Rebalancing into more LTT

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Rebalancing into more LTT

Post by pors » Tue May 11, 2021 4:08 am

My LTT allocation is almost hitting the lower band. All other assets are more or less at 20% (I have a GB portfolio), which means I'll buy a bunch of LTT's.

With all the talk of inflation, I'm worried that this might be the worst moment to buy LTT. Inflation could trigger an interest increase I read.

I'd like to follow the PP/GB rebalancing rules by the letter, but it would be good to hear why that might be a good thing :D. Anyone?
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Re: Rebalancing into more LTT

Post by mathjak107 » Tue May 11, 2021 4:57 am

I dumped my long term bonds …not something I want today at these levels and outlook … I want a bit intermediate term and the rest short to ultra short.. I can’t say what anyone else should do but they are way to much of a speculation on where rates go .
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Re: Rebalancing into more LTT

Post by Hal » Tue May 11, 2021 6:34 am

Have a listen to the HB archives where he address these issues.
https://www.youtube.com/channel/UCzu55W ... QIQ/videos

FWIW; We just have a Vanguard Balanced Fund for the Stocks/Bonds allocation. Automatically rebalances so no mental anguish 8)
https://www.vanguard.com.au/personal/pr ... 8/Overview
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Re: Rebalancing into more LTT

Post by pp4me » Tue May 11, 2021 7:35 am

pors wrote:
Tue May 11, 2021 4:08 am
My LTT allocation is almost hitting the lower band. All other assets are more or less at 20% (I have a GB portfolio), which means I'll buy a bunch of LTT's.
What do you consider to be the lower band for the GB?
pors wrote:
Tue May 11, 2021 4:08 am
I'd like to follow the PP/GB rebalancing rules by the letter, but it would be good to hear why that might be a good thing :D. Anyone?
Again, what does following the rules by the letter mean to you?

I'm using the GB and have no intention of rebalancing at all until I hit the mark of some very wide band of which I'm not yet sure what it even is. Also, I'm not selling any of my LT's right now just because they hit the 20 years to maturity mark. I did that last year but I' have another batch coming up and I'm not doing it again.
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Re: Rebalancing into more LTT

Post by mathjak107 » Tue May 11, 2021 8:33 am

Hal wrote:
Tue May 11, 2021 6:34 am
Have a listen to the HB archives where he address these issues.
https://www.youtube.com/channel/UCzu55W ... QIQ/videos

FWIW; We just have a Vanguard Balanced Fund for the Stocks/Bonds allocation. Automatically rebalances so no mental anguish 8)
https://www.vanguard.com.au/personal/pr ... 8/Overview
At the end of the day hb can address all the issues he wants but things will play out the way they will .

The horrible jobs report should have sent Tlt soaring ….the fact it didn’t react is likly a sign that it’s downside reaction to bad news is broken for now or gone. Instead it is still falling
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Re: Rebalancing into more LTT

Post by Cortopassi » Tue May 11, 2021 8:42 am

pors wrote:
Tue May 11, 2021 4:08 am
I'm worried that this might be the worst moment to buy LTT.
If my historical trading is any indication, this is the best time to buy, when it feels like the stupidest thing to do.
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Re: Rebalancing into more LTT

Post by sophie » Tue May 11, 2021 9:30 am

Whenever you rebalance, almost by definition you feel like you're about to make huge mistake.

Because, you're selling assets that have shot up in value and that everyone is dazzled by and wants to buy more of.

And you're buying assets that have gone into the crapper and that everyone is telling you to avoid like the plague.

The only way to do this is to make it as mechanical a process as possible. Keep your judgment out of it, once you've decided on an allocation and band limits. Don't think about timing. When you pick an allocation & band limits you are by definition giving up on the idea of market timing.

Over time, you will find that you'll win more than you lose by doing it this way. Here's an exercise you may find helpful: Each year, we take a poll to see which asset we think will win in the coming year. The poll winners have been wrong 100% of the time!! In other words, trying to predict what is going to happen and then adjusting your investments according to your prediction is a dangerous game that's likely to turn out much worse than a passive scheme.
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Re: Rebalancing into more LTT

Post by jalanlong » Tue May 11, 2021 9:47 am

sophie wrote:
Tue May 11, 2021 9:30 am
Whenever you rebalance, almost by definition you feel like you're about to make huge mistake.

Because, you're selling assets that have shot up in value and that everyone is dazzled by and wants to buy more of.

And you're buying assets that have gone into the crapper and that everyone is telling you to avoid like the plague.

The only way to do this is to make it as mechanical a process as possible. Keep your judgment out of it, once you've decided on an allocation and band limits. Don't think about timing. When you pick an allocation & band limits you are by definition giving up on the idea of market timing.

Over time, you will find that you'll win more than you lose by doing it this way. Here's an exercise you may find helpful: Each year, we take a poll to see which asset we think will win in the coming year. The poll winners have been wrong 100% of the time!! In other words, trying to predict what is going to happen and then adjusting your investments according to your prediction is a dangerous game that's likely to turn out much worse than a passive scheme.
I buy that argument on assets that depend on sentiment to move. But LTT’s don’t depend on investor sentiment as much as they are based on rates and therefore are mathematically constrained. At a current yield of 2.24%, there is only so high LTTs can go mathematically.
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Re: Rebalancing into more LTT

Post by stuper1 » Tue May 11, 2021 12:50 pm

The current yield is set by the market. Do you believe in an efficient market? At the current yield, 50% of investors think the yield can go up, and 50% think it can go down. I'm agnostic on which way it will go.
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Re: Rebalancing into more LTT

Post by mathjak107 » Tue May 11, 2021 1:11 pm

jalanlong wrote:
Tue May 11, 2021 9:47 am
sophie wrote:
Tue May 11, 2021 9:30 am
Whenever you rebalance, almost by definition you feel like you're about to make huge mistake.

Because, you're selling assets that have shot up in value and that everyone is dazzled by and wants to buy more of.

And you're buying assets that have gone into the crapper and that everyone is telling you to avoid like the plague.

The only way to do this is to make it as mechanical a process as possible. Keep your judgment out of it, once you've decided on an allocation and band limits. Don't think about timing. When you pick an allocation & band limits you are by definition giving up on the idea of market timing.

Over time, you will find that you'll win more than you lose by doing it this way. Here's an exercise you may find helpful: Each year, we take a poll to see which asset we think will win in the coming year. The poll winners have been wrong 100% of the time!! In other words, trying to predict what is going to happen and then adjusting your investments according to your prediction is a dangerous game that's likely to turn out much worse than a passive scheme.
I buy that argument on assets that depend on sentiment to move. But LTT’s don’t depend on investor sentiment as much as they are based on rates and therefore are mathematically constrained. At a current yield of 2.24%, there is only so high LTTs can go mathematically.
Yep . I never feel bad buying equities and rebalancing in to them because they have no restraints or limitations…

I never feel that way about bonds. NOW we have mathematical limitations pretty much as short of a slight temporary dip it is highly unlikely long term rates here are going deeper in to the negative
Last edited by mathjak107 on Tue May 11, 2021 1:27 pm, edited 1 time in total.
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Re: Rebalancing into more LTT

Post by mathjak107 » Tue May 11, 2021 1:12 pm

stuper1 wrote:
Tue May 11, 2021 12:50 pm
The current yield is set by the market. Do you believe in an efficient market? At the current yield, 50% of investors think the yield can go up, and 50% think it can go down. I'm agnostic on which way it will go.
I don’t think that applies to bonds because it would seem most investors thought rates needed to be higher and that is why the ten year almost tripled since august .

I don’t see it as half think we are going down.. Tlt is dropping more often than not …some may be closing out short positions and re buying but they don’t think rates are falling …

Number of buyers and sellers dont even have to be 50/50 ….since one buyer as an example looking to take over a company can drive up the stock price for way more sellers.

