- 15% Double Long SPX ETF
- 10% Gold ETF (any of the three as far as I am concerned)
- 5% Agriculture ETF
- 10% Swiss franc ETF
- 5% Aussie dollar ETF
- 10% TIP Product (a fund or the real thing)
- 20% Foreign Bonds (most likely a fund)
- 20% Cash
- 5% in equities from a country you think benefits from the US' misery or can still carry on; maybe a frontier market
I am quite certain, the last few weeks notwithstanding, that gold would go up in breadline stock market scenario and any argument that says more gold is probably right.
Basic food stuffs will always be in demand so maybe it has a place in this discussion, at least I think it does.
The Swiss franc is an obvious destination during times of fear and the Aussie could also benefit due to its correlation (real or perceived) to gold.
The idea of a TIP product comes from the thought that a scenario like this would involve inflation going up considerably.
Foreign bonds seems to make some sense unless the entire planet defaults. I would think that the dollar would go down quite a bit in a scenario where the US stock market was facing the big one.
Cash is cash and unless we are in for Weimar-like inflation, cash will have value even if bread and milk are 20% more expensive.
As far as finding a country to put 5% into equities; it makes sense to think a couple of countries will benefit from this scenario or be able to go on about their business as if nothing were wrong in the US. I would think a resource rich country or a frontier market might offer the best shot at this but I have to say most countries would be very badly hurt by the US tanking in this manner.
The position in the double long fund is a counter strategy in case the market goes up. If it rallies 30% in six months the portfolio would pick up roughly 9%. A big lag but not a complete miss either.
As I said in the video over the weekend I assign zero realistic probability to this. I will simply stick to my exit strategy and so if the market does go down 75% I have a chance of missing a big chunk of that. I have not positioned any account in manner spelled out above.
Relative to the holdings above; GLD, DBA, