Gyroscopic Investing

So let's say (maybe) hypothetically that the USA is "going Japanese," as frequenrly alluded to in other threads. Having the benefit of seeing it coming, would anyone make any changes to their PP or make a Japanese-ey low-interest-rates-and-deflation-optimized VP? I'd love to see what folks can come up with, or if the consensus is that the vanilla PP will perform just fine.

Pointedstick wrote: So let's say (maybe) hypothetically that the USA is "going Japanese," as frequenrlt alluded to in other threads. Having the benefit of seeing it coming, would anyone make any changes to their PP or make a Japanese low-interest-rates-and-deflation-optimized VP? I'd love to see what folks can come up with, of if the consensus is that the vanilla PP will perform just fine.

I think shifting your VP holdings into emerging markets where demographic trends are more favorable for growth is one thing I can think of.  Of course only time will tell.

Buy zero coupon long term treasuries, short the stock market when it seems near a cyclical top, and bet on dollar strength.

overweight LTT?

murphy_p_t wrote: overweight LTT?

If rates are headed later, you bet.

murphy_p_t wrote: overweight LTT?

I wouldn't.  In 1998 Japan reached a similar interest rate as current US rates. 


http://www.tradingeconomics.com/japan/g ... bond-yield

From 1998 to 2009 LTT did nothing.  Have a look at Marc's site: http://europeanpermanentportfolio.blogs ... folio.html

LTT averaged 2% a year from 1998 to 2009.  Not bad during a 0% inflation environment, but basically returned its coupon.

I'm not saying LTT can't fall to 1% or lower, but it's not a guarantee, even during mild deflation and high demand for government debt.

I like the idea of emerging markets, they should pick up the slack.  Or just go with cash, and be thankful you're maintaining purchasing power.  Or if you're really ballzy then short the market, as MT said.

A PP with a big deflation bias might be:

25% 10-yr bonds
25% 2-yr bonds
25% LTPZ (long term tips ETF as an inflation hedge and gold substitute)
25% High Yield Bonds (as a stock sub)

Wouldn't gold still be a worthwhile idea if we were still in negative real interest rates? I'm thinking even if inflation drops to 1.5%, if LTT go to 1.0%, I might consider weighting gold higher.