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What will you do if (when?)...."frothy" markets turn into a Scheisse Fest?
Heights make me dizzy. Sold off a (partial) chunk of PRPFX today (mentioned previously in the still running inflation thread). +20% YTD and +56% for 1 year. Owns companies that deal in commodities, real estate, natural resources. As such, it’s more closely tied to equity markets than is BRCAX which I also own.
Split the $$ between TMSRX (a fund so universally disliked it can’t be too bad) and PRELX which I view as a safe (well ... safer) haven until the commodity craze settles down. By the time everybody and his brother fall in love with the commodity sector it’s probably a good time to lighten up a bit.
Per Barrons, per Bridgewater Co-Chief Investment Officer for Sustainability...note portion of quote "portfolio of future will have more inflation hedges...direct exposure to commodities...
Karniol-Tambour: A 60/40 portfolio has a few problems. The biggest is, it offers no inflation protection. Both stocks and bonds don’t do well in periods of significant inflation. The portfolio of the future will have more inflation hedges, such as gold, inflation-linked bonds, and direct exposure to commodities. Second, nominal bonds aren’t the same asset class they used to be. The reason to hold them was that, if growth slowed, the central bank would have room to lower interest rates and your bonds would do well. Once rates are at zero, there is only so much room for bonds to act as a diversifier. I wouldn’t be surprised, if we get more yield-curve control policies in coming decades, that bonds become even more useless. Now, they are a lot less useful than they need to be.
...if we get more yield-curve control policies in coming decades, (then) bonds become even more useless. Now, they are a lot less useful than they need to be.
Well, ya, my bond fund investments amount to a surrender, an admission that I won't make as much as I could if the money were in stocks. But the market has a rocket in its pocket, zooming upward toward unreasonable valuations and prices. I'm still making money, just standing pat. Just not as much. But you see, I'm NOT desperate to squeeze-out the conceivable ultimate maximum profit that might be possible. When it comes to the Sharpe ratio, these days I'm happy with a fair-to-middling performance--- deliberately. I want to make money, but not at any substantial level of risk, in retirement. But I'm still optimistic: I just renewed my US passport for another 10 years.
@Baseball_Fan - Barron’s Is a fine publication (celebrating its 100th anniversary this week). As for hot stock or sector plays, with a mass media audience and appeal it probably isn’t as timely a predictor as what a good student of the markets (you or I) could render. One of its all time blunders was a commodities article back in the late 90s (possibly post-2000) disparaging the prospects for gold, than selling at or under $300 an ounce. That was shortly before it soared to north of $1,000. I still like the commodities sector going forward for anyone with more than a 3 year time horizon. But from what I observe today, few fund investors hue to much more more than a 1 year time frame. For them, piling on to the latest trend is a sure fire way to get burned.
@Crash - I’m somewhat in agreement. See @LewisBraham’s comment above on Japan. I’ll lay only a 1 in 3 bet we go in that direction. But you can’t rule it out entirely. So a conservative investor might want to hold some bonds in lieu of equities as a way of hedging his bets. It’s all very complex. No one knows for sure how this period of easy monetary policy, low rates and frothy risk taking by the average Joe Doe will end. There wouldn’t appear to be a lot of room left for the Fed to stimulate much further should that need arise before rates rise to more normal levels.
Do like commentary from JC Parents, all star charts blog re when to buy after a market wham-o drawdown....after the pull back, buy on the way UP when the % of NYSE stonks above 200 moving day ave gets back above 15%
One etf, which unfortunately, I don't recall, I purchased at Schwab after Fidelity said the limited volume made the etf an illiquid investment. The trading volume was around 2k shares. After that experience, I try to limit my etf purchases to those with a daily trading volume of at least 100k.
+1. Low trading volume usually means a wide bid-ask spread. If you're not willing to go for the ask (market) (well, even if you are), it could take many steps to build up a position ... and then you've got the same problem when/if you want to sell it.
Low volume/total assets were the metric for the old "etf death watch" site.
Yes-I'll research RPIEX further, and if necessary will sell my position at Schwab after the 90 day holding period, while building a position at Chase You Invest which claims no excessive trading fees are charged, except those imposed by the fund itself. (Haven't yet sold any funds there to see if this is actually true!)
RPIEX. Overall performance this year is good. But still, the dividends are paltry. 51% in "cash?" They can't mean actual "cash" or MM? Could they???
Hi @Crash, Good question. As we’ve discussed before, funds that short stocks need to carry large cash balances. RPIEX may not short stocks (to any large degree anyway), but it does short bonds. That’s how it intends to make money during a period of rising interest rates (which everybody plus the alley cat assumes is going to happen). As with TMSRX, TRP is offering a fund here that might “buck the trend” should both equities and bonds tank.
Because it shorts bonds, I think we can assume RPIEX is required by SEC regs to maintain a high cash level. I don’t fully understand all this - but am learning along with the rest of us.
Here’s a SOURCE that addresses stock shorts. Pretty sure the same applies to bond shorts.
“Regulation T (or Reg T) was established by the Fed in order to regulate the way brokers lend to investors. It requires short trades to have 150% of the value of the position at the time the short is created and be held in a margin account. This 150% is made up of the full value, or 100% of the short plus an additional margin requirement of 50% or half the value of the position. In case you were wondering, the margin requirement for a long position is the same.
Here's an example: If you were to short a stock and the position had a value of $20,000, you would be required to have a total of $30,000 in the account to meet the requirements of Regulation T—$20,000 from the short sale plus the additional $10,000.”
I’ve considered this fund in the past. Never figured out how to work it into my asset allocation. However, I think you’ll find that TRP incorporates it into several of their allocation funds. It (in either investor or institutional class) comprises about 8% of PRSIX and 3.6% of TRRIX according to Yahoo. (Possibly, you own some RPIEX without realizing?)
...Surely I DO! RPSIX is that bond fund-of-funds with a smattering of stocks which I own. I don't own PRSIX. Maybe you just typo-d? Thanks for the explanation, @hank.
...Surely I DO! RPSIX is that bond fund-of-funds with a smattering of stocks which I own. I don't own PRSIX. Maybe you just typo-d? Thanks for the explanation, @hank.
Crash,
Didn't intend to imply you owned TRRIX and / or PRSIX - just guesses. But it appears you do own the second. Good for you.
Charles Bolin does a nice job discussing those two funds along with other similar cartegory funds in this month’s Observer’s Commentary. Well worth a read: (“ One Stop Mutual Funds with Good Multi-Year Metrics … ”)
As I’ve noted in the past, I use PRSIX as my benchmark. It’s how I gage my own portfolio’s success (or lack thereof). The things I watch closely are: (1) daily and longer term volatility and (2) overall longer term performance. Frankly, not adhering to some type of benchmark would seem to me a good way to get oneself in a lot of trouble. As full disclosure, the fund also constitutes 7-8% of my holdings.
Here’s a description from TRP’s fund snapshot for PRSIX.
“Invests in a diversified portfolio typically consisting of about 40% stocks, 55% bonds, money market securities, and cash reserves; and 5% alternative investments, including through hedge funds. The manager can rebalance the investment mix, within defined ranges, based on the economic outlook, interest rates, and financial markets. The fund may invest up to 40% of its total assets in foreign stocks and bonds. “
From Lipper, here’s the current allocation for PRSIX.
44% Bonds
41% Stocks
9% Cash
6% Other
@Crash - I don’t think of PRSIX as a “bond fund-of-funds with a smattering of stocks.” (Others are free to disagree.) The “other” (listed at 6%) is likely the Blackstone hedge fund Price uses. So you’ve got 47% committed either to equities or a hedge fund.
To me the above represents a pretty aggressive market exposure for a 75 year-old individual - especially considering today’s lofty market valuations.
Hello, @hank. I read all of that with interest. I don't own PRSIX. But I DO own RPSIX. That's where my remark about a possible typo comes in, above. i like your idea of using PRSIX as a comparison benchmark. I shall keep it in mind.
At the moment, my fund managers have me -6% in short positions. Cash and bonds. 57: bonds 39: stocks "other:" 3 Net 4% in cash.
(Morningstar X-Ray.) ... So, I'm not trying to light the world on fire these days. I've been aiming for a traditional retiree's portfolio of 60 bonds and 40 stocks for years. My fund managers won't let me. Getting close, though. MFO has offered me a helluva financial education through the years.
At the moment, my fund managers have me -6% in short positions. Cash and bonds. 57: bonds 39: stocks "other:" 3 Net 4% in cash.
@Crash Thanks for clarifying. Yep - you did specify RPSIX. I get RPSIX and PRSIX turned around all the time. I don’t hold RPSIX and haven’t for over a year. FWIW Yahoo shows it holding 4% in their Global Dynamic Bond Fund - Class Z.
