Tactical Asset Allocation + HBPP an intriguing combo

A place to talk about speculative investing ideas for the optional Variable Portfolio

Moderator: Global Moderator

HappyMan
Senior Member
Senior Member
Posts: 130
Joined: Thu Nov 09, 2017 7:01 am

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Tue Mar 31, 2020 9:30 pm

ochotona wrote:
Tue Mar 31, 2020 2:58 pm
The GEM portfolio is in Bonds for April 2020 (AGG, BND, SCHZ).

And by now I can confirm that Paul Novell's SPY-COMP model got out of equities a month ago, on 2/28/2020. It's faster out, faster in.
Thanks for the update!
User avatar
ochotona
Executive Member
Executive Member
Posts: 3175
Joined: Fri Jan 30, 2015 5:54 am

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Tue Apr 07, 2020 12:57 pm

pmward wrote:
Tue Apr 07, 2020 11:37 am
ochotona wrote:
Tue Apr 07, 2020 11:25 am
Nomura was quoted in ZH today: "The steep rally in global equities looks to us like a “bear squeeze” rally, powered by exits from bearish positions that investors accumulated during the downturn". That makes more sense to me than investors are looking forward to the economy re-opening. That's just nonsense.
Oh I'm sure that has a lot to do with it. The purpose of a "bull trap" rally isn't just to fake out the bulls, it's also to fake out the bears. But if we get a weekly close over that 2850 area where the first leg bounced, we have to really start considering the fact that we may be wrong. Bear markets do many things, but one thing they do *NOT* ever do is have a "bear squeeze" 4th wave rally go higher than the bottom of the first leg down, and the first leg bounced at 2850. If we close above the 2850 we can say we are for sure not in a 4th wave rally in a downward impulse wave, we instead were in a 3 phase downward corrective trend, and are now in the first leg of a brand spanking new up trend. We are literally dancing on the line in the sand as we speak. Anytime you're playing a direction you also have to look at what level in the opposite direction proves you to be wrong, and 2850 is it. I'm literally sitting with my finger on the trigger to either buy or sell in the coming days depending on how this resolves.
I'd be pretty annoyed if I have to be risk-on for May. I think I'd do exactly what I did in 2019, go in very light with TAA equities, and instead use the TAA two bond strategies at my disposal.

One TAA Bond portfolio is a 6 mo momentum contest between eight different bond ETFs, you hold the top three for the month. The other is composed of riskier bonds ETFs, and the risk switch is the same as the TAA equity risk switch.

1/3 to each bond strategy, 1/3 to a TAA equity portfolio with four ETFs. That'a lot of diversification across eleven quite different ETFs and three different strategies. A pain for sure, but this market is pretty confusing.

I'm very thankful for no-fee trading, and I am getting mo' and bettah price improvements at Fidelity.

But still 15% gold. I'm not counting the gold above.
pmward
Executive Member
Executive Member
Posts: 1102
Joined: Thu Jan 24, 2019 4:39 pm

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by pmward » Tue Apr 07, 2020 1:13 pm

ochotona wrote:
Tue Apr 07, 2020 12:57 pm
pmward wrote:
Tue Apr 07, 2020 11:37 am
ochotona wrote:
Tue Apr 07, 2020 11:25 am
Nomura was quoted in ZH today: "The steep rally in global equities looks to us like a “bear squeeze” rally, powered by exits from bearish positions that investors accumulated during the downturn". That makes more sense to me than investors are looking forward to the economy re-opening. That's just nonsense.
Oh I'm sure that has a lot to do with it. The purpose of a "bull trap" rally isn't just to fake out the bulls, it's also to fake out the bears. But if we get a weekly close over that 2850 area where the first leg bounced, we have to really start considering the fact that we may be wrong. Bear markets do many things, but one thing they do *NOT* ever do is have a "bear squeeze" 4th wave rally go higher than the bottom of the first leg down, and the first leg bounced at 2850. If we close above the 2850 we can say we are for sure not in a 4th wave rally in a downward impulse wave, we instead were in a 3 phase downward corrective trend, and are now in the first leg of a brand spanking new up trend. We are literally dancing on the line in the sand as we speak. Anytime you're playing a direction you also have to look at what level in the opposite direction proves you to be wrong, and 2850 is it. I'm literally sitting with my finger on the trigger to either buy or sell in the coming days depending on how this resolves.
I'd be pretty annoyed if I have to be risk-on for May. I think I'd do exactly what I did in 2019, go in very light with TAA equities, and instead use the TAA two bond strategies at my disposal.

One TAA Bond portfolio is a 6 mo momentum contest between eight different bond ETFs, you hold the top three for the month. The other is composed of riskier bonds ETFs, and the risk switch is the same as the TAA equity risk switch.

1/3 to each bond strategy, 1/3 to a TAA equity portfolio with four ETFs. That'a lot of diversification across eleven quite different ETFs and three different strategies. A pain for sure, but this market is pretty confusing.

I'm very thankful for no-fee trading, and I am getting mo' and bettah price improvements at Fidelity.
Yeah I hear you, as I'm sitting on a wad of cash right now that I would be very annoyed I did not deploy earlier if we do start a new bull trend. So I'm in the same boat as you, though I do still have some equity exposure at least. If we do break above 2850, I will look to start scaling in long on the second wave pull back... but I would absolutely keep my stop tight on those fresh stock positions to cut bait early if we do break back down.

If my bet pays off and we do get that 5th wave down, I may start slowly dipping my toes back in the water at 2350 instead of waiting for 2100 as I had been planning. I'll have to wait to see what the charts say at that time, but the momentum of this rally does cause me to also question my downside targets even if I am directionally correct. If we do get that 5th leg down, that will likely be it. From there we will most likely either start a 3 wave corrective structure to the upside prior to the next phase down, or a fresh bull market (which is the most likely outcome I see at this time, barring new emerging info of course). Either way, I want to be aggressively long if/when we do bottom the potential 5th wave.

This is a very tricky market to trade. The big league pitching is really hard to hit. The markets do seem to be fading a bit mid day, and the Q's are looking especially weak. Relative strength, rate of change, and macd are also starting to tilt down the last couple hours on the hourly chart. Also, my "canary in the coal mine" that I always speak about, small caps, are fading worse than the large cap indexes, after starting the day with strength. So maybe... just maybe... this foreshadowing the start of a rollover? It does look like buyers are starting to hesitate a bit at least. We now just need something, anything, to embolden the sellers again.
pmward
Executive Member
Executive Member
Posts: 1102
Joined: Thu Jan 24, 2019 4:39 pm

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by pmward » Tue Apr 07, 2020 3:06 pm

Wowie, what a reversal today. That will take a lot of steam out of the bulls wings. I may have also raised a bit more cash at the close seeing the fact that the 4% up open was completely wiped out intraday. Worst case scenario? I have to buy back in a couple hundred points higher. That reversal definitely helped strengthen my resolve a bit in the short term.
User avatar
technovelist
Executive Member
Executive Member
Posts: 5580
Joined: Wed Sep 15, 2010 11:20 pm

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by technovelist » Tue Apr 07, 2020 3:29 pm

pmward wrote:
Tue Apr 07, 2020 3:06 pm
That will take a lot of steam out of the bulls wings.
You get the mixed metaphor award!
Another nod to the most beautiful equation: e + 1 = 0
User avatar
ochotona
Executive Member
Executive Member
Posts: 3175
Joined: Fri Jan 30, 2015 5:54 am

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Fri Apr 10, 2020 11:28 am

If tactical models go risk-on with a v-shaped recovery in stonks, I'm going to repeat what I did in 2019... express the risk preference by buying exactly what the Fed said they're going to buy... high yield bonds, iShares HYG, and gradually trade in the HYG for equities if the "V" sticks and we don't get whipped by a monumental bull trap. 2019 was a good year for me. My low equity allocation didn't bother my, because I had risky bonds. Over the year, I traded them for equities, got to ~50% equities when the hammer hit in 2020, then pulled the ripcord 2/28.

Where we are with valuations? It's not 1932 or 1982, let's put in that way.

A Bogglyhead would say about yesterday, "Oh, you panic sold and now you're missing the rally". Hell you say - my bonds and gold and Newmont Goldcorp caught a huge bid yesterday. Portfolio up by four figures with very few stonks. Still only 2% off of ATH, and that's because I spent a lot of money on the house recently. Landscaping, new AC unit.
HappyMan
Senior Member
Senior Member
Posts: 130
Joined: Thu Nov 09, 2017 7:01 am

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by HappyMan » Sat Apr 11, 2020 2:43 am

ochotona wrote:
Fri Apr 10, 2020 11:28 am
If tactical models go risk-on with a v-shaped recovery in stonks, I'm going to repeat what I did in 2019... express the risk preference by buying exactly what the Fed said they're going to buy... high yield bonds, iShares HYG, and gradually trade in the HYG for equities if the "V" sticks and we don't get whipped by a monumental bull trap. 2019 was a good year for me. My low equity allocation didn't bother my, because I had risky bonds. Over the year, I traded them for equities, got to ~50% equities when the hammer hit in 2020, then pulled the ripcord 2/28.

Where we are with valuations? It's not 1932 or 1982, let's put in that way.

...
Ocho,

As usual, quality stuff. There is a number of ETFs that Fed will be buying this time.

https://www.zerohedge.com/markets/here- ... to+zero%29

Any particular reason why HYG, as opposed to everything else?
User avatar
dualstow
Executive Member
Executive Member
Posts: 10272
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by dualstow » Sat Apr 11, 2020 8:15 am

technovelist wrote:
Tue Apr 07, 2020 3:29 pm
pmward wrote:
Tue Apr 07, 2020 3:06 pm
That will take a lot of steam out of the bulls wings.
You get the mixed metaphor award!
LOL, I didn't see this before. A triple!
Sony’s first AI image sensor will make cameras everywhere smarter -- the verge dot com
User avatar
ochotona
Executive Member
Executive Member
Posts: 3175
Joined: Fri Jan 30, 2015 5:54 am

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sat Apr 11, 2020 8:20 am

HappyMan wrote:
Sat Apr 11, 2020 2:43 am
ochotona wrote:
Fri Apr 10, 2020 11:28 am
If tactical models go risk-on with a v-shaped recovery in stonks, I'm going to repeat what I did in 2019... express the risk preference by buying exactly what the Fed said they're going to buy... high yield bonds, iShares HYG, and gradually trade in the HYG for equities if the "V" sticks and we don't get whipped by a monumental bull trap. 2019 was a good year for me. My low equity allocation didn't bother my, because I had risky bonds. Over the year, I traded them for equities, got to ~50% equities when the hammer hit in 2020, then pulled the ripcord 2/28.

Where we are with valuations? It's not 1932 or 1982, let's put in that way.

...
Ocho,

As usual, quality stuff. There is a number of ETFs that Fed will be buying this time.

https://www.zerohedge.com/markets/here- ... to+zero%29

Any particular reason why HYG, as opposed to everything else?
Let me think about it...
User avatar
ochotona
Executive Member
Executive Member
Posts: 3175
Joined: Fri Jan 30, 2015 5:54 am

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Sat Apr 11, 2020 8:51 am

Junk ETFs to be bought by the Fed:

ANGL did badly in the last drawdown, significantly worse than the others on the list. HYLS has a 1.23% expense ratio. Strike those.

The short junk ETFs drew down less. Not surprising.

iShares USHY has the best distribution yield 6.70% and expense ratio 0.15%. That's a sweet spot. It's 87.5% US, and the rest ex-US which is actually interesting.. a bit diversified.

1,795 bonds held. And none of the top 100-ish are energy issues. They are there, at the back in tiny slices. The is not a Shale Sh** Show ETF.

USHY has proportionally more B and fewer BB than HYG. Therefore, it drew-down more than HYG recently. And it has more pop-up potential, I suppose.

USHY. Instead of Stonks. Thanks for asking! {but both HYG or USHY would be fine - this is hair-splitting}
User avatar
ochotona
Executive Member
Executive Member
Posts: 3175
Joined: Fri Jan 30, 2015 5:54 am

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Tue Apr 14, 2020 7:57 am

tomfoolery wrote:
Tue Apr 14, 2020 3:03 am
I believe the stock market will drop another 20% to 30% over the next 6 months. I want to speculate on this in my variable portfolio.

It feels silly to be long total stock market index in my PP and go short the same holding in my VP which are both held in the same brokerage account and only exist separately by virtue of me saying they are separate on my financial spreadsheet. If I die and the spreadsheet gets deleted, there's no indication to the outside world that I "intend" the two portfolios to exist separately within the same brokerage.

So, I have an idea. What if I short my PP holdings, pretending the PP and VP are two separate entities, which they are supposed to be anyway?

