Gyroscopic Investing

Pointedstick wrote:

mathjak107 wrote: I think the combo of the crash of china's markets and everyone wondering if Greece was going to be the next Lehmann kind of made this the biggest  event in a while . kind of the one pp users have a vision of taking everything down.

but when gold didn't react and the surge in treasury's turned in to a fall  I think some kind of said "if not now , when?"  and became disheartened .

Why would Greece potentially leaving the Euro cause the gold price in dollars to spike? Gold wasn't protecting dollar-denominated assets from anything.

Also, Greece didn't leave (yet).

it has been rumored gold thrives on fear and perception . but I have yet to see that .

Mathjak, you've been investing since the 80's. Considering what you've seen, I'm shocked to hear you say anything going on in the equities market right now qualifies as "startling". You know the markets have been boring lately when these little mini-dips and rallies start to look interesting.

Equities plummeted a whopping 4% from all-time highs during this latest Greek crisis. They've retraced most of that and now sit down around 1% off all-time highs.

I can count 5 or 6 similar dips and recoveries just this year alone. Now, the October-November rally, that one was fun.

mathjak107 wrote: it has been rumored gold thrives on fear and perception . but I have yet to see that .

When was the last time we've had something to truly be scared of? Certainly not Greece, I mean, it's been repeated over and over that there are plenty of US cities with larger economies.

Exactly. There is nothing at all scary about the prospect of Greece leaving the Euro. They're an economically weak nation of 10 million with few significant exports and little military capacity. If some European hedge funds blow up, they blow up. But considering how long this crisis has been in the making, I would be exceptionally surprised if the institutions exposed to Greek debt hadn't set up significant firewalls to protect themselves from the possibility of a default. I'm guessing that's why the markets have had such a ho-hum response to the whole thing. Simply put, it's not that big of a deal. Unless you're Greek, of course.

iwealth wrote: Mathjak, you've been investing since the 80's. Considering what you've seen, I'm shocked to hear you say anything going on in the equities market right now qualifies as "startling". You know the markets have been boring lately when these little mini-dips and rallies start to look interesting.

Equities plummeted a whopping 4% from all-time highs during this latest Greek crisis. They've retraced most of that and now sit down around 1% off all-time highs.

I can count 5 or 6 similar dips and recoveries just this year alone. Now, the October-November rally, that one was fun.

it was the fact it did it in 3 sessions . when the outlook is still not so good and we have china weighing on things.

but  the market seems to always just love climbing that wall of  worry

Pointedstick wrote: Exactly. There is nothing at all scary about the prospect of Greece leaving the Euro. They're an economically weak nation of 10 million with few significant exports and little military capacity. If some European hedge funds blow up, they blow up. But considering how long this crisis has been in the making, I would be exceptionally surprised if the institutions exposed to Greek debt hadn't set up significant firewalls to protect themselves from the possibility of a default. I'm guessing that's why the markets have had such a ho-hum response to the whole thing. Simply put, it's not that big of a deal. Unless you're Greek, of course.

the fear in the market wasn't so much about Greece . heck their gdp is  the size of Louisiana . they also only owe 40 billion to banks . the rest is the imf.

the fear was it spreading to the other country's like Italy , spain , Portugal , etc.

The fear was....?

If the Greek parliament passes this bailout, it will mean more misery for Greeks, and a simple kicking of the can yet again.  These can kicking events get closer and closer in time, and I suspect the next time will be very problematic because elections in Italy, Spain and Portugal all seem to lean the same direction Greece did, and I hope for their sakes they have leaders with more cahones to follow through.

I have no idea why Tsipras caved, but to think if the bailout passes that Greeks/Greece are all hunky dory is mistaken.

Cortopassi wrote: The fear was....?

If the Greek parliament passes this bailout, it will mean more misery for Greeks, and a simple kicking of the can yet again.  These can kicking events get closer and closer in time, and I suspect the next time will be very problematic because elections in Italy, Spain and Portugal all seem to lean the same direction Greece did, and I hope for their sakes they have leaders with more cahones to follow through.

I have no idea why Tsipras caved, but to think if the bailout passes that Greeks/Greece are all hunky dory is mistaken.

Which is potentially great news if you hold your gold based in euros. I'd expect US treasuries to be the appropriate hedge against foreign economies crapping the bed.

Good Point!

I wonder how all the angst we are hearing from people would be different if we were in Europe.  Or Japan.  Or Canada.  See below.

mathjak107 wrote:

Pointedstick wrote: Exactly. There is nothing at all scary about the prospect of Greece leaving the Euro. They're an economically weak nation of 10 million with few significant exports and little military capacity. If some European hedge funds blow up, they blow up. But considering how long this crisis has been in the making, I would be exceptionally surprised if the institutions exposed to Greek debt hadn't set up significant firewalls to protect themselves from the possibility of a default. I'm guessing that's why the markets have had such a ho-hum response to the whole thing. Simply put, it's not that big of a deal. Unless you're Greek, of course.

the fear in the market wasn't so much about Greece . heck their gdp is  the size of Louisiana . they also only owe 40 billion to banks . the rest is the imf.

the fear was it spreading to the other country's like Italy , spain , Portugal , etc.

There are also trillions of $$ worth of derivatives written on Greek debt. When those blow up look for an event much worse than Lehman, whose derivatives blew up AIG and many other banks. Greece's derivatives are worth a heck of a lot more than Lehman's did.

It was a huge relief for Wall Street to not have all those derivatives blow up, and a stock rally ensued.

So all the angst and worries about Greek implosion have everything to do with derivatives, not the actual debt itself.

Gold should have seen a significant bid higher among all these threats but it it did not. The FED and other central banks are keeping a very close lid on it this time, unlike back in the late 2000s.

Which goes back to the whole question of the PP being suitable in 2015 as a hedge toward all uncertainties given that gold is so effectively suppressed.

spot on !

the credit default swap market is the biggest betting casino in the world. the amount of money that could be lost is insane .


imagine one of us loaning money to someone on prosper .  someone says i don't think joe blow is going to pay me my 1000 bucks .

we all go we know joe he will pay , you , want to bet ?

before you know it we all pool our money and have a 10k bet that joe will pay the 1k  he owes.

the default swaps ARE ISSUED IN 10 MILLION DOLLAR INCREMENTS .

Default swaps insuring $10 million of Greece’s debt for five years now cost $4.2 million in advance and $100,000 annually, according to CMA data. That’s up from $3.4 million in advance on Jan. 23, the last trading day before the election.

The amount of money in derivitives is over 600 trillion

I first came across the permanent portfolio years ago and was turned off because I was always chasing performance and the pp seemed stodgy to me.After losing 50% in 2008 I "rediscovered" the pp and have never looked back.

Why do you use the PP?

Demographics.  The PP's gold component a bet against the United States successfully transitioning to a multicultural utopia.

I'm currently on the path to early FI and the PP seems like one of the best portfolios for those pursuing this path.  Since I am trying to limit the duration of the accumulation phase, it does not make sense for me to have a volatile, stock-heavy portfolio.  It's encouraging to see so many of the folks on this forum have come to a similar conclusion 

For those using the PP for FIRE, do you consider your taxable and tax-deferred accounts "one portfolio" or keep them separate? Do you use PP for both or different strategies?

I'm 28, have about a 65% after-tax savings rate, and am currently using PP in both my taxable account and SEP IRA. I've thought about combining them into a single portfolio for tax efficiency, but I keep getting stopped up by the fact that I can't touch the IRA assets until I'm 59.5. If I'm overweight gold and cash in taxable and gold takes a good hit, my total portfolio might look stable on paper but the non-retirement assets which I'm drawing from drop considerably.

While there are ways around it (substantially equal periodic payments), I don't want to lock myself into fixed withdrawals from my IRA early on. I'd rather reach FI and then take what I need from taxable, saving the IRA for retirement.

Like many, I was drawn to the PP by the reduced volatility, and I plan to keep it for my taxable account for that reason. But every few months I revisit changing my IRA to a standard 60/40. Since I won't touch the IRA for 30+ years, I don't think the reduced volatility is as important.

I've never really been in nor out of the PP. After 2008 I've thought long and hard about starting a PP but in the end I borrowed some key elements of the PP and added that to my standard Boglehead 50/50 portfolio.

My reasons for not following the 4x25:

• It's doubtful whether the PP concept can be used outside of the USA
• I was skeptical of the historic performance of the PP. The expected return was and I believe still is much lower. Browne didn't create the PP to deliver 'equity-like returns'. It's mainly intended as a wealth preservation type of portfolio, to be used along with a more risky VP if you want to increase return
• It's too biased for my taste towards extreme economic situations

Still I consider my portfolio a Permanent Portfolio. I'm 45% global stocks, 10% gold, 20% cash and 25% 10-year treasuries.
My emergency fund is included in the 20% cash, another thing I learned from the PP  .

koekebakker wrote: I've never really been in nor out of the PP. After 2008 I've thought long and hard about starting a PP but in the end I borrowed some key elements of the PP and added that to my standard Boglehead 50/50 portfolio.

....

Still I consider my portfolio a Permanent Portfolio. I'm 45% global stocks, 10% gold, 20% cash and 25% 10-year treasuries.
My emergency fund is included in the 20% cash, another thing I learned from the PP  .

Similar to koekebakker, I'm more PP influenced / have one PP-ish retirement account than all in.

Defending nitrogen get a different perspective from this site and have learned a lot.

Overall, my retirement allocation is roughly 10% gold, 35% bond (1/3 LLT), 55% Stocks (global, tilted US / small / value / REIT.) Plus a couple of small pensions.

(Less tracking error vs typical bogglehead portfolio than the PP, in good times and bad....)

mg315 wrote: For those using the PP for FIRE, do you consider your taxable and tax-deferred accounts "one portfolio" or keep them separate? Do you use PP for both or different strategies?

I'm 28, have about a 65% after-tax savings rate, and am currently using PP in both my taxable account and SEP IRA. I've thought about combining them into a single portfolio for tax efficiency, but I keep getting stopped up by the fact that I can't touch the IRA assets until I'm 59.5. If I'm overweight gold and cash in taxable and gold takes a good hit, my total portfolio might look stable on paper but the non-retirement assets which I'm drawing from drop considerably.

While there are ways around it (substantially equal periodic payments), I don't want to lock myself into fixed withdrawals from my IRA early on. I'd rather reach FI and then take what I need from taxable, saving the IRA for retirement.

Like many, I was drawn to the PP by the reduced volatility, and I plan to keep it for my taxable account for that reason. But every few months I revisit changing my IRA to a standard 60/40. Since I won't touch the IRA for 30+ years, I don't think the reduced volatility is as important.

whether you use the pp or not  your portfolio should be one unified  portfolio across all accounts . there are reasons for keeping different parts of it in different types of vehicles.

generally though there is a mis-belief that equities should be kept out of tax  deferred accounts  where they get special tax benefits  but that logic has been mostly wrong .

equity's still do better deferred since even a 1% dividend or capital gains distribution  over long periods of time un-does the tax benefit .

ochotona wrote: So gold and anti-gold can and have been falling simultaneously now... since February 1.

Yes, and they were both rising simultaneously for much of the 2000-2010 decade.  Economics isn't billiards.  People are not billiard balls.  People try to anticipate developments.  To avoid making the same mistake twice.  Sometimes they are right, usually they are wrong.

You say that maybe the inflation connection is gone for gold.  But actually, what is good about gold is precisely that there is no connection.  The quantity of gold in the world is unlinked to the amount of fiat paper money inflation taking place.  Completely unlinked.  No causality, no correlation, nothing.  The European bank, the Fed, the IMF, all of these people can do anything they please and it will not affect the quantity of gold in the world.  Only gold miners, gold panners, and deep sea wreck salvagers can move that needle, and they cannot move it very quickly at all, to say the least.

Thus it is a safe haven from inflation, just as it always has been.

Now, the idea that gold will actually rise dramatically in value should there be big problems with the US dollar, that is not apodictically true.  It's not logically certain.  It seems very, very likely, but it's possible this idea could be wrong, due to some kind of developments we have not foreseen.  What is even more likely is that gold will at least not have its value undermined by inflation.  It will just sit in the safe and continue to be gold.

buddtholomew wrote: Another one bites the dust...not surprised...aren't these the same people that were telling me just weeks ago that the PP was not for me!! Go figure...

Ha, ha, ha!  Yes, indeed, buddtholomew, pretty ironic.

By the way, I hope you don't take it personally when I defend the HBPP.  I think it's fine you criticize it and bemoan its losses or insufficiency of gains.  I just happen to think it's great, and so I defend it.  Doesn't mean you (or anyone else) is wrong for criticizing it.  We are all individuals and should invest according to our individual needs and goals.  Harry Browne would be the first one to tell you that!

mg315 wrote: For those using the PP for FIRE, do you consider your taxable and tax-deferred accounts "one portfolio" or keep them separate? Do you use PP for both or different strategies?

IMO, if you're planning to live off a taxable account for many years, it's a good idea to look at that portfolio construction separately. 

For example, a 50/50 gold/cash portfolio in taxable with stocks/bonds in an IRA generally makes the most sense for taxes overall.  This could be a good plan for someone retiring when they have easy access to both accounts, but a lousy plan for someone living almost exclusively off the taxable side for 20 years. 

Tyler wrote:
For example, a 50/50 gold/cash portfolio in taxable with stocks/bonds in an IRA generally makes the most sense for taxes overall.

St. Harry B. took it for granted that cash would generate significant returns, a situation which has not existed for years now. But someday (who knows when?)  the "return to the mean" will stage a comeback, and cash will again be a significant taxable portion of our portfolios.

This is why I am a missionary for I-bonds, which are gloriously exempt from state and local taxation, which is a major concern in high-tax states such as the one I live in (NY.) There are workarounds to boost the amount of spendolas you can stash in I-bonds for 30 glorious years, before the taxman (or taxpersons) cometh, except for the local tax collectors, for whom the door is permanently slammed in their faces.

Tyler wrote:

mg315 wrote: For those using the PP for FIRE, do you consider your taxable and tax-deferred accounts "one portfolio" or keep them separate? Do you use PP for both or different strategies?

IMO, if you're planning to live off a taxable account for many years, it's a good idea to look at that portfolio construction separately. 

For example, a 50/50 gold/cash portfolio in taxable with stocks/bonds in an IRA generally makes the most sense for taxes overall.  This could be a good plan for someone retiring when they have easy access to both accounts, but a lousy plan for someone living almost exclusively off the taxable side for 20 years.

it was always believed equity's would do better in the taxable account because of lower tax rates  and bonds and cash in the tax deferred.

but whomever came up with that never considered portfolio turnover in funds , dividends and time.

most funds will lose the tax advantage once any payouts exceed 1% and long time frames are involved.

if the funds have turnover then they are definitely going to lose any tax advantage in the taxable account.

in the mean time valuable space in the deferred account would be taken up by little compounding cash and bonds for years.

mathjak107 wrote: in the mean time valuable space in the deferred account would be taken up by little compounding cash and bonds for years.

Or perhaps the big-compounding cash and bonds, from whom space is being taken up by the low-income-producing stocks.

As goodasgold pointed out so well, situations can change.  Interest rates can change.  They usually do.

LC475 wrote: As goodasgold pointed out so well, situations can change.  Interest rates can change.  They usually do.

Absolutely.  Well said.

FWIW, I didn't mean to sidetrack with discussion of what's best in taxable vs. tax-deferred. That could deserve its own thread. I only meant to provide an example of when ignoring the yearly gyrations of the taxable side for the sake of overall tax efficiency may not always make the best sense.