Gyroscopic Investing

Xan wrote:

buddtholomew wrote:PP only holds 25% in LTT and 25% in Cash for a blended duration of approximately 9 years. This duration is "roughly" equivalent to the 50% held in IT-bonds. Not sure where the misconception surfaced that BH's hold corporate bonds - generally total bond market index.

Which are, if not majority, significantly made up of corporate bonds.

If you say so.

flagator wrote: What does the forum think about gold price discovery? Do you guys believe that in general gold price reflects true supply and demand out there? If so why, and if not, why not?

At this point, the gold price is driven almost entirely by the COMEX futures price although who's driving the price flips back and forth between COMEX and the LBMA "fix".  See http://www.kitco.com/ind/Skoyles/2013-0 ... rrors.html

The COMEX price has virtually nothing to do with "true supply and demand" but is rather a function of how many speculators are willing to bet long vs. how many are willing to bet short.  Or, more precisely, the total amount of money speculators are willing to bet long vs. the total amount of money speculators are willing to bet short. 

A significant portion of the short bet (which depresses the price) is from less than a handful of traders, widely suspected to be mostly JP Morgan (who is a bullion bank and involved in one way or another in essentially all of the gold ETFs).  Why they would, in their own account (as opposed to their customers' accounts), have a very large short position on gold is kind of a mystery.  If their short position is as large as widely believed, they can effectively dictate the price (reducing their short position makes the price go up, increasing it makes the price go down).  The Hunt brothers attempted to corner the silver market in the late 70s from the long side and were ultimately banned from the market.  However, they never controlled as much of the silver market (from the long side) as JP Morgan is alleged to control of the gold market (from the short side).

Does the price of gold reflect true supply and demand?  Hell no.

rickb wrote:Or, more precisely, the total amount of money speculators are willing to bet long vs. the total amount of money speculators are willing to bet short.

AKA supply and demand 

Stewardship wrote:

rickb wrote:Or, more precisely, the total amount of money speculators are willing to bet long vs. the total amount of money speculators are willing to bet short.

AKA supply and demand 

The central banks of the world are the biggest holders of gold, and if they really wanted to drive the price of gold down all they would need to do would be to start dumping gold on the market and whisper to Wall Street that it was going to continue for a long time (which would cause them to take large short positions, which would put even more downward pressure on the price).

I tend to think that the price of gold is what it is, and I don't know if the Fed really cares that much about its price.  Why would they?  Outside of PP investors, jewelers, dentists and a bunch of doomers, who cares what the price of gold is?  It's a tiny market compared to the stock and bond markets around the world, and no one is on a gold standard anymore so gold movements don't affect currency exchange rates.

All I know is that the Fed would love for consumers to begin forming some expectations of future inflation, and a great way to do that would be to have the price of gold start rising, so to the extent that the Fed is interested, I would think that they would want the price of gold to rise, not fall.

MediumTex wrote:

Stewardship wrote:

rickb wrote:Or, more precisely, the total amount of money speculators are willing to bet long vs. the total amount of money speculators are willing to bet short.

AKA supply and demand 

The central banks of the world are the biggest holders of gold, and if they really wanted to drive the price of gold down all they would need to do would be to start dumping gold on the market and whisper to Wall Street that it was going to continue for a long time (which would cause them to take large short positions, which would put even more downward pressure on the price).

I tend to think that the price of gold is what it is, and I don't know if the Fed really cares that much about its price.  Why would they?  Outside of PP investors, jewelers, dentists and a bunch of doomers, who cares what the price of gold is?  It's a tiny market compared to the stock and bond markets around the world, and no one is on a gold standard anymore so gold movements don't affect currency exchange rates.

All I know is that the Fed would love for consumers to begin forming some expectations of future inflation, and a great way to do that would be to have the price of gold start rising, so to the extent that the Fed is interested, I would think that they would want the price of gold to rise, not fall.

How did that "central bank dumping" work out for them in the 1960's, or in the late 90's (The "Brown Bottom")? Maybe I'm wrong, but IIRC, those were excellent times to be buying.

Libertarian666 wrote:

MediumTex wrote:

Stewardship wrote: AKA supply and demand 

The central banks of the world are the biggest holders of gold, and if they really wanted to drive the price of gold down all they would need to do would be to start dumping gold on the market and whisper to Wall Street that it was going to continue for a long time (which would cause them to take large short positions, which would put even more downward pressure on the price).

I tend to think that the price of gold is what it is, and I don't know if the Fed really cares that much about its price.  Why would they?  Outside of PP investors, jewelers, dentists and a bunch of doomers, who cares what the price of gold is?  It's a tiny market compared to the stock and bond markets around the world, and no one is on a gold standard anymore so gold movements don't affect currency exchange rates.

