Gyroscopic Investing

I trust I'll be corrected if I'm wrong here, but it seems to me Harry Browne never anticipated the possibility of the U.S. defaulting on its debt.

In my case the timing for this particular soap opera couldn't be worse, because I'm going to have to liquidate some assets (all of which are invested in the PP) just before the August 2 deadline in order to buy a house. I'm well within the rebalancing bands at the moment but a bit long on stocks and gold, with less in long bonds and short term treasuries. I am sorely tempted to overweight gold and just sell off Treasuries to raise funds, and am hoping one of the numerous more savvy folks here might talk me out of it.

Hate to admit the market timing instinct still lives but I really never thought our fearless (or was that feckless) leaders would let it get to this point.

He did. Lots of callers to his radio show asked him about it. He said that people have been talking about a dollar crisis for as long as he had been paying attention, and (obviously) nothing had ever happened. He said that doesn't mean it won't happen, but that there is no way to predict when it might happen. He also said not to sacrifice the present for the future. In other words take some reasonable precautions, but keep them reasonable and focus on living in the moment. There's no telling how many moments any of us have left.

Let's also remember that even if the U.S. does "default", we are probably talking about a few days or weeks in which interest payments are not being made.

We're not talking about a default in which bondholders are wiped out.

The bond market has basically slept through this whole "crisis".  The bond market is rarely wrong.

Politicians can always be trusted to do what is in their best interest, and presiding over a default on U.S. debt simply isn't in any politician's best interest. 

Think about it.  Politicians are rarely wise, but they're also not stupid.  A group of narcissistic egomaniancs like the current Congress and executive branch will do almost anything to maintain their power, and the thought of driving the U.S. into default to make some kind of point seems farfetched to me, since it would lead to many of them losing their jobs.

I hope you're right MT, but there are clearly plenty in Congress willing to be voted out of office over this. 71% disapproval rating according to a poll published today.

The other question is will Treasuries remain the investment of last resort, or will that role fall to some combination of gold and bonds issued by countries such as Canada, Australia and New Zealand that balance their budgets. It seems to me that any downgrade in the credit rating of Treasuries means that the 50% of the PP that's in bonds needs to be re-thought. "Full faith and credit" is what saved the PP in the '08 meltdown; if that no longer means anything (or is in the slightest doubt in terms of market sentiment) I would think some serious re-thinking of the allocation would be in order.

Wasn't the bond market disastrously wrong about mortgages being as safe as treasuries?  Or was that more the bond ratings agencies?

It seems to me that the bond market wasn't properly pricing in mortgage default into the rate.

MediumTex wrote: Let's also remember that even if the U.S. does "default", we are probably talking about a few days or weeks in which interest payments are not being made.

There were in fact delayed interest payments on some Treasury Bills back in 1979: according to this study this created a permanent increase of 6 basis points on Treasury rates.  (The government got sued over this.)  That's not to say that today's situation will have the same outcomes, simply that delayed payments aren't something that were beyond Browne's imagination.  He'd seen it himself.

Big down day so far in stock market and treasuries are down as well. I know that they aren't perfectly negatively correlated but I think it goes to show that safe haven status is wearing off. Gold and silver are up instead.

Also, oil is down today, which goes to show that peak oil concerns are unfounded and we will enjoy a decade-long run of cheap energy.

Sorry doodle... couldn't resist.

doodle wrote: Big down day so far in stock market and treasuries are down as well. I know that they aren't perfectly negatively correlated but I think it goes to show that safe haven status is wearing off. Gold and silver are up instead.

Wait a second, you're saying that one day in which treasury yields tick up a little means that their "safe haven status is wearing off"?

If such a trend persisted for several years I might begin to get interested, but one day?  Come on.

Greece and Portugal are pricing in default.  The U.S. treasury market is pricing in busines and usual.

Kevin K. wrote: I trust I'll be corrected if I'm wrong here, but it seems to me Harry Browne never anticipated the possibility of the U.S. defaulting on its debt.

In my case the timing for this particular soap opera couldn't be worse, because I'm going to have to liquidate some assets (all of which are invested in the PP) just before the August 2 deadline in order to buy a house. I'm well within the rebalancing bands at the moment but a bit long on stocks and gold, with less in long bonds and short term treasuries. I am sorely tempted to overweight gold and just sell off Treasuries to raise funds, and am hoping one of the numerous more savvy folks here might talk me out of it.

Hate to admit the market timing instinct still lives but I really never thought our fearless (or was that feckless) leaders would let it get to this point.

I ran across the interesting post above and thought it was worth another look almost a year later.

I hope that he did not follow his instincts, because he would have missed an absolutely amazing move in treasuries, as well as significantly reduced the safety of his permanent portfolio over the last year or so.

What we see (or think we see) is often just a mirage.  One of the great qualities of the PP is that it is mostly mirage-proof and if you let it do its thing it will protect you from all sorts of risks (both real and imagined).

MediumTex wrote: I hope that he did not follow his instincts, because he would have missed an absolutely amazing move in treasuries, as well as significantly reduced the safety of his permanent portfolio over the last year or so.

What we see (or think we see) is often just a mirage.  One of the great qualities of the PP is that it is mostly mirage-proof and if you let it do its thing it will protect you from all sorts of risks (both real and imagined).

Indeed.  I had to really grit my teeth to put 25% into LT treasuries 15-18 months ago.  But since then, wow.  I certainly never expected things to go as they have.