Portfolio safety in extreme cases
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Portfolio safety in extreme cases
I'm going to recommend a modification to the PP that I'm not sure anyone has suggested.
The rule I'm suggesting is: "Never rebalance out of gold twice in a row."
This is intended to keep you from throwing good money after bad in a hyperinflationary collapse where the other assets keep going down.
Comments or improvements?
The rule I'm suggesting is: "Never rebalance out of gold twice in a row."
This is intended to keep you from throwing good money after bad in a hyperinflationary collapse where the other assets keep going down.
Comments or improvements?
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Re: Portfolio safety in extreme cases
I have heard hyperinflation since 2008. This time, it seems like it might happen, but it also seems just as likely deflation is possible.
No one is buying anything now except toilet paper. Why is $1000 in my hand going to make me go out and spend? It is going into my savings account.
The government is spending, and will continue to print like crazy. But still, there is no inflation. The dollar continues UP.
Outline a hyperinflationary scenario, please. I don't see it.
No one is buying anything now except toilet paper. Why is $1000 in my hand going to make me go out and spend? It is going into my savings account.
The government is spending, and will continue to print like crazy. But still, there is no inflation. The dollar continues UP.
Outline a hyperinflationary scenario, please. I don't see it.
Re: Portfolio safety in extreme cases
At the moment the dollar is screaming back up to 99.5. I think that hyper inflation is the last thing we have to worry about. We are currently in a full scale deflation. The switch doesn't just flip from deflation to inflation overnight. We also have a lot of deflationary worries in the corporate and junk bond markets... corporations have never been this heavily levered and this virus could be the spark that lights the match for a mass corporate default which would create a larger deflation than the subprime loan mass default in 2008.
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Re: Portfolio safety in extreme cases
Right. Then the $trillions that the government is printing to bail out everyone come roaring in as a tsunami of hyperinflation.pmward wrote: ↑Wed Mar 18, 2020 8:39 am At the moment the dollar is screaming back up to 99.5. I think that hyper inflation is the last thing we have to worry about. We are currently in a full scale deflation. The switch doesn't just flip from deflation to inflation overnight. We also have a lot of deflationary worries in the corporate and junk bond markets... corporations have never been this heavily levered and this virus could be the spark that lights the match for a mass corporate default which would create a larger deflation than the subprime loan mass default in 2008.
But again, my suggestion would only be relevant in a hyperinflation where gold is going straight up.
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Re: Portfolio safety in extreme cases
A comment and a question: I’m certain that Craig said he rebalanced out of gold 3 times in 2008 or 2009, and I can probably find the post to back that up.
I don’t know if that makes a difference. Is it different this time?
I like the original post because it tells me you still believe gold is going to rise.
I don’t know if that makes a difference. Is it different this time?
I like the original post because it tells me you still believe gold is going to rise.
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Re: Portfolio safety in extreme cases
Yes, I think gold is going to rise a great deal once the money printing gets into the economy.dualstow wrote: ↑Wed Mar 18, 2020 8:54 am A comment and a question: I’m certain that Craig said he rebalanced out of gold 3 times in 2008 or 2009, and I can probably find the post to back that up.
I don’t know if that makes a difference. Is it different this time?
I like the original post because it tells me you still believe gold is going to rise.
Maybe the rule should be "don't rebalance out of gold more than twice in a row", or something else.
What I want to avoid is what would have happened to people in Weimar Germany who would hypothetically have been running a PP: continually selling gold and buying bonds and stocks. That would have produced a pretty bad result compared to just hanging onto the gold.
We're not bogleheads, after all. We don't have to "stay the course" when things have changed dramatically.
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Re: Portfolio safety in extreme cases
I just got to the season of Babylon Berlin where it's 1929 and a manic-depressive kinda-nazi figures out that the American stock market is going to crash, with Germany's economy to follow. He has just discovered short selling.Libertarian666 wrote: ↑Wed Mar 18, 2020 9:47 am ...
What I want to avoid is what would have happened to people in Weimar Germany who would hypothetically have been running a PP: continually selling gold and buying bonds and stocks. That would have produced a pretty bad result compared to just hanging onto the gold.
...
He defined the manic phase -- probably a newly coined term then -- as a phase in which for the sufferer "everything is connected."
But he's got the advantage of having his words written for him by a screenwriter and he has it right!
Re: Portfolio safety in extreme cases
I mean, as you can see from my posts in the gold scream room, I'm incredibly bullish on gold long term. I think gold will be the best performing PP asset over the next decade. However, I do not see a hyperinflation as possible in the U.S. as all of our debt is denominated in U.S. dollars. A 70's style stagflation, sure. Hyperinflation... just no. Also, gold is not going to go straight up. It will have it's ups and downs that will offer rebalancing opportunities in both directions. This rebalancing volatility is how gold pays its rent in the portfolio after all. I see no reason to change strategies and make an exception for gold.
