Secular low in bonds not reached

[MediumTex]

I still get kind of hot thinking about how easy it would have been to avoid a lot of this pension funding trouble if there had been more PP-oriented managers running pension funds' investment strategies, rather than the slick gunslingers who charged 150 basis points to share their brilliance up through 2007, and who then reassured their clients when everything fell apart that "No one could have seen this coming.  No one."

You're right of course but the pension fund managers would get fired if their returns didn't keep up with the herd

How can you make a lot of money as a "fund manager" if your advice is always the same: 4x25%?

You speak in riddles and platitudes like Michael Cuggino and Ray Dalio do.  It's also helpful to do that "I could tell you, but then I'd have to kill you" thing that Maverick did in Top Gun.

[Libertarian666]

You're right of course but the pension fund managers would get fired if their returns didn't keep up with the herd

How can you make a lot of money as a "fund manager" if your advice is always the same: 4x25%?

You speak in riddles and platitudes like Michael Cuggino and Ray Dalio do.  It's also helpful to do that "I could tell you, but then I'd have to kill you" thing that Maverick did in Top Gun.

Yes, you have to baffle them with BS, but that's a lot easier to do if you have a "secret sauce". 4x25 is too simple.

But wait, maybe that's the secret, like "Being There"!

[Dieter]

Just don't tell them the secret sauce... "We have provided a consistent 3-6% annual REAL return over the last 30 years. Our unique investment approach tactically allocates funds based on market conditions across multiple distinct asset classes."

(Aka, 4x25. 15/35 rebalance bands)

Although maybe go a bit stock heavy to have less tacking error (vs stocks) to explain.

[MediumTex]

Just don't tell them the secret sauce... "We have provided a consistent 3-6% annual REAL return over the last 30 years. Our unique investment approach tactically allocates funds based on market conditions across multiple distinct asset classes."

(Aka, 4x25. 15/35 rebalance bands)

Although maybe go a bit stock heavy to have less tacking error (vs stocks) to explain.

Here are the standard responses I get from money managers when I describe the PP:

1. "Something like that might work for a couple of years here and there, but that's just not a good portfolio.  Isn't it obvious that gains in one asset are going to be offset by losses in another?"

2. "That's a ridiculous portfolio.  I don't need to look at any performance figures to know that.  I can tell by just listening to your description of it."

3. "That might be an okay portfolio, but 30 year treasuries are way too risky.  Didn't anyone tell you that rates are about to start rising?"

4. "That might be an okay portfolio, but 25% in gold is way too much.  Do you have any idea what would happen to the portfolio if gold crashed like it did in the early 1980s?"

5. "That might be an okay portfolio, but it doesn't have nearly enough equity exposure.  Are you not aware that stocks will always beat every other asset if you give them enough time?"

6. "That might be an okay portfolio, but 25% in cash makes no sense at all, especially with t-bill rates at 0%.  I'm not sure what kind of wacky portfolio would want a 25% allocation to an asset that has a zero return."

7. "I know some analysts up in the New York office.  I can't make any promises because those guys are very busy, but I will see if I can have one of them take a look at the portfolio for you.  The crew up there pretty much knows what the market is going to do next.  Like I said, though, those guys are very busy, so I don't know if they will be able to look at it or not."

8. "Don't you think that if the portfolio really did what you say it does that we would all be using it?"

9. "Sheesh.  I can't imagine trying to keep all those assets straight.  With assets that volatile, you would have to watch that thing every minute the markets were open."

10. "Does the portfolio come with beans and bullets too?"

[MediumTex]

Just don't tell them the secret sauce... "We have provided a consistent 3-6% annual REAL return over the last 30 years. Our unique investment approach tactically allocates funds based on market conditions across multiple distinct asset classes."

The Multi-Market Cycle Optimizer ("MMCO") strategy utilizes a series of proprietary quantitative and qualitative data inputs to predict market conditions within a set of predefined realms.  We have a staff of experts in various fields who constantly sift and refine the data inputs based upon a matrix that tracks, among other things, economic, financial, demographic, and psychological metrics with weightings that are dynamically adjusted by our proprietary trading algorithms.  The MMCO's prop trading program dampens the chaotic conditions within the portfolio using a cutting edge combination of market timing tools, scientific principles of human behavior, and language patterns that we have detected when playing certain classic rock albums backward at half-speed.

[MediumTex]

Just don't tell them the secret sauce... "We have provided a consistent 3-6% annual REAL return over the last 30 years. Our unique investment approach tactically allocates funds based on market conditions across multiple distinct asset classes."

The Multi-Market Cycle Optimizer ("MMCO") strategy utilizes a series of proprietary quantitative and qualitative data inputs to predict market conditions within a set of predefined realms.  We have a staff of experts in various fields who constantly sift and refine the data inputs based upon a matrix that tracks, among other things, economic, financial, demographic, and psychological metrics with weightings that are dynamically adjusted by our proprietary trading algorithms.  The MMCO's prop trading program dampens the chaotic conditions within the portfolio using a cutting edge combination of market timing tools, scientific principles of human behavior, and language patterns that we have detected when playing certain classic rock albums backward at half-speed.