All I know is that the Fed would love for consumers to begin forming some expectations of future inflation, and a great way to do that would be to have the price of gold start rising, so to the extent that the Fed is interested, I would think that they would want the price of gold to rise, not fall.

How did that "central bank dumping" work out for them in the 1960's, or in the late 90's (The "Brown Bottom")? Maybe I'm wrong, but IIRC, those were excellent times to be buying.

My point was just that if central banks really cared about the price of gold, they could make it go down if they wanted to.

MediumTex wrote: My point was just that if central banks really cared about the price of gold, they could make it go down if they wanted to.

They could try, certainly.  Would it work?  Not necessarily.

IMO, It's good to remember that gold can go for many years doing very little. It's the hardest section of PP to watch regularly since it bounces in large percentages and gives back. Right now we are entering the bottoming stage for gold which can go on for a few more years. Only a total change in the economic conditions of the US will move gold into it's next stage. The worst things to watch are one time events like Greece which in and of itself won't produce any meaningful movement out of gold's bear market.

buddtholomew wrote: I am at a loss for words...this portfolio is very disappointing and it has trailed my 60/40 allocation substantially since 2009. No matter what anyone says, if gold sucks the PP sucks.

the portfolio didn't do much because it didn't loose much.  traditional portfolios needed those gains to get  back to where they were . the PP wasn't down .

in fact looking at the last 15 years the return is about the same as a 100% equity investment in the s& p 500

LC475 wrote:

MediumTex wrote: My point was just that if central banks really cared about the price of gold, they could make it go down if they wanted to.

They could try, certainly.  Would it work?  Not necessarily.

Is there any particular reason to think that's not what they're doing right now? 

If central banks were trying to suppress the gold price, how would you know?  When they release inventory data, most apparently count both gold they possess and gold they've loaned out in their "physical inventory".  Perhaps uniquely, the Reserve Bank of Australia separately reports how much gold they've leased see http://goldchat.blogspot.com/2014/01/ce ... rency.html . Most central banks simply refuse to divulge this kind of data.

Although not exactly an uninterested source (he owns perhaps billions of dollars in shares of gold miners), Eric Sprott has written about the hows and whys of manipulation - see for example, http://www.sprott.com/markets-at-a-glan ... -part-iii/ or http://news.goldseek.com/GoldSeek/1374001668.php

And, from someone Wikipedia calls a "conspiracy theorist" (pretty strong words for Wikipedia) see http://www.paulcraigroberts.org/2014/01 ... ipulation/

I think it's at least possible, if not likely, that central banks are suppressing the price of gold.  Why?  To maintain confidence in the value of currency they can create out of thin air using a printing press.

rickb wrote: I think it's at least possible, if not likely, that central banks are suppressing the price of gold.  Why?  To maintain confidence in the value of currency they can create out of thin air using a printing press.

Voodoo economics!  Central banks don't create currency out of thin air.

The gold market is relatively small so cornering it is possible for a short time, but it would never last for long.  The market is bigger than any of us.

I converted to the PP  on monday. so far  total portfilio lost .85%  .

mathjak107 wrote: I converted to the PP  on monday. so far  total portfilio lost .85%  .

A monkey could have outperformed the PP this week/year. I am sick to my stomach at the performance of this portfolio. Here comes another down year. As HB said himself, when you hear about a strategy that has performed well, the moment you use it it will fail. Should have listened more attentively.

Bud,

If I stayed with how I was investing prior to the PP, I would be in the red, significantly, comparatively.  And although not a huge amount, the little dividends VTI and TLT throw off are welcome.

The PP is not smoking hot this year, no, effectively down -1.02%.  But a standard 60/40 mix is also down -0.74%, so that monkey isn't doing much better!

it counts heavily on trends . gold has been a loser , bonds a loser and stocks treading water,.  the other conservative model i used  was up 1.10% this year  and was a heavy bet on good times and low rates,

i swapped it this week for the permanent portfolio and put over 7 figures in.  i think it is a safer bet since once we get something negative happening the pp can make some money

buddtholomew wrote: A monkey could have outperformed the PP this week/year. I am sick to my stomach at the performance of this portfolio. Here comes another down year. As HB said himself, when you hear about a strategy that has performed well, the moment you use it it will fail. Should have listened more attentively.

This is looking more and more of being a "Tight Money" year and Reub called it first.  I hope you can stomach waiting at least three years to get back to breakeven.

if you have a  more traditional portfolio and we nose dived from here it would likely  take less years for the pp to recover than the traditional.

the rates likely would reverse on bonds making those long term treasury's real winners.

i don't mind a small lose now to avoid a larger one later.