For example, suppose I had $500k and $400k was my PP and $100k was my VP. I'd be holding $100k total stock market index or SP500 index in my PP. Suppose I want to go short $50k in my VP.

I could "lend" $50k of my total stock index from the PP to the VP and provide an IOU for those exact number of shares lent. I then sell the $50k of stocks from the PP. In my VP, I can do whatever I want with the $50k cash, let it sit in cash, buy gold, whatever. But, if the stock market rises, I risk a "margin call" from the VP to the PP because the PP is money I can't afford to lose and am not allowed to rebalance from the VP.

In other words, two scenario examples:

Sell $50k of stock index. Sit on $50k cash instead. My PP is essentially $350k with a current value $50k IOU from the VP and my VP is $150k with a debt owed to the PP. Suppose the stock market doubles. The IOU isn't for $50k, it's for X shares of stock index. Since that doubled in value, the IOU is worth $100k. Assuming my VP only has $100k of actual assets in it, I am forced to liquidate my entire VP and use the money to buy back the stock index shares. Thus, my PP remained equivalent as if I never did this, but I wiped out my VP completely.

Or, I sell $50k of stock index and it loses 50%. Then whenever I decide to stop shorting it, my VP will buy back the now $25k worth of stock index funds and "transfer" back to the PP. My VP gained $25k and my PP lost $25k however my PP was going to lose that $25k regardless of whether I "shorted" stocks in my VP or not.

I find myself wanting to short the market as a whole and it seems silly to maintain $100k of stock index while simultaneously shorting $50k of stock index. This type of positioning adds counterparty risk and transfer fee/inefficiencies (buy/sell spreads).

The biggest risk seems to be of self-control, will I really limit my losses to the VP and not recoup money from the PP?
I always come back to this:

Arnold Schwarzenegger, Kindergarten Cop - "There is no bathroom"

There is no PP and VP. There is only what you own, your Portfolio. PP and VP are just dotted lines. And there's nothing wrong with that.

BUT, when dotted line cause someone to do costly things, like incur the significant carry costs involved in shorting the exact same stock they own, you gotta wonder... where is the sense in that?

If you're going to make speculative moves, AS I DO (I'm not a PP-holder, though I have lots of US Treasuries, Cash and Gold now) then you need to have a strong, back-testable, rational basis for decision-making, not just hunches and news flow.

Your speculation really should be like the PP itself - driven by historical data and results, "lazy" in the sense that the system gives you an action to follow without guesswork, "parsimonious" in the sense of few trades (no more than 1 per month), and you sleep better at night.

Over in the VP forum there are a number of Tactical Asset Allocation threads: pmward, HappyMan, InsuranceGuy, and Ochotona all participate.

I truly believe PP and Tactical compliment each other at this point in history for those who are pre-retirement and want a faster accumulation rate but with strong risk management. Why?

- Because gold - and as Jim Rickards wisely said, you can't get physical gold suddenly when you think you need it. There is no other way than buy and hold. You can trade ETF, miners, but the supply chain for retail physical gold is busted now.

- Because Long US Treasuries - you could in theory trade TLT, but as anyone who has tried to do so can tell you, it's wickedly volatile and I think they are harder to trade than stocks

- Because cash - one step away from food and shelter - gives you optionality on all assets classes

Gold, cash, and US sovereign bonds together have the best crisis alpha of anything. And we are in a crisis.

But someday we won't be in a crisis... and when we are not, you have to have a methodology for going back in to risk assets. The classic HBPP is a smooth performer but leaves money on the table. There are other ways to mitigate risk than having only 25% in stocks all the time.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3175
Joined: Fri Jan 30, 2015 5:54 am

Re: Tactical Asset Allocation + HBPP an intriguing combo

Post by ochotona » Tue Apr 14, 2020 8:07 am

tomfoolery wrote:
Tue Apr 14, 2020 3:03 am
I believe the stock market will drop another 20% to 30% over the next 6 months. I want to speculate on this in my variable portfolio.
How does this way to hold equities look to you? Simple 10 month moving average rule. It's risk-off now.

It's simple but not easy. Holding any portfolio different from the S&P 500 or Dow is not easy. You have to be different. That's impossible for most people.

The signals are here for free !!!!!

10mo ma.PNG
10mo ma.PNG (83.52 KiB) Viewed 343 times
Post Reply