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General Discussion on the Permanent Portfolio Strategy

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mathjak107
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Re: No where to hide

Post by mathjak107 » Wed Jul 01, 2015 7:36 am

at this stage counting on yields falling much lower while the fed will be pressing for higher short term rates would be in effect fighting the fed. that rarely goes well.

you would have to really be betting on some event causing a prolonged flight to safety as opposed to the natural trend the fed would be promoting .

in  effect you would be betting against the house.

I wouldn't count on much back testing being an indicator going forward.

once you get down this low without the feds co-operation I think trying to bet on rates falling lower will end up taking its toll on performance .
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Re: No where to hide

Post by ochotona » Wed Jul 01, 2015 9:33 am

Why would individuals like ourselves choose bonds with negative yields?
lordmetroid wrote: Yields can go anywhere, even negative. Just saying!
Yes, there would even be people buying treasuries with negative yield if other assets was showing catastrophic returns.
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Re: No where to hide

Post by mathjak107 » Wed Jul 01, 2015 9:46 am

we wouldn't , but countries do .  if a countries currency is weak they can't just go to a bank and buy 50 billion in cd's.

they buy treasury bonds . return of principal is what they want and they do not mind paying a bit for that safety.
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Re: No where to hide

Post by Cortopassi » Wed Jul 01, 2015 9:56 am

I think this article by Barry Ritholz sums up gold nicely.

I am still happy to hold it, but I can certainly see how it is very easy to be negative on it for the past 4 years.

There is no hiding in gold as of yet, regardless of anything the world has thrown at it to date.  It blips up, and comes back down harder than the last time.

But ooh, China is accumulating, and India and the rest of the world are entering a strong season.  Uh huh, sure.

I fully expect that some people's comments about it going to or around $1,000 or lower will be necessary to kill all support off.

http://www.bloombergview.com/articles/2 ... armageddon
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Re: No where to hide

Post by Lowe » Wed Jul 01, 2015 10:02 am

mathjak107 wrote: at this stage counting on yields falling much lower while the fed will be pressing for higher short term rates would be in effect fighting the fed. that rarely goes well.

you would have to really be betting on some event causing a prolonged flight to safety as opposed to the natural trend the fed would be promoting .

in  effect you would be betting against the house.

I wouldn't count on much back testing being an indicator going forward.

once you get down this low without the feds co-operation I think trying to bet on rates falling lower will end up taking its toll on performance .
The Fed has limited power.  Raising rates in the face of a deflationary trend is bad.  The deflationary trend calls for low rates, not high.

Deflation prevails in the West because people of European descent are not reproducing at replacement rate.  This means less commercial lending, which is the main engine of inflation, since it not only increases the checkbook money supply, but also increases wages.

The growing population in the West is mostly poorer, less educated, and less productive.  Their consumption of goods like food, housing, etc, is less than that of the natives, and it has little effect on wages or money supply.  So, while the price of goods goes up every year, it does so only by a little (1 to 2%) and this little is staying that way, or even getting littler, due to increased efficiency in making goods.

...

If the Fed were to raise rate beyond what the market needs, it would make deflation worse, since even less commercial lending would occur.  If they do raise rates in the near future (probable) it will only be by a little, as a symbolic gesture saying "We are confident that things are okay."  There is no need for a large increase, anyway.  Equity has been killing it for years, so why fix what isn't broken?  The economic circumstances of the last few years couldn't be better, as far as most middle-to-upper class people are concerned, and most big political donors.
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Re: No where to hide

Post by mathjak107 » Wed Jul 01, 2015 10:28 am

I can give you a dozen reasons why rates on bonds should go lower.  but none of those reasons may mean a thing if the worlds bond investors want to be compensated for going out so long with rates so low,.

so far since the first of the year that is just what investors want , higher rates and they have been bidding yields higher and higher.
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Re: No where to hide

Post by MediumTex » Wed Jul 01, 2015 1:38 pm

The PP does not require falling interest rates to work properly.

The PP's highest nominal returns were in the 1970s when interest rates were rising.
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Re: No where to hide

Post by mathjak107 » Wed Jul 01, 2015 1:48 pm

the difference was gold was soaring back then . very different issue today. a strong dollar  is killing gold. once rates rise the dolar will be even more attractive over gold.

the other issue today is also the fact the last  time we had a weak dollar central banks did not buy gold . they bought inflation proof treasuries . that did zero for gold and the long treasury bond.
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Re: No where to hide

Post by LC475 » Wed Jul 01, 2015 1:56 pm

buddtholomew wrote: I never joke about money and for those solely invested in the permanent portfolio I hope you achieve your retirement with these pathetic gains (or should I say losses).
Yes, well, I do.  Nothing personal meant, budd!  Far from it!  And truly thank you for your well-wishes for us PPers.

Anyway, no worries.  I am still supremely confident that the PP is the greatest thing around and that it will yet be vindicated.  And in fact, that it will be vindicated again, and again, and again during my lifetime.  I, for one, have not toned down my pro-PP rhetoric, nor my very sincere pro-PP feelings.  The Permanent Portfolio concept truly is the best way to invest the money you can't afford to lose.  It will keep your money safe, no matter what happens.

I do understand that this view seems foolish to you.  "Look, it's doing poorly.  Do results mean nothing to you?"  Well, yes, they do mean something to me, but I am very convinced of the soundness of the theory, and so the data you have presented (namely that some other portfolio has beat it for seven years and that it has incurred losses both in 2013 and this year to date) is a far, far cry from what it would take to convince me that the PP isn't so great after all.  I think you are merely misinterpreting a very small data set.  That is: I believe that next year, and the year after that, and the year after that, it will register decent real returns and probably not any annual losses, and that if there are any annual losses they will be small, single-digit ones.  And at some point there will be a crash in the stock market, and the Permanent Portfolio will chug along fine, either posting gains or very small losses, and everyone will say "oh, wow, wouldn't it have been nice if I had been in that portfolio."  But, it will be too late, at least for avoiding that particular loss (though not the next one).  And at some point we will probably get high inflation again, and the Permanent Portfolio will shine again then, too.

And so I don't care at all if I look foolish.  I guess I'm just naturally contrarian that way!  Looking foolish to you and others bothers me not in the least, because I will be vindicated in the end.  The recent problems of lower returns are just noise.  You will see.
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Re: No where to hide

Post by LC475 » Wed Jul 01, 2015 2:06 pm

EdwardjK wrote: 2015 has been a dismal year for the HBPP.  I cannot help but notice that the first two weeks of the year produced a small gain, followed by a steady decline YTD thereafter.

My Fidelity rep. is encouraging me to get out of TLT (LT Treasuries), as they have been getting whacked. 

So I need words of encouragement here, folks.  What to do?
Well, if TLT is down right now, why would you want to sell it right now?  You want to sell when it's up, not when it's down.  You don't want to lock in the loss, that wouldn't make any sense, would it?

That's one way to look at it anyway.  Hope it helps.

Also, assuming that you have a Permanent Portfolio, one of the four assets doing poorly isn't a problem at all.  That's how the portfolio was designed!  It's supposed to work that way.  So just stick with the plan and you'll be fine.
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Re: No where to hide

Post by mathjak107 » Wed Jul 01, 2015 2:11 pm

well cutting losses and moving on in something else can many times  be a better idea then chasing a ghost  or waiting and waiting for the next flight to safety.

which might not even get you positive enough to be in the plus depending how far down you are.

kind of like waiting so long  for that ship to come in that the pier collapsed.

my gut feeling is with the 40 year bull run in bonds coming to a close the 40 year track record of the pp which except for a few hic cups  may be  in jeopardy with such volatile bonds. I hope I am wrong but I think like most things , eventually you reach a point where what held true doesn't.
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Re: No where to hide

Post by stuper1 » Wed Jul 01, 2015 2:18 pm

EdwardjK wrote: 2015 has been a dismal year for the HBPP.  I cannot help but notice that the first two weeks of the year produced a small gain, followed by a steady decline YTD thereafter.

My Fidelity rep. is encouraging me to get out of TLT (LT Treasuries), as they have been getting whacked. 

So I need words of encouragement here, folks.  What to do?
I would encourage you to not listen to Fidelity reps who obviously know nothing about investing.  The time to sell is not when something is getting whacked.  Don't you understand how the PP is supposed to work?  Buy low, sell high.  It's built in to how the PP works (rebalance at 35/15).  As far as recent performance goes, just look at PP graphs going back 20+ years.  There have always been drawdown periods with the PP, as with any portfolio.  The difference with the PP is that the drawdowns are generally smaller than with most portfolios, and recoveries from the drawdowns generally take much less time than with most portfolios.  Patience and lack of greed are wonderful things.
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Re: No where to hide

Post by mathjak107 » Wed Jul 01, 2015 2:20 pm

the problem is most of the new bee's have been buying high as  the most important asset classes in the mix  stocks and bonds are priced quite high.
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Re: No where to hide

Post by Cortopassi » Wed Jul 01, 2015 2:28 pm

What an incredible psychological experiment the past 7 years have been!