If I’m reading you correctly, you are net-short the equity markets. That’s remarkable considering RPSIX alone has a 14% weighting in their Equity and Income fund (PRFDX).
Might work. Nothing I’d be comfortable with. Good luck with that.
No disrespect to M*, but I haven’t used their analyzer in years. (Apparently, it’s widely used and respected among the community here.) I try instead to evaluate each fund in the portfolio on its own merits based on current holdings, charts, manager, investment style and expenses. Just different ways of attempting to determine potential risk & reward I guess.
@hank. Thanks for the reply. No, I'm not net short the equity markets. Only 6% "short," total. And it's all bond and dollar plays. Have a great week-end.
This summer NW Oregon is experiencing an unprecedented heat dome. Last summer we lived through historic forest fires. Things are strange around here. A quote from a WP article this morning:
“As there is no previous occurrence of the event we’re experiencing in the local climatological record, it’s somewhat disconcerting to have no analogy to work with,” the National Weather Service’s Seattle office wrote in an area forecast discussion. “Temperature records will fall in impressive fashion.”
Perhaps applying that quote to current stock market behavior makes some sense. Change the input variables enough and the history based models no longer provide a reliable guide.
The history based models for climate averages may not be a reliable guide for future weather forecasting (due to global warming), but is the stock market history also to be discarded? "Its really different this time." I'm not sure about that.
The Fed can ignore inflation for only so long, just like recent leaders had dismissed science and global warming. But reality catches up to us at some point.
The history based models for climate averages may not be a reliable guide for future weather forecasting (due to global warming), but is the stock market history also to be discarded? "Its really different this time." I'm not sure about that.
It's not clear to me either. Just suggesting the degree of central bank intervention has no close historic precedent. So, perhaps historic models and ratios are ill equipped to be relied on for projections. New data may be needed that will take time to acquire. Also, new stock trading technologies and the millennial mindset add another new wrinkle for the old equations to incorporate. It might turn out the new reality behaves somewhat differently than the old one did.
Also, new stock trading technologies and the millennial mindset add another new wrinkle for the old equations to incorporate. It might turn out the new reality behaves somewhat differently than the old one did.
Its possible - maybe earnings and cash flows play less of a role in valuation these days. Look at the so called "movements" behind GME and AMC. An old codger like myself might see this as simply shenanigans. These shenanigans have continued for a while now, unabated. New rules, it seems.
Do we revert back to the OLD norms at some point? Its a legit question.
Comments
Split the $$ between TMSRX (a fund so universally disliked it can’t be too bad) and PRELX which I view as a safe (well ... safer) haven until the commodity craze settles down. By the time everybody and his brother fall in love with the commodity sector it’s probably a good time to lighten up a bit.
Karniol-Tambour: A 60/40 portfolio has a few problems. The biggest is, it offers no inflation protection. Both stocks and bonds don’t do well in periods of significant inflation. The portfolio of the future will have more inflation hedges, such as gold, inflation-linked bonds, and direct exposure to commodities. Second, nominal bonds aren’t the same asset class they used to be. The reason to hold them was that, if growth slowed, the central bank would have room to lower interest rates and your bonds would do well. Once rates are at zero, there is only so much room for bonds to act as a diversifier. I wouldn’t be surprised, if we get more yield-curve control policies in coming decades, that bonds become even more useless. Now, they are a lot less useful than they need to be.
Best,
Baseball Fan
Well, ya, my bond fund investments amount to a surrender, an admission that I won't make as much as I could if the money were in stocks. But the market has a rocket in its pocket, zooming upward toward unreasonable valuations and prices. I'm still making money, just standing pat. Just not as much. But you see, I'm NOT desperate to squeeze-out the conceivable ultimate maximum profit that might be possible. When it comes to the Sharpe ratio, these days I'm happy with a fair-to-middling performance--- deliberately. I want to make money, but not at any substantial level of risk, in retirement. But I'm still optimistic: I just renewed my US passport for another 10 years.
@Crash - I’m somewhat in agreement. See @LewisBraham’s comment above on Japan. I’ll lay only a 1 in 3 bet we go in that direction. But you can’t rule it out entirely. So a conservative investor might want to hold some bonds in lieu of equities as a way of hedging his bets. It’s all very complex. No one knows for sure how this period of easy monetary policy, low rates and frothy risk taking by the average Joe Doe will end. There wouldn’t appear to be a lot of room left for the Fed to stimulate much further should that need arise before rates rise to more normal levels.
Who knows if this will work next go round??
Best,
Baseball Fan
Low volume/total assets were the metric for the old "etf death watch" site.
Many of the most popular bond funds make extensive use of derivatives now, so the cash weighting isn't particularly relevant.
Because it shorts bonds, I think we can assume RPIEX is required by SEC regs to maintain a high cash level. I don’t fully understand all this - but am learning along with the rest of us.
Here’s a SOURCE that addresses stock shorts. Pretty sure the same applies to bond shorts.
“Regulation T (or Reg T) was established by the Fed in order to regulate the way brokers lend to investors. It requires short trades to have 150% of the value of the position at the time the short is created and be held in a margin account. This 150% is made up of the full value, or 100% of the short plus an additional margin requirement of 50% or half the value of the position. In case you were wondering, the margin requirement for a long position is the same.
Here's an example: If you were to short a stock and the position had a value of $20,000, you would be required to have a total of $30,000 in the account to meet the requirements of Regulation T—$20,000 from the short sale plus the additional $10,000.”
I’ve considered this fund in the past. Never figured out how to work it into my asset allocation. However, I think you’ll find that TRP incorporates it into several of their allocation funds. It (in either investor or institutional class) comprises about 8% of PRSIX and 3.6% of TRRIX according to Yahoo. (Possibly, you own some RPIEX without realizing?)
Didn't intend to imply you owned TRRIX and / or PRSIX - just guesses. But it appears you do own the second. Good for you.
Charles Bolin does a nice job discussing those two funds along with other similar cartegory funds in this month’s Observer’s Commentary. Well worth a read: (“ One Stop Mutual Funds with Good Multi-Year Metrics … ”)
As I’ve noted in the past, I use PRSIX as my benchmark. It’s how I gage my own portfolio’s success (or lack thereof). The things I watch closely are: (1) daily and longer term volatility and (2) overall longer term performance. Frankly, not adhering to some type of benchmark would seem to me a good way to get oneself in a lot of trouble. As full disclosure, the fund also constitutes 7-8% of my holdings.
Here’s a description from TRP’s fund snapshot for PRSIX.
“Invests in a diversified portfolio typically consisting of about 40% stocks, 55% bonds, money market securities, and cash reserves; and 5% alternative investments, including through hedge funds. The manager can rebalance the investment mix, within defined ranges, based on the economic outlook, interest rates, and financial markets. The fund may invest up to 40% of its total assets in foreign stocks and bonds. “
From Lipper, here’s the current allocation for PRSIX.
44% Bonds
41% Stocks
9% Cash
6% Other
@Crash - I don’t think of PRSIX as a “bond fund-of-funds with a smattering of stocks.” (Others are free to disagree.) The “other” (listed at 6%) is likely the Blackstone hedge fund Price uses. So you’ve got 47% committed either to equities or a hedge fund.
To me the above represents a pretty aggressive market exposure for a 75 year-old individual - especially considering today’s lofty market valuations.
At the moment, my fund managers have me -6% in short positions. Cash and bonds.
57: bonds
39: stocks
"other:" 3
Net 4% in cash.
(Morningstar X-Ray.) ... So, I'm not trying to light the world on fire these days. I've been aiming for a traditional retiree's portfolio of 60 bonds and 40 stocks for years. My fund managers won't let me.
@Crash Thanks for clarifying. Yep - you did specify RPSIX. I get RPSIX and PRSIX turned around all the time. I don’t hold RPSIX and haven’t for over a year. FWIW Yahoo shows it holding 4% in their Global Dynamic Bond Fund - Class Z.
If I’m reading you correctly, you are net-short the equity markets. That’s remarkable considering RPSIX alone has a 14% weighting in their Equity and Income fund (PRFDX).
Might work. Nothing I’d be comfortable with. Good luck with that.
No disrespect to M*, but I haven’t used their analyzer in years. (Apparently, it’s widely used and respected among the community here.) I try instead to evaluate each fund in the portfolio on its own merits based on current holdings, charts, manager, investment style and expenses. Just different ways of attempting to determine potential risk & reward I guess.
No, I'm not net short the equity markets. Only 6% "short," total. And it's all bond and dollar plays. Have a great week-end.
Should come to me in time …
https://www.morningstar.com/portfolio-manager/x-ray
https://www.washingtonpost.com/business/2021/06/28/stock-market-record-wilshire-5000/
The Fed can ignore inflation for only so long, just like recent leaders had dismissed science and global warming. But reality catches up to us at some point.
Do we revert back to the OLD norms at some point? Its a legit question.