You can have one buyer and hundreds of sellers and the price goes up
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Re: Rebalancing into more LTT

Post by stuper1 » Tue May 11, 2021 1:40 pm

You always have to look at it as today and into the future. Looking back at last August doesn't mean anything now. The rate is where it's at today, because half the market thinks it can go up tomorrow and half the market thinks it can go down tomorrow. By "half the market" I mean half of the buy/sell volume, whether that's one party or 1,000 parties.
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Re: Rebalancing into more LTT

Post by mathjak107 » Tue May 11, 2021 2:08 pm

stuper1 wrote:
Tue May 11, 2021 1:40 pm
You always have to look at it as today and into the future. Looking back at last August doesn't mean anything now. The rate is where it's at today, because half the market thinks it can go up tomorrow and half the market thinks it can go down tomorrow. By "half the market" I mean half of the buy/sell volume, whether that's one party or 1,000 parties.
Again short sellers closing short positions would be buying but not because they think rates are going down …they just want to close it out and move on.

One thing Tlt has is loads of shorts
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Re: Rebalancing into more LTT

Post by jalanlong » Tue May 11, 2021 4:26 pm

stuper1 wrote:
Tue May 11, 2021 1:40 pm
You always have to look at it as today and into the future. Looking back at last August doesn't mean anything now. The rate is where it's at today, because half the market thinks it can go up tomorrow and half the market thinks it can go down tomorrow. By "half the market" I mean half of the buy/sell volume, whether that's one party or 1,000 parties.
The issue isn't so much whether it can go up or down tomorrow. With long bond rates this low it is a fact that the price of LTTs can only go up so much whereas they can go down about 5x that amount or more. I don't care about tomorrow or the next day. I don't want 25% of my money tied up in something that has a limited upside and an almost unlimited downside over the next decade or more. Unless you believe that LTT rates can go deeply negative in which case I will be completely wrong. That is a bet I am willing to make.
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Re: Rebalancing into more LTT

Post by mathjak107 » Tue May 11, 2021 4:27 pm

Article today in seeking alpha about their opinion of Tlt

https://seekingalpha.com/article/442741 ... to-go-down
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Re: Rebalancing into more LTT

Post by Dieter » Tue May 11, 2021 4:34 pm

I just rebalanced a little out of stock, putting half into Gold, half into ITT as couldn't get myself to put it into LTT.

I had hit upper, narrow ish, band on part of stock, but not yet lower bound for LTT, so, I'm rationalizing.

Shouldn't make THAT big a difference, but, what i was comfortable with.
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Re: Rebalancing into more LTT

Post by stuper1 » Tue May 11, 2021 5:09 pm

jalanlong wrote:
Tue May 11, 2021 4:26 pm
stuper1 wrote:
Tue May 11, 2021 1:40 pm
You always have to look at it as today and into the future. Looking back at last August doesn't mean anything now. The rate is where it's at today, because half the market thinks it can go up tomorrow and half the market thinks it can go down tomorrow. By "half the market" I mean half of the buy/sell volume, whether that's one party or 1,000 parties.
The issue isn't so much whether it can go up or down tomorrow. With long bond rates this low it is a fact that the price of LTTs can only go up so much whereas they can go down about 5x that amount or more. I don't care about tomorrow or the next day. I don't want 25% of my money tied up in something that has a limited upside and an almost unlimited downside over the next decade or more. Unless you believe that LTT rates can go deeply negative in which case I will be completely wrong. That is a bet I am willing to make.
That's fine. But it is a bet. I believe the market is pretty efficient -- well except for all the government intervention factors, of which I have little understanding. The 30-year treasury yield is currently at 2.35%. Long-term bond yields in places like Germany and Japan are below 0.8%. So, there is room for U.S. yields to go down. I saw a chart showing that interest rates have been decreasing for 300 years or more, basically due to the deflating effects of modernization I guess. Who's to say that yields in the U.S. can't keep going down? Like I say, the market seems to think they belong where they are right now, and can't tell us which way they will go tomorrow or next year or the next 10 years.
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Re: Rebalancing into more LTT