Everybody is breathless for these stupid Fed meetings and prognosticating whether rates are going to rise.
Will Greece leave or won't it?  Are there really hundreds of billions/trillions in CDOs that will blow?
Are the problems in the Middle East really worse than they were 20-30 years ago or are we just inundated with the information now?
Is there really more severe weather?
Does raising rates really signal strength in the economy or just something they must do because they've jawboned it for so long?
Does raising rates a 1/4 point really mean a damn thing? 
Can rates ever actually rise to something reasonable, 3,4,5% ever again without everything imploding?
Does anyone ever not buy the dip anymore? 
Why are people so fixated on Wall Street as the grail to retirement? 
Will gold ever rise again?
How can pension plans all across the country falling apart still be using 8% or whatever as their return rate for calculations?
How will we ever fix those plans?

Maybe it is the internet.  I have a good paying steady job.  A great family.  A nice house. Yet I feel something is not right out there.  Is there really something amiss, or am I being swayed by websites that I read that have their own agendas that help push me into feeling that way?  Would I have felt this way knowing what I know if I were 28 instead of 48?  Is it all a function of getting older and more cynical and closer to retirement?

Aaargh.  Does not change my thoughts about PP, just trying to show how easy it is to get worked up about any one particular subject or position when so much information is available on the internet.
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Re: No where to hide

Post by Pointedstick » Wed Jul 01, 2015 2:34 pm

Cortopassi wrote: How can pension plans all across the country falling apart still be using 8% or whatever as their return rate for calculations?
That one at least is easy: these are government pension plans whose assumed rates of return are set by law, not by reality. As a result of this driving wildly inflated payments to retirees, they are all in the middle of dragging down their states as taxpayer funds are required to make up the difference and future benefits are cut. "How will we ever fix those plans?" We can't. They're unfixable, and the solution is to wait for the people who are receiving them to die, because goodness knows that the next generation isn't getting them!
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Re: No where to hide

Post by iwealth » Wed Jul 01, 2015 2:38 pm

mathjak107 wrote: the problem is most of the new bee's have been buying high as  the most important asset classes in the mix  stocks and bonds are priced quite high.
It sounds like you have a lot of doubts about the PP.  And despite those doubts, only a couple weeks ago you moved a substantial portion of your portfolio into the PP. I think that says a lot about what new investors face in today's markets.

It's scary to invest in stocks (and international stocks and real estate) because valuations are so high and a correction is right around the corner.
It's scary to invest in bonds because rates are so low and there's no return.
It's scary to invest in metals because they've been performing poorly for years.
And if I just hold cash I'm going to lose to inflation.
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Re: No where to hide

Post by mathjak107 » Wed Jul 01, 2015 2:42 pm

I am actually having 2nd thoughts about it.  while initially it looked like a good idea I think in the scheme of things today and turning that 40 year corner it may not be the best idea.

I think a 10% stake in gold and utilizing a much less interest rate sensitive mix may be the  wiser choice.

I have been tracking a model I was thinking of using the last few weeks and it has stood up much better as well as not counting on disaster to do its catching up . I will be happy to post it if anyone would like to see  it.

I have loved the concept of the pp for decades  so I am a little bummed out by my gut feeling about it at this point in the big picture of things.

I think it may have been great in its day but like all things nothing holds true for ever.

I kind of feel like when you try to duplicate a time back in history when you hook up with old friends and it just doesn't go as you expected 40 years later
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Re: No where to hide

Post by stuper1 » Wed Jul 01, 2015 2:54 pm

Mathjak107,

I would like to see your model.
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Re: No where to hide

Post by iwealth » Wed Jul 01, 2015 3:02 pm

mathjak107 wrote: I am actually having 2nd thoughts about it.  while initially it looked like a good idea I think in the scheme of things today and turning that 40 year corner it may not be the best idea.

I kind of feel like when you try to duplicate a time back in history when you hook up with old friends and it just doesn't go as you expected 40 years later

So you love the PP model for decades then finally invest and have 2nd thoughts after a couple weeks of lousy performance. You have another model that you've been tracking for awhile that's performed better over the past couple weeks and you are already considering switching.

Gotta do what you gotta do.
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Re: No where to hide

Post by mathjak107 » Wed Jul 01, 2015 3:06 pm

the pp did what it was supposed to do the day we had the 350 point drop.  the flight to safety actually raised lt enough to offset the drop in equities.

but the next day the trend took over and it was business as usual  and tlt got hammered again and gold did nothing..