Excellent.  And sad.  Sadly excellent.  Excellently sad.

You should conduct some social science research.  Talk to some of the same people you mention in the prior post, except tell them you've dropped the PP, but have this new strategy...

I think that many people are so used to obfuscatory BS that when someone brings them something with a sincere desire to describe it as clearly and simply as possible, it sort of makes them suspicious.

I've been asked more than once why Craig and I wrote the PP book.  When I say it's because we wanted to help people understand the PP better and address some of the things that weren't covered in much detail in Harry Browne's writings, they often look at me like "yeah, right."

[blackomen]

Just don't tell them the secret sauce... "We have provided a consistent 3-6% annual REAL return over the last 30 years. Our unique investment approach tactically allocates funds based on market conditions across multiple distinct asset classes."

(Aka, 4x25. 15/35 rebalance bands)

Although maybe go a bit stock heavy to have less tacking error (vs stocks) to explain.

Here are the standard responses I get from money managers when I describe the PP:

1. "Something like that might work for a couple of years here and there, but that's just not a good portfolio.  Isn't it obvious that gains in one asset are going to be offset by losses in another?"

2. "That's a ridiculous portfolio.  I don't need to look at any performance figures to know that.  I can tell by just listening to your description of it."

3. "That might be an okay portfolio, but 30 year treasuries are way too risky.  Didn't anyone tell you that rates are about to start rising?"

4. "That might be an okay portfolio, but 25% in gold is way too much.  Do you have any idea what would happen to the portfolio if gold crashed like it did in the early 1980s?"

5. "That might be an okay portfolio, but it doesn't have nearly enough equity exposure.  Are you not aware that stocks will always beat every other asset if you give them enough time?"

6. "That might be an okay portfolio, but 25% in cash makes no sense at all, especially with t-bill rates at 0%.  I'm not sure what kind of wacky portfolio would want a 25% allocation to an asset that has a zero return."

7. "I know some analysts up in the New York office.  I can't make any promises because those guys are very busy, but I will see if I can have one of them take a look at the portfolio for you.  The crew up there pretty much knows what the market is going to do next.  Like I said, though, those guys are very busy, so I don't know if they will be able to look at it or not."

8. "Don't you think that if the portfolio really did what you say it does that we would all be using it?"

9. "Sheesh.  I can't imagine trying to keep all those assets straight.  With assets that volatile, you would have to watch that thing every minute the markets were open."

10. "Does the portfolio come with beans and bullets too?"

In early 2012, I was chatting with some other investment professionals about our performance the previous year..  I had made about 10%..  they get curious and ask what I did.  I explain the PP..  5 minutes later, they tell me I got lucky.

Not all professionals are against the idea of a simple passive portfolio.  I went to a talk hosted by the Los Angeles CFA society about the merits of the 60/40 stock/bond portfolio some time last year as well and chatted with the speaker quite a bit afterwards.  He wasn't sold on the idea of the PP (mostly b/c of gold) but we both seemed to agree with the idea of these simple portfolios.

[MediumTex]

In early 2012, I was chatting with some other investment professionals about our performance the previous year..  I had made about 10%..  they get curious and ask what I did.  I explain the PP..  5 minutes later, they tell me I got lucky.

Did you tell them that a PP investor would have gotten only a little less lucky over the preceding 39 years?

You're quite right that there are a few investment professionals out there with really flexible minds, a broad understanding of how the world works, a grasp of human nature and how it manifests in market action, and a constant awareness of the limitations of their own understanding.

Guys/gals like that I'm sure do a great job for their clients.  A person like that can deliver a LOT of value, especially to high net worth investors.

The problem I run into is that almost any time I talk to a money manager or investment advisor, I tend to sense two things early in the discussion: (1) they are arrogant, and (2) their range of knowledge and understanding is narrow.  When you combine these two things in a single person, what you often get is someone who struggles to learn things that are too far removed from what they already know, as well as a tendency to fall back on the force of their personality when the coherence of their thinking is brought into question.

[murphy_p_t]

"Secular low in bonds not reached"

likely/maybe...but looks like 30 year rate headed back to other side of channel before they go lower....somewhere north of 4%

I've been assuming this ever since MT predicted that rates would bounce between 4.5% and 2.5% for the appreciable future. Nearly everything I've seen him predict has come to pass.

moving quickly (accelerating?) towards that 4.5% rate       looks like we'll find out soon if this will hold

[Dieter]

Time to buy, or wait a bit longer.

[Peak2Trough]

The thing that has me believing Lacy's prediction more than any other is that everyone is seemingly taking the other side of that bet. 

[MediumTex]

The thing that has me believing Lacy's prediction more than any other is that everyone is seemingly taking the other side of that bet.

We've done this many times in recent years.

I remember a few years ago when Nassim Taleb told an audience of hedge fund managers that only a fool wouldn't be short treasuries.  Yields dropped like a rock from that point on, of course.  He wasn't a little wrong in his prediction; he was as wrong as a person could possibly be.