Post by jalanlong » Tue May 11, 2021 5:39 pm

stuper1 wrote:
Tue May 11, 2021 5:09 pm
jalanlong wrote:
Tue May 11, 2021 4:26 pm
stuper1 wrote:
Tue May 11, 2021 1:40 pm
You always have to look at it as today and into the future. Looking back at last August doesn't mean anything now. The rate is where it's at today, because half the market thinks it can go up tomorrow and half the market thinks it can go down tomorrow. By "half the market" I mean half of the buy/sell volume, whether that's one party or 1,000 parties.
The issue isn't so much whether it can go up or down tomorrow. With long bond rates this low it is a fact that the price of LTTs can only go up so much whereas they can go down about 5x that amount or more. I don't care about tomorrow or the next day. I don't want 25% of my money tied up in something that has a limited upside and an almost unlimited downside over the next decade or more. Unless you believe that LTT rates can go deeply negative in which case I will be completely wrong. That is a bet I am willing to make.
That's fine. But it is a bet. I believe the market is pretty efficient -- well except for all the government intervention factors, of which I have little understanding. The 30-year treasury yield is currently at 2.35%. Long-term bond yields in places like Germany and Japan are below 0.8%. So, there is room for U.S. yields to go down. I saw a chart showing that interest rates have been decreasing for 300 years or more, basically due to the deflating effects of modernization I guess. Who's to say that yields in the U.S. can't keep going down? Like I say, the market seems to think they belong where they are right now, and can't tell us which way they will go tomorrow or next year or the next 10 years.
The rate could go from 2.35 to .6. Or even 0. But that is only a 2.35% rate drop. If it goes the other way then the upside on rates could be 10x that. Those are not odds I like.
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Re: Rebalancing into more LTT

Post by Kriegsspiel » Tue May 11, 2021 6:34 pm

Interest rates could also offer rebalancing opportunities while bouncing between 0 and 3%, we really don't know.
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Re: Rebalancing into more LTT

Post by Tortoise » Tue May 11, 2021 7:22 pm

stuper1 wrote:
Tue May 11, 2021 5:09 pm
I believe the market is pretty efficient -- well except for all the government intervention factors, of which I have little understanding.
For what it's worth, according to the following two sites, there's a total of $14.8T of long-term Treasury bonds and notes outstanding, of which $4.3T (about 30%) is held by the Fed.

Can a market still be efficient when 30% of the assets are held by a single entity, and that entity isn't motivated by profit?

https://www.pgpf.org/blog/2021/04/the-f ... ver-before
https://www.treasurydirect.gov/govt/rep ... 042021.pdf
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Re: Rebalancing into more LTT

Post by Mark Leavy » Tue May 11, 2021 7:48 pm

Kriegsspiel wrote:
Tue May 11, 2021 6:34 pm
Interest rates could also offer rebalancing opportunities while bouncing between 0 and 3%, we really don't know.
I’ve done tons of simulations involving volatility harvesting via rebalancing. It always adds less than 1% to the CAGR.

The asset expected return always dominates.

That said, I still hold long bonds. Because I suck at predicting.
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Re: Rebalancing into more LTT

Post by Kevin K. » Tue May 11, 2021 7:50 pm

Tortoise wrote:
Tue May 11, 2021 7:22 pm
stuper1 wrote:
Tue May 11, 2021 5:09 pm
I believe the market is pretty efficient -- well except for all the government intervention factors, of which I have little understanding.
For what it's worth, according to the following two sites, there's a total of $14.8T of long-term Treasury bonds and notes outstanding, of which $4.3T (about 30%) is held by the Fed.

Can a market still be efficient when 30% of the assets are held by a single entity, and that entity isn't motivated by profit?

https://www.pgpf.org/blog/2021/04/the-f ... ver-before
https://www.treasurydirect.gov/govt/rep ... 042021.pdf
That first article in particular is a great one Tortoise - thanks for posting! This quote really hit me:

"As of April 14, 2021, the Federal Reserve has a portfolio totaling $7.8 trillion in assets, an increase of about $3.1 trillion from the $4.7 trillion total on March 18, 2020. Longer-term Treasury notes and bonds (excluding inflation-indexed securities) comprise over two-thirds of that expansion, with holdings of those two types of securities increasing from $2.2 trillion on March 18, 2020, to $4.3 trillion on April 14, 2021 — or a 98 percent increase."

