Gyroscopic Investing

Posted: **Thu Dec 13, 2012 6:55 pm**

I feel cash might be king for the next two years.

If the Fed is buying up tons of long term bonds, it's artificially pushing the price up. Which means when they stop buying them, the price is bound to fall as interest rates rise. Unfortunately, I do believe the Fed has the power to completely manipulate the bond market.

With gold, I believe inflation is already priced in from when the Fed stops their buying (or when their buying fails to induce deflationary effects). Thus, when inflation does happen, gold won't move because it's already priced in.

With stocks, when TSHTF, they will fall as well due to uncertainty.

Thus, cash will be king. Of course, I don't know, so I'm holding all 4 assets

Posted: **Thu Dec 13, 2012 7:45 pm**

TripleB wrote: I feel cash might be king for the next two years.

If the Fed is buying up tons of long term bonds, it's artificially pushing the price up. Which means when they stop buying them, the price is bound to fall as interest rates rise. Unfortunately, I do believe the Fed has the power to completely manipulate the bond market.

With gold, I believe inflation is already priced in from when the Fed stops their buying (or when their buying fails to induce deflationary effects). Thus, when inflation does happen, gold won't move because it's already priced in.

With stocks, when TSHTF, they will fall as well due to uncertainty.

Thus, cash will be king. Of course, I don't know, so I'm holding all 4 assets

I feel as though gold really hasn't hit the irrational exuberance for an inflation setting yet. As long as we're in a negative real rates environment with low treasury yields, I think gold will do reasonably well. I forget where it stated that gold is a leveraged piece because there is only so much gold so if people panic from inflation expectations that it will shoot up again.

That being said, I'm roughly holding to 25% across the board and using my VP to weight towards whichever economic situation I feel will happen in the near-ish term.

Posted: **Fri Dec 14, 2012 1:12 am**

TripleB wrote: I feel cash might be king for the next two years.

If the Fed is buying up tons of long term bonds, it's artificially pushing the price up. Which means when they stop buying them, the price is bound to fall as interest rates rise. Unfortunately, I do believe the Fed has the power to completely manipulate the bond market.

Hasn't the Fed more or less committed to this latest round of QE for the next 2 years...considering when they expect unemployment to fall under 6.5%. If so...why do you think the LTT will fall in value before the end of QE that's nearly guaranteed for that 2 year period? I'm not following your thought process here.

With gold, I believe inflation is already priced in from when the Fed stops their buying (or when their buying fails to induce deflationary effects). Thus, when inflation does happen, gold won't move because it's already priced in.

I think you should also consider supply/demand of gold...central banks globally are now either net buyers or no longer selling, at a minimum.

Posted: **Fri Dec 14, 2012 1:25 am**

TripleB wrote: Thus, cash will be king. Of course, I don't know, so I'm holding all 4 assets

I believe you are correct, sir! I'm 51% in cash. Stocks are overvalued. Bonds are overvalued. Gold is neither a screaming buy nor a screaming sell. I will continue to accumulate gold as technicals permit and maybe some rental real estate until I hit the PP target. Then take a day of rest.

Posted: **Fri Dec 14, 2012 4:40 am**

MachineGhost wrote: I believe you are correct, sir! I'm 51% in cash. Stocks are overvalued. Bonds are overvalued. Gold is neither a screaming buy nor a screaming sell.

Ditto. In my VP, I have substituted cash for LTT (large real return upside potential and the low risk compared to LTTs). The Fed has been trying to flush all cash holders from the bushes for years, and this may ultimately be bearish for other asset classes. A bill in the hand, a bear in the bush - that's me.

Posted: **Fri Dec 14, 2012 10:02 am**

I have the urge to flee from bonds into cash also. However, I still think they could go even lower, making long bonds still very profitable. (TLT is at a 2.72% yield right now).

If TLT got down to 1% yield, the downside risk would scare me away from any upside gain. At this line in the sand for me, all new "bond" contributions would be going to my "cash" position.

Posted: **Fri Dec 14, 2012 2:44 pm**

This is equivalent to asking if the PP will fall over the next two years. I sure hope not!

Posted: **Fri Dec 14, 2012 3:29 pm**

I'm not that sure about bailing out of LTT's. Stocks have been rising for almost 4 years and the economy looks like it might go into another recession. LTT's might be just the right thing in the coming months. But as Harry Browne said, who knows for sure?

Posted: **Fri Dec 14, 2012 3:44 pm**

I feel much more comfortable now that I have just lighted up on LTT (by selling all my EDV) to raise cash.

Some of the reasons I made this decision:
-many articles hightlighting massive inflows into bond funds during last few years
-Paul Krugman recent article
-the tone of this thread...on this board
-the failure for any frontrunning in LTT after the latest fed announcement...WHY DIDN'T TLT SPIKE UPWARDS?
-I was a little underweight cash...now I'm a little overweight
-EDV thinly traded, as discussed elsewhere...it outperformed the normal 1.5xTLT today
-I sold EDV at a small gain...never hurts to take profits
-LTT are still 17% of my PP...that's not insignificant, in my mind, if stocks crash

Posted: **Thu Jan 03, 2013 1:53 pm**

murphy_p_t wrote: I feel much more comfortable now that I have just lighted up on LTT (by selling all my EDV) to raise cash.