Cortopassi wrote: Bud,

If I stayed with how I was investing prior to the PP, I would be in the red, significantly, comparatively.  And although not a huge amount, the little dividends VTI and TLT throw off are welcome.

The PP is not smoking hot this year, no, effectively down -1.02%.  But a standard 60/40 mix is also down -0.74%, so that monkey isn't doing much better!

This monkey has been outperforming the PP over the last 6 years with a globally diversified portfolio.

My conservative BH portfolio is positive 3.29% YTD as funds migrated to international investments. The argument that money flows to one of the four PP assets is flawed. What is the point of diversifying with gold and treasuries when these investments decline with the same magnitude as equities?

rickb wrote: Is there any particular reason to think that [making the gold price go down] is not what they're doing right now? 

1. You never know what someone's doing.  They themselves may not know what they're doing.
2. "Central Bankers" is not a monolithic group any more than "computer programmers."  They have different interests and agendas and are not all coordinating with each other.
3. There are many, many other players in the gold market other than central bankers.  A central banker can control his own actions, but he cannot control those of other central bankers (see 2), and he certainly cannot control the actions of billions of individual human beings buying and/or selling gold.
4. Gold price is down only 10% over the last year, with a lot of fluctuation, and so if "they" are trying to make the price go down, well, it's not having a huge effect, is it?

So there's a few relatively valid reasons to think that's not what "they" are doing right now.

buddtholomew wrote: What is the point of diversifying with gold and treasuries when these investments decline with the same magnitude as equities?

Because they decline for very different reasons.  That is the point.

Short-term, maybe there is no point.  Maybe there's no point to diversification at all: just buy whatever's going up.  Woohoo!  But longer-term, these very different reasons should play very strongly into the very different performances of these assets.  That's why we hold them.  To diversify for all the different economic conditions that the economy could be in.

LC475 wrote:

buddtholomew wrote: What is the point of diversifying with gold and treasuries when these investments decline with the same magnitude as equities?

Because they decline for very different reasons.  That is the point.

Short-term, maybe there is no point.  Maybe there's no point to diversification at all: just buy whatever's going up.  Woohoo!  But longer-term, these very different reasons should play very strongly into the very different performances of these assets.  That's why we hold them.  To diversify for all the different economic conditions that the economy could be in.

I have heard this argument for years now. The PP is not diversified in my opinion and is far too heavily weighted in non-growth assets. We all fear an equity decline of significant magnitude (2008/9), but gold and treasuries decline the same amount. Peak to trough YTD, TLT is down almost 20%. Gold is down roughly 40% from the high. How is that any different from the equity decline we are trying to protect ourselves from?

buddtholomew wrote: Peak to trough YTD, TLT is down almost 20%. Gold is down roughly 40% from the high. How is that any different from the equity decline we are trying to protect ourselves from?

It's not.  That's the point.  If equities decline 40% we'll be similarly protected. 

Seriously, stop looking at the individual assets in isolation.  You miss the big picture.

buddtholomew wrote: I have heard this argument for years now. The PP is not diversified in my opinion and is far too heavily weighted in non-growth assets.

The PP is not a "growth" portfolio. It is a real wealth preservation portfolio. If you want a portfolio that benefits more from economic prosperity, there is absolutely nothing stopping you from having it.

i abandoned the pp  concept decades ago back in the 1980's . i needed more growth. 

i ended up using the fidelity insight newsletter and followed the growth model.  100k back in 1987 is now 2.1 million .

about 7 years ago i started to plan out my retirement and so i brought things down to a 50/50 mix using 1/2 my funds in the growth and income model and 1/2 in the income and capital preservation model.

i was going to use that through retirement but with interest rates this low  and stock valuations high i decided to tone things down even more .


so this week i went overall about 40/60 .  i have 40% of the portfolio in the fidelity insight growth and income model and 60% in the pp.

would i use the pp if i wasn't retiring ?  very unlikely , as stated to much invested in non growth assets.

but as a retirement vehicle it can be a nice balance..

i

mathjak107 wrote: would i use the pp if i wasn't retiring ?  very unlikely , as stated to much invested in non growth assets.

but as a retirement vehicle it can be a nice balance..

I agree with this sentiment. If I anticipated another 25 years before retirement, I would definitely have my money in something a lot closer to 50% stocks, with the balance having a lot of better-than-treasury-yield bonds. Instead, I expect to retire in 4, so taking those kinds of chances with my hard-earned money seems silly. Ill-timed drawdowns could double that number. Despite this sentiment, I still have about 20% of my money in a 50/50 portfolio. There is no ironclad rule of life concerning what you have to have your money invested in.