I think the fact  a 40 year interest rate cycle is changing is a powerful force and the pp has a hard time dealing with poundings in all parts .
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Re: No where to hide

Post by mathjak107 » Wed Jul 01, 2015 3:11 pm

stuper1 wrote: Mathjak107,

I would like to see your model.
so the final version i decided on is a mix of active and etf .

the version as it stands now :


fidelity growth and income fund FDGRX - had this and blue chip growth for many many years.

fidelity blue chip growth FBGRX

vanguard total market index vti

vanguard veu all world index etf

vanguard vig dividend achievers etf

that is the equity side.

the bond side uses

vanguard admiral total bond fund (now only 10% of the portfolio)

fidelity floating rate high yield

vanguard bsv short term bond

vanguard vtip short term inflation proof bond etf

10% GLD GOLD ETF

10% CASH which represents 2 years of retirement withdrawals and some emergency money.

i toyed and toyed with so many different models until i came up with a mix of what i thought would cover the areas i wanted to cover with as little interest rate sensitivity as i could which is why i left reits out of the portfolio at this stage.

if inflation picks up i will swap total bond for a real return fund like fidelity strategic real return FSRRX . that carrys to much weight in areas geared for higher inflation to be used at this stage in my opinion.

the model works out to 50% in equities , 30% bonds , 10% gold 10% cash
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Re: No where to hide

Post by Pointedstick » Wed Jul 01, 2015 3:23 pm

I don't see much deflation protection in that portfolio. Are you sure you're not optimizing for the economic conditions of the past? That's also a lot of stocks for a retirement portfolio, without many assets capable of rising in value when stocks decline or crash.
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Re: No where to hide

Post by iwealth » Wed Jul 01, 2015 3:35 pm

mathjak107 wrote: the pp did what it was supposed to do the day we had the 350 point drop.  the flight to safety actually raised lt enough to offset the drop in equities.

but the next day the trend took over and it was business as usual  and tlt got hammered again and gold did nothing..

I think the fact  a 40 year interest rate cycle is changing is a powerful force and the pp has a hard time dealing with poundings in all parts .
Some of the language used to describe the rationale behind investing in the PP must need some revamping or something. You are talking about what the PP is supposed to do on an individual day when in reality the portfolio is designed to protect your money and provide a real return over time regardless of the current macroeconomic conditions. Somewhere the impression has been given that if you don't see a positive real return over the course of a few days or weeks that the portfolio isn't doing what it is supposed to be doing.

And I think it's a stretch to call it a "fact' that the 40 year interest rate cycle is changing. Yields reached all-time lows just 6 months ago. It takes a brave man to call the bottom of a 40 year downtrend let alone time investment decisions based on that opinion. Not saying you are wrong just that you are brave.
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Re: No where to hide

Post by buddtholomew » Wed Jul 01, 2015 4:19 pm

mathjak107 wrote:
stuper1 wrote: Mathjak107,

I would like to see your model.
so the final version i decided on is a mix of active and etf .

the version as it stands now :


fidelity growth and income fund FDGRX - had this and blue chip growth for many many years.

fidelity blue chip growth FBGRX

vanguard total market index vti

vanguard veu all world index etf

vanguard vig dividend achievers etf

that is the equity side.

the bond side uses

vanguard admiral total bond fund (now only 10% of the portfolio)

fidelity floating rate high yield

vanguard bsv short term bond

vanguard vtip short term inflation proof bond etf

10% GLD GOLD ETF

10% CASH which represents 2 years of retirement withdrawals and some emergency money.

i toyed and toyed with so many different models until i came up with a mix of what i thought would cover the areas i wanted to cover with as little interest rate sensitivity as i could which is why i left reits out of the portfolio at this stage.

if inflation picks up i will swap total bond for a real return fund like fidelity strategic real return FSRRX . that carrys to much weight in areas geared for higher inflation to be used at this stage in my opinion.

the model works out to 50% in equities , 30% bonds , 10% gold 10% cash
That's exactly my mix as well (5 additional funds in addition to the PP) - 50/40/10 with 50/50 US/INT, SCV and REIT and bonds across the yield curve (AVG 5.6 duration). It boils down to the individual's comfort with gold. which from the onset has been unkind. More equities and cash and a lower gold allocation.
Last edited by buddtholomew on Wed Jul 01, 2015 4:30 pm, edited 1 time in total.
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Re: No where to hide

Post by mathjak107 » Wed Jul 01, 2015 5:30 pm

i think many feel they would rather deal with the pretty predictable market cycle which has always gone on to higher highs and higher lows  then to try to predict a commodity or interest rate cycle that can  span decades.

i am 62 and there is no telling if i will ever see interest rates get this low again in my lifetime.  they took 40 years to get to this level we saw at the lows.  but i feel pretty confident no matter what stocks do there is a pretty good chance i will see new highs being made.
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