Deflation. Revisited?

[bedraggled]

POINT #1: I have mentioned possible future deflation in other threads.  I said that TLT is up over several years, DXY, the US Dollar index is up 20% over 3.4 years, GLD is down 35% since September, 2011, and general commodities, led recently by oil, are down.

Is this the start of a long run trend in declining prices, led by an increasingly strong US Dollar, hand-in-hand with a rising TLT?

POINT #2: Recently I read comments that asked can the PP withstand substantial declines in gold and stocks.  A response I saw that PP would be relatively good, even if PP turned mildly negative, as other portfolios would be clobbered.  I understand this but  wonder if there is a better answer or approach offered within the 25/25/25/25 PP structure, without resorting to a VP.

If this has been tackled before- OOPS.  I would like to see deflation addressed now as the economy and the debt structure appears to look to reverse direction- my opinion, of course.

Realizing I have not addressed the topic with real articulation and did receive a suggestion that, if I am thinking deflation,  I should load up with SGOL, I would love to hear many thoughts.  This is, for me a vexing topic.

[craigr]

POINT #1: I have mentioned possible future deflation in other threads.  I said that TLT is up over several years, DXY, the US Dollar index is up 20% over 3.4 years, GLD is down 35% since September, 2011, and general commodities, led recently by oil, are down.

Is this the start of a long run trend in declining prices, led by an increasingly strong US Dollar, hand-in-hand with a rising TLT?

POINT #2: Recently I read comments that asked can the PP withstand substantial declines in gold and stocks.  A response I saw that PP would be relatively good, even if PP turned mildly negative, as other portfolios would be clobbered.  I understand this but  wonder if there is a better answer or approach offered within the 25/25/25/25 PP structure, without resorting to a VP.

If this has been tackled before- OOPS.  I would like to see deflation addressed now as the economy and the debt structure appears to look to reverse direction- my opinion, of course.

Realizing I have not addressed the topic with real articulation and did receive a suggestion that, if I am thinking deflation,  I should load up with SGOL, I would love to hear many thoughts.  This is, for me a vexing topic.

If you think deflation is looming then it could cause the Dollar and other currencies to substantially rise in purchasing power as spending plummets at the same time. In that case, it would be very bad for stocks and probably gold as well. Bonds and cash would be what you'd want to rely on. The bond price would provide some protection in capital appreciation as rates fell (and positive convexity providing a turbo boost as rates go lower):

https://web.archive.org/web/20160324133 ... y-and-you/

The cash would help because prices could collapse and you can buy more for each dollar you have.

You could also use this period to rebalance into stocks and gold and when the markets recovered you'd make a tidy profit at the end of it.

But mostly, I just hold fast myself and rebalance as required. The Fed can do a lot of things to prevent a runaway deflation that they couldn't do in the 1930s. So don't count them out.

[bedraggled]

Thanks, craigr.  Your kind attention is appreciated.

[barrett]

Bedraggled,

The problem, as I see it, is if you shift your balance to, say, 40% LTTs, then your portfolio doesn't stand the test of holding enough of the other assets so that when it is time for them to perform, they will carry the whole portfolio.

Let's take a simple example and assume that you have $100,000 in your PP.  You could set things up so that you have 40K in LTTs, 20K in gold, 20K in stocks and 20K in cash. If you are wrong about the markets and the price of LTTs is cut in half while gold doubles & everything else stays the same, you are back to where you started and still have a balance of $100,000. If you hold 25% of each asset and one doubles while the other gets cut in half, you are at $112,500, up 12.5%. So you have to be really confident that you know the direction of the markets to make a 40% bet on one asset.

I could see making the this bet if LTT yields were much higher, but at 3% there would seem to be too much interest rate risk. Just my opinion obviously.

[murphy_p_t]

true that, Barrett...made that mistake w/ another asset class...