Re: Portfolio safety in extreme cases
If that was going to happen, why didn't it happen last time they fired up the printing press?Libertarian666 wrote: ↑Wed Mar 18, 2020 8:40 am
Right. Then the $trillions that the government is printing to bail out everyone come roaring in as a tsunami of hyperinflation.
But again, my suggestion would only be relevant in a hyperinflation where gold is going straight up.
And why hasn't it happened in Japan where they've printed even more?
Re: Portfolio safety in extreme cases
I see exactly where you're coming from, and you make an excellent point. The same line of thinking has crossed my mind as well. In a true financial armaggedon resulting from hyperinflation, you may rebalance yourself into oblivion as your gold holdings get smaller and smaller and smaller.Libertarian666 wrote: ↑Wed Mar 18, 2020 8:11 am I'm going to recommend a modification to the PP that I'm not sure anyone has suggested.
The rule I'm suggesting is: "Never rebalance out of gold twice in a row."
This is intended to keep you from throwing good money after bad in a hyperinflationary collapse where the other assets keep going down.
Comments or improvements?
A potential alternative method: make half of the 25% gold portion digital, and make the other half physical. When selling gold to rebalance, only sell the digital gold, NEVER sell any physical.
MB
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Re: Portfolio safety in extreme cases
My impression from Harry Browne's books and radio shows was that the PP was designed to handle inflation, but not hyperinflation.
In a hyperinflation, the entire notion of an "investment portfolio" kind of goes out the window, and people are just trying to survive. In which case, you use your physical gold for food and other necessities, not for rebalancing investments.
In a hyperinflation, the entire notion of an "investment portfolio" kind of goes out the window, and people are just trying to survive. In which case, you use your physical gold for food and other necessities, not for rebalancing investments.
Re: Portfolio safety in extreme cases
Looks like Libertarian666's portfolio is even better geared towards protection against said hyper-inflation. I am curious if he has a structure or theory behind that allocation, or if it is just intuitive.Tortoise wrote: ↑Wed Mar 18, 2020 4:37 pm My impression from Harry Browne's books and radio shows was that the PP was designed to handle inflation, but not hyperinflation.
In a hyperinflation, the entire notion of an "investment portfolio" kind of goes out the window, and people are just trying to survive. In which case, you use your physical gold for food and other necessities, not for rebalancing investments.
I think the PP has decent protection overall in a hyper-inflation scenario.
MB
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Re: Portfolio safety in extreme cases
Not really. As Libertarian666 pointed out, if you keep rebalancing the PP as prescribed during a hyperinflation (which can last several years, like Weimar Germany's did), you can lose most of your money.
Re: Portfolio safety in extreme cases
Right, if you follow strict rebalancing practice that can happen.
But if you follow something like the 50-50 digital/physical divide and never sell the physical you should be okay. Just a minor modification.
MB
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Re: Portfolio safety in extreme cases
For the old-timers, isn't that the opposite of what Clive predicted on the old forum? He deleted all his posts and left before I joined here, but IIRC he said that gold was going to become devalued, and everyone was going to sell their productive assets to buy gold.
You there, Ephialtes. May you live forever.
Re: Portfolio safety in extreme cases
Kriegsspiel wrote: ↑Wed Mar 18, 2020 5:03 pm
For the old-timers, isn't that the opposite of what Clive predicted on the old forum? He deleted all his posts and left before I joined here, but IIRC he said that gold was going to become devalued, and everyone was going to sell their productive assets to buy gold.
I've said this before, but I'm a relative latecomer to the PP party. I discovered the PP in 2016 and didn't find this forum until like a year later.
Clive's mysterious posts that all say [deleted] have always been my blind spot in the old Bogleheads thread. Like the forum equivalent of trying to piece together missing time from an alien abduction or something.
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Re: Portfolio safety in extreme cases
Clive was an odd duck. He would regularly go through and delete all his posts. And he didn't leave, he was actually banned. This was long before I had anything to do with the running of the site. He would regularly accuse Tex and Craig of basically stealing from HB's widow by writing their PP book. They eventually got tired of it and I don't blame them.
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Re: Portfolio safety in extreme cases
Clive had very useful posts and charts that even Craig and Tex were impressed with, so it was a weird combination.
Every once in a while, even when Clive was still a member, a new person would join the forum and ask who this invisible guy was that we were all talking to.
He could have just saved himself the trouble and put everything but the charts in his sig line.