Not only far from being an efficient market, but the Fed seems bent on doing everything it can to help the U.S. dollar lose its reserve currency status. No more LTT's for me, but I'm sure as hell not selling any gold.
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Re: Rebalancing into more LTT

Post by Tortoise » Tue May 11, 2021 8:05 pm

Kevin K. wrote:
Tue May 11, 2021 7:50 pm
Not only far from being an efficient market, but the Fed seems bent on doing everything it can to help the U.S. dollar lose its reserve currency status. No more LTT's for me, but I'm sure as hell not selling any gold.
Amen, brother. I'm too chicken to sell all of my LTTs, but I might gradually dial its allocation down to 10% or something. We'll see. With LTT rates so low, I think it'll mainly be a volatility smoother (or a "rebalancing asset", as jalanlong called it in another thread) and will no longer contribute to the long-term return of the PP.

There's definitely value in holding an asset that's purely volatility-reducing and doesn't contribute to long-term return. I'm just no longer convinced that allocating 25% to such an asset is a smart move...
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Re: Rebalancing into more LTT

Post by jswinner » Tue May 11, 2021 8:19 pm

jalanlong wrote:
Tue May 11, 2021 5:39 pm
stuper1 wrote:
Tue May 11, 2021 5:09 pm
jalanlong wrote:
Tue May 11, 2021 4:26 pm
stuper1 wrote:
Tue May 11, 2021 1:40 pm
You always have to look at it as today and into the future. Looking back at last August doesn't mean anything now. The rate is where it's at today, because half the market thinks it can go up tomorrow and half the market thinks it can go down tomorrow. By "half the market" I mean half of the buy/sell volume, whether that's one party or 1,000 parties.
The issue isn't so much whether it can go up or down tomorrow. With long bond rates this low it is a fact that the price of LTTs can only go up so much whereas they can go down about 5x that amount or more. I don't care about tomorrow or the next day. I don't want 25% of my money tied up in something that has a limited upside and an almost unlimited downside over the next decade or more. Unless you believe that LTT rates can go deeply negative in which case I will be completely wrong. That is a bet I am willing to make.
That's fine. But it is a bet. I believe the market is pretty efficient -- well except for all the government intervention factors, of which I have little understanding. The 30-year treasury yield is currently at 2.35%. Long-term bond yields in places like Germany and Japan are below 0.8%. So, there is room for U.S. yields to go down. I saw a chart showing that interest rates have been decreasing for 300 years or more, basically due to the deflating effects of modernization I guess. Who's to say that yields in the U.S. can't keep going down? Like I say, the market seems to think they belong where they are right now, and can't tell us which way they will go tomorrow or next year or the next 10 years.
The rate could go from 2.35 to .6. Or even 0. But that is only a 2.35% rate drop. If it goes the other way then the upside on rates could be 10x that. Those are not odds I like.
The math does not work quite like that, here again is Tyler's excellent piece on convexity https://portfoliocharts.com/2019/05/27/ ... convexity/
It's not intuitive that there is any juice left to squeeze at such low rates, but there is, quite a bit actually. Especially if you remove zero as the boundary.
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Re: Rebalancing into more LTT

Post by whatchamacallit » Tue May 11, 2021 8:56 pm

I love thinking up a contrarian:

If the Fed isn't buying LTT to make a profit, the better thing may be to pretend those LTT don't exist exist. They will be holding forever I assume so they won't be causing price moves now that they have them.

Here is a paradox, if the treasury only issued the amount of bonds that the Fed wasn't buying. Would that rate have been higher or lower? At first thought, you would think rate would have been higher because you think less demand. But I think the rate would have actually been lower because the assumed scarcity and risk of deflation would have been higher.

If we do end up like Japan. Picture this:

Stock market down 80 %
Gold down 50%

A small sliver of hope in your 30 year treasury that will put off a wealth saving 2.35%.
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