Gyroscopic Investing

While we are all worried about long treasury bonds,it may be the gold market that
surprises us.Interesting times...

annieB wrote: While we are all worried about long treasury bonds,it may be the gold market that
surprises us.Interesting times...

I agree.

IMHO, gold is a much quirkier market than the treasury market.

BearBones wrote: There has been plenty of the, "you never know" discussion before. That is not my point here. My question is simply: Can the PP actually benefit from a declining asset in a long term bear market if the road is bumpy enough to capture LTT gains by rebalancing?

Without market timing, it wouldn't be anywhere as good protection.  But still superior to buy and pray.

But I do think the risks aren't symmetrical compared to gold.  Bonds can easily go sideways like in Japan.  Gold would have no choice but to go into an extended collapse when its conditions are no longer favorable.

MediumTex wrote: Remember, the strongest upward moves in any asset normally occur in the midst of secular bear markets for that asset.  Look at what stocks have done in the last three years.

That's true, but that doesn't necessarily imply a break-even or net gain.  If you lose 80% in a bear market, a 100% subsequent rally does not cover the drawdown.  What BB is concerned about is the gap.

BearBones wrote: I am not so naive at to bet 100% on many things, especially something as complicated as the economy. But I do make probability judgements, like most of you. Should I keep LTTs below 25%, I intend to maintain cash to replace, since this gives some real interest rate protection and something to rebalance out of in a deflationary environment. Make sense?

As I pointed out in another thread, you need to have as much LT as necessary to protect your stocks until the secular bear market finally ends sometime within the rest of the decade.  After that point, you can worry about your LT exposure, because it would likely serve no useful future purpose against cheap, undervalued stocks.  I fully expect the 70's to play out again so it would be time to re-buy LT bonds when interest rates are double digit, gold is >$10K an ounce and the Fed slams on the brakes.

MachineGhost wrote:

MediumTex wrote: Remember, the strongest upward moves in any asset normally occur in the midst of secular bear markets for that asset.  Look at what stocks have done in the last three years.

That's true, but that doesn't necessarily imply a break-even or net gain.  If you lose 80% in a bear market, a 100% subsequent rally does not cover the drawdown.  What BB is concerned about is the gap.

Right.  The moves in an individual asset during a bear market may be negative overall (see gold in 1982-2000 period).

However, as part of a diversified portfolio, an asset that is in a secular bear market can still provide needed stability to the overall portfolio during selected periods.

This is what gold did for the PP in 1987 (20.2% return) and 1993 (17.7% return), which were the years in the 1982-2000 period in which gold was the leading PP asset.

MediumTex wrote: However, as part of a diversified portfolio, an asset that is in a secular bear market can still provide needed stability to the overall portfolio during selected periods.

This is what gold did for the PP in 1987 (20.2% return) and 1993 (17.7% return), which were the years in the 1982-2000 period in which gold was the leading PP asset.

I wonder what the "PP" would have done without gold in it during that 1982-2000 period. Better or worse?

BearBones wrote:

MediumTex wrote: However, as part of a diversified portfolio, an asset that is in a secular bear market can still provide needed stability to the overall portfolio during selected periods.

This is what gold did for the PP in 1987 (20.2% return) and 1993 (17.7% return), which were the years in the 1982-2000 period in which gold was the leading PP asset.

I wonder what the "PP" would have done without gold in it during that 1982-2000 period. Better or worse?

Almost surely significantly better.

moda0306 wrote:

BearBones wrote:

MediumTex wrote: However, as part of a diversified portfolio, an asset that is in a secular bear market can still provide needed stability to the overall portfolio during selected periods.

This is what gold did for the PP in 1987 (20.2% return) and 1993 (17.7% return), which were the years in the 1982-2000 period in which gold was the leading PP asset.

I wonder what the "PP" would have done without gold in it during that 1982-2000 period. Better or worse?

Almost surely significantly better.

Yup. From http://www.longtermreturns.com/p/histor ... turns.html:

Blue is the PP, red is the PP minus gold. (33/33/33)



The higher stock allocation coupled with gold not being a drag would have helped a lot.

Of course, both would have lagged the 100% stock blue-chip-heavy portfolios that got people rich before the party ended.

moda0306 wrote:

BearBones wrote:

MediumTex wrote: However, as part of a diversified portfolio, an asset that is in a secular bear market can still provide needed stability to the overall portfolio during selected periods.

This is what gold did for the PP in 1987 (20.2% return) and 1993 (17.7% return), which were the years in the 1982-2000 period in which gold was the leading PP asset.

I wonder what the "PP" would have done without gold in it during that 1982-2000 period. Better or worse?

Almost surely significantly better.

And worse since 2000.

I wish there was a way to know in advance which asset was going to do well in the future.

MangoMan wrote: MG, What reliable way have you found to time LTT? It was my understanding that SMA trend following does not work well for bonds.

http://gyroscopicinvesting.com/forum/ht ... 5#msg40855

Finally did it! Still have a VP, but the PP has full complement of 30 Yr TBonds bought yesterday. Was thinking over dinner that this portended apocalypse. Then nervously checked to see what the market did today. Here are the proxies:

VTI -1.83%
GLD +.9%
TLT +1.97%

Just one day in the life of a portfolio, but I am going to sleep well tonight. Thanks to you all for holding my virtual hand while I worked through my LTT phobia. I know that I kept on asking the same stale questions over and over again.

Now, I just have to gradually shift my VP into the PP bucket...

BearBones wrote: Finally did it! Still have a VP, but the PP has full complement of 30 Yr TBonds bought yesterday. Was thinking over dinner that this portended apocalypse. Then nervously checked to see what the market did today. Here are the proxies:

VTI -1.83%
GLD +.9%
TLT +1.97%

Just one day in the life of a portfolio, but I am going to sleep well tonight. Thanks to you all for holding my virtual hand while I worked through my LTT phobia. I know that I kept on asking the same stale questions over and over again.

Now, I just have to gradually shift my VP into the PP bucket...

Congrats on a good PP day.  Every time I get nervous about LTT's, they come to the rescue and save the Portfolio.  I am about 2 years into the PP and have already rebalanced out of LTT's once.

BearBones wrote: Finally did it! Still have a VP, but the PP has full complement of 30 Yr TBonds bought yesterday. Was thinking over dinner that this portended apocalypse. Then nervously checked to see what the market did today. Here are the proxies:

VTI -1.83%
GLD +.9%
TLT +1.97%

Just one day in the life of a portfolio, but I am going to sleep well tonight. Thanks to you all for holding my virtual hand while I worked through my LTT phobia. I know that I kept on asking the same stale questions over and over again.

Now, I just have to gradually shift my VP into the PP bucket...

I don't know if now will prove to have been a good time to set up your full PP, but historically these long periods of sideways drift usually turn out to be pretty good entry points.

Nominal rates are actually lower in Australia, Switzerland, Northern Europe and Japan.

In Japan's case, 30-year nominal rates went to 1.75% and 10 year nominal rates went to .75%.

So theres quite a bit of room for Treasuries to keep falling.  But we're getting closer to the point of no return.

And compared to the 70's, real rates are about 2x-3x higher at present.  There's more room to fall.

Do keep in mind lower rates reflects a stagnant economy as people pile into "risk free" assets and drive rates down.  This will only change if inflation expectations change or if investors ever decide the risk in "risk free" assets is no longer risk-free.  Oh yeah, if the Fed was stupid and tried to dump its balance sheet onto the secondary market, such a trigger event could change expectations as well.  Personally, I think the Fed will do nothing either way and just let CPI double over time.

Nice job, Bear Bones.