Some of the reasons I made this decision:
-many articles hightlighting massive inflows into bond funds during last few years
-Paul Krugman recent article
-the tone of this thread...on this board
-the failure for any frontrunning in LTT after the latest fed announcement...WHY DIDN'T TLT SPIKE UPWARDS?
-I was a little underweight cash...now I'm a little overweight
-EDV thinly traded, as discussed elsewhere...it outperformed the normal 1.5xTLT today
-I sold EDV at a small gain...never hurts to take profits
-LTT are still 17% of my PP...that's not insignificant, in my mind, if stocks crash

so far, my timing has been very fortunate. I'm wondering if EDV is heading back to the $70-90 range?

Posted: **Thu Jan 03, 2013 5:32 pm**

What do you guys think about holding a basket of foreign cash? An even basket of Aussies, Loonies, Kiwis, Yen, Francs, Euros, Pounds, SGD whatever Kronas and Krones?

Or just a diversified ST diverse soverign bond fund? How much risk is there really that the dollar repeat the 2008 rally? It should offer significant inflation protection and low volitility?

Posted: **Fri Jan 04, 2013 11:27 am**

TripleB wrote: If the Fed is buying up tons of long term bonds, it's artificially pushing the price up. Which means when they stop buying them, the price is bound to fall...

or LTT can fall *before* the Fed ends their buying!

Posted: **Fri Jan 04, 2013 4:03 pm**

murphy_p_t wrote: or LTT can fall *before* the Fed ends their buying!

They have to buy more than everyone else sells! The choice will be destruction of the dollar or higher rates at some point I think. Hope they "preserve" the dollar.

Posted: **Tue Jan 08, 2013 7:10 pm**

I'm bearish on the Dollar and my allocation reflects it: I recently completed the full transition to ~0% US Bonds (short or long duration)

Posted: **Tue Jan 08, 2013 7:16 pm**

Kshartle wrote:
murphy_p_t wrote: or LTT can fall *before* the Fed ends their buying!
They have to buy more than everyone else sells! The choice will be destruction of the dollar or higher rates at some point I think. Hope they "preserve" the dollar.

i'm speculating that there's a very powerful motivation by the Fed to "preserve" the dollar...if they don't...won't their franchise/cartel become insolvent/disappear?

Posted: **Tue Jan 08, 2013 7:18 pm**

systemskeptic wrote: I'm bearish on the Dollar and my allocation reflects it: I recently completed the full transition to ~0% US Bonds (short or long duration)

how are you positioned?

Posted: **Tue Jan 08, 2013 7:55 pm**

systemskeptic wrote: I'm bearish on the Dollar and my allocation reflects it: I recently completed the full transition to ~0% US Bonds (short or long duration)

So you're 50/50 stocks and gold?

Posted: **Tue Jan 08, 2013 8:09 pm**

I swapped the Cash portion for Gold, and the LTT portion for Foreign Equities, so it ends up something like 30% Foreign Equities, 20% Domestic Equities, 50% Gold.

Posted: **Tue Jan 08, 2013 8:14 pm**

systemskeptic wrote: I swapped the Cash portion for Gold, and the LTT portion for Foreign Equities, so it ends up something like 30% Foreign Equities, 20% Domestic Equities, 50% Gold.

It would be safe to say you're 100% VP, then?

Posted: **Wed Jan 09, 2013 10:19 am**

Pointedstick wrote: It would be safe to say you're 100% VP, then?

Basically, yes

Posted: **Wed Jan 09, 2013 6:14 pm**

Desert wrote: I'm guessing that the volatility is breathtaking!

You might be surprised. It is somewhat volatile on the upside (good thing) but not so much on the downside (also a good thing).

DOWN Std. Dev:
PP: 2.33%
No Bonds: 6.84%
Total Stock Market: 11.04%

UP Std. Dev:
PP: 6.73%
No Bonds: 13.01%
Total Stock Market: 9.57%

Worst Year / Best Year
PP: -5.17% / +39.27%
No Bonds: -17.81% / +69.56%
Total Stock Market: -37.04% / +38.44%

CAGR
PP: 9.24%
No Bonds: 10.92%
Total Stock Market: 9.68%

Posted: **Wed Jan 09, 2013 6:27 pm**

Desert wrote: You're right, I am surprised. Those numbers are quite impressive. What time period was used in that backtesting?

1972-2011

Posted: **Wed Jan 09, 2013 11:35 pm**

Desert wrote: You're right, I am surprised. Those numbers are quite impressive. What time period was used in that backtesting?

I'm not surprised at all. Gold has been on a 30 year bull run and Foreign Equities have been on a significant bull run as well.

Posted: **Fri Jan 11, 2013 2:03 am**

systemskeptic wrote: I swapped the Cash portion for Gold, and the LTT portion for Foreign Equities, so it ends up something like 30% Foreign Equities, 20% Domestic Equities, 50% Gold.

I find this fascinating. PP 2.0 or PP for QEternity ?

What is your rebalance strategy, if any?

What are the theoretical underpinnings of the portfolio? Or...how did you pick the allocation? Haven't foreign equities and domestic equities largely syncronized so its just one big global market...not completely true, but is this a concern?

Posted: **Fri Jan 11, 2013 11:16 am**

I think that if equities begin to fall that strategy could easily fail. Be careful!

Gyroscopic Investing

Could Cash be the best asset in 2013 through 2014?

Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?

Re: Could Cash be the best asset in 2013 through 2014?