Every once in a while, even when Clive was still a member, a new person would join the forum and ask who this invisible guy was that we were all talking to.
He could have just saved himself the trouble and put everything but the charts in his sig line.
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Re: Portfolio safety in extreme cases
I have read here that he presently exists at the Bogle Heads forum? Or, is that GhostMachine? Another forum legend.dualstow wrote: ↑Wed Mar 18, 2020 5:32 pm Clive had very useful posts and charts that even Craig and Tex were impressed with, so it was a weird combination.
Every once in a while, even when Clive was still a member, a new person would join the forum and ask who this invisible guy was that we were all talking to.
He could have just saved himself the trouble and put everything but the charts in his sig line.
Vinny
Last edited by vnatale on Wed Mar 18, 2020 5:49 pm, edited 1 time in total.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Portfolio safety in extreme cases
Not sure.
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Re: Portfolio safety in extreme cases
How far can you blow a balloon up before it bursts?glennds wrote: ↑Wed Mar 18, 2020 4:23 pmIf that was going to happen, why didn't it happen last time they fired up the printing press?Libertarian666 wrote: ↑Wed Mar 18, 2020 8:40 am
Right. Then the $trillions that the government is printing to bail out everyone come roaring in as a tsunami of hyperinflation.
But again, my suggestion would only be relevant in a hyperinflation where gold is going straight up.
And why hasn't it happened in Japan where they've printed even more?
Just because you don't know the answer to that in advance doesn't mean that it will never burst.
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Re: Portfolio safety in extreme cases
I just fixed what I wrote so that, hopefully, now it makes more sense.
Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Portfolio safety in extreme cases
That would do much the same thing.Smith1776 wrote: ↑Wed Mar 18, 2020 4:30 pmI see exactly where you're coming from, and you make an excellent point. The same line of thinking has crossed my mind as well. In a true financial armaggedon resulting from hyperinflation, you may rebalance yourself into oblivion as your gold holdings get smaller and smaller and smaller.Libertarian666 wrote: ↑Wed Mar 18, 2020 8:11 am I'm going to recommend a modification to the PP that I'm not sure anyone has suggested.
The rule I'm suggesting is: "Never rebalance out of gold twice in a row."
This is intended to keep you from throwing good money after bad in a hyperinflationary collapse where the other assets keep going down.
Comments or improvements?
A potential alternative method: make half of the 25% gold portion digital, and make the other half physical. When selling gold to rebalance, only sell the digital gold, NEVER sell any physical.
Personally, I don't have any digital gold, but you could still use the same rule with all physical gold: only 1/2 can ever be sold.
Re: Portfolio safety in extreme cases
Agreed. But in that case, what you end up with isn't really a PP anymore -- it's just physical gold. I.e., the hyperinflation transforms the PP into ~100% physical gold, and after that happens it's technically not a PP anymore.
Good point. I guess the more general statement would be that the PP is designed to work with asset classes that fluctuate, but never get completely destroyed (i.e., devalued to near-zero). If one or more of the assets becomes a "black hole" by getting completely devalued, the PP with regular rebalancing just won't work.Kriegsspiel wrote: ↑Wed Mar 18, 2020 5:03 pm For the old-timers, isn't that the opposite of what Clive predicted on the old forum? He deleted all his posts and left before I joined here, but IIRC he said that gold was going to become devalued, and everyone was going to sell their productive assets to buy gold.
Yeah, I know what you mean. Kind of like combing through the ruins of an ancient civilization, trying to figure out why all traces of it suddenly disappeared.
My memory of Clive has faded already, but I vaguely remember lots and lots of very lengthy posts filled with financial charts. And if I recall, he definitely used the word "whilst" far more than any other forum member. (In high school, my English teacher told us that "whilst" was just the more flowery, pretentious version of the simpler "while" and should never be used. So shame on you, Brits.)
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Re: Portfolio safety in extreme cases
I've read all of his books and even met him several times.Tortoise wrote: ↑Wed Mar 18, 2020 4:37 pm My impression from Harry Browne's books and radio shows was that the PP was designed to handle inflation, but not hyperinflation.
In a hyperinflation, the entire notion of an "investment portfolio" kind of goes out the window, and people are just trying to survive. In which case, you use your physical gold for food and other necessities, not for rebalancing investments.
He did think about hyperinflation and recommended the purchase of a bag of junk silver coins against that eventuality. It would be pretty hard to get change for even a small gold coin in such circumstances; its buying power would be too great for hand-to-hand use.
Heck, even today a 1/20th ounce coin is worth $75 or so, and in a hyperinflation it might have 10x the purchasing power. Not to mention being a robbery risk.