 wrote: Sarcasm? I'm on 2 other MB's and things really get nasty at times.

Why should anyone here care that things are nastier elsewhere?  Moda's comments are well taken.  If the purpose is well-argued critique, with actual support, that's fine.  And I too would prefer to hear reasoned argument rather than the other stuff.

pershing,

I've told you since you arrived that this is a friendly place, and we like it that way.

If I came to your house and saw that it was clean and neat, I wouldn't start throwing stuff around and telling you how messy most of the houses I had been in were. 

Just be friendly and we can discuss anything you want to discuss.

So pershing, not to pick you apart here, but you think MT is naive for doubting another 2008-like collapse (to where the dow fell into the 6,000's), but one of your main investment strategies is to move into a bunch of energy-sector stocks if the Dow moves down another 8%+

I don't think that's necessarily a "bad" strategy, but if I were reasonably afraid of another 2008-esque collapse within our generation (implied by your calling MT naive due to his doubting of another one), my strategy would absolutely not be to buy on 8% dips in the stock market in my variable portfolio.

Especially in energy sector stocks, which are extremely volatile (much like the commodities they deal with)... Gas was almost $1 per gallon at one point during the crisis.

I'm not calling you naive, brainwashed, or even saying your strategy is definitely flawed, but simply that those are flaws I see in your logic... if you have a counter-argument to those, I'd love to hear them.  Maybe I'm not following your predictions correctly.

Well, I guess I'll have to watch my step.

Pershing,

We love to hear from PP doubters... not to feed our egos, but instead feed our curiosity and our possibly mis-lead assumptions or observations.

I hope our comments on your style here don't discourage you from poking holes in our assumptions and analysis, if you feel there is some poking to be done.

pershing83 wrote: Well, I guess I'll have to watch my step.

Only if you want to hang around here.

pershing83 wrote: Well, I guess I'll have to watch my step.

LOL

I like your ability to inaccurately re-frame everything.

Wait a minute! I love pp and I said my largest holding is PRPFX and my boys own it, too. I've got the books and just got Fail-Safe out again to check on some of you guys' accuracy about HB. I like my PRPFX beacause of Swiss francs and Cuggino's stock picks. Remember HB wrote about the pp before overseas mkt's became so vital.

I have a lot of cash and may form my own pp, easing in over the 12-18 mos. Things are really bad now and may get worse. I would not go all in if I was a new investor.

Pull for Vanderbilt in the college BBWS. Harry Browne would have liked that.

pershing83 wrote:HB wrote about the pp before overseas mkt's became so vital.

I have a team of money managers that manage my overseas investments.

CL and INTC both derive 80% of their revenue from outside the U.S.  EMR is 56%.  MCD is 66%.  Etc.  With companies that dependent on foreign revenue, management is very motivated, dedicated and concerned about that money.

When I add it all up, my PP has 25% gold that is "foreign" to the U.S. and another 10% foreign in stocks.  All without venturing outside the governance and legal system of the U.S. even to trying ADRs.  Not perfect (e.g. Enron) but at least in the U.S. we try to enforce fraud laws.

AgAuMoney wrote:

pershing83 wrote:HB wrote about the pp before overseas mkt's became so vital.

I have a team of money managers that manage my overseas investments.

Why are overseas markets vital in the context of the PP?

Adam1226 wrote:

AgAuMoney wrote:

pershing83 wrote:HB wrote about the pp before overseas mkt's became so vital.

I have a team of money managers that manage my overseas investments.

Why are overseas markets vital in the context of the PP?

You might have missed the oblique point of my previous post.  Either that or you need to direct your question to pershing83 who made the original claim, then you may want to interpret the response in light of my position.

From a U.S. PP perspective I don't think picking stocks from overseas markets or holding funds of them fills any "vital" need.  This is especially true when following the recommendation to hold an index fund containing U.S. large cap stocks.  That's why I posted the tickers of several stocks that derive a significant portion of their revenue from outside the U.S..  I believe that this level of world-wide diversification allows the PP to function as HB intended -- shield U.S. investors from the vagaries of, while participating in the growth of, the U.S. market.

Clive wrote: Would you know how much of the foreign currencies risk they individually/collectively hedge AgAuMoney?

I don't.  Sometimes the annual reports mention this, even more rarely with dollar amounts, and sometimes I am fairly certain it is happening but I can find no authoritative statement.

My suspicion is that companies with large overseas holdings (microsoft and GE being two I've recently searched) and apparently no intent to repatriate those holdings are doing minimal hedging.  (perhaps only hedging the amount they consider repatriating.)  Why?  Because they are able to reinvest those assets outside of the U.S. to grow their non-US operations.  Hedging would reduce their ability to reinvest and currency fluctuations do not bother assets unless they are being repatriated (or at converted to another form at some future time).

For example, Microsoft recently borrowed a large amount, when they could easily have repatriated more than enough and avoided paying interest charges.  (Why?  I presume because interest was cheaper than taxes.)  In addition, they are hiring more people and buying property and building facilities outside of the U.S. so those assets are being used in their "native" form rather than conversion to U.S. dollars.  It seems foolish expense to me to be hedging their foreign exposure directly, rather than hedging by simply diversifying their assets and income over multiple geographic locations, and indeed it appears diversification is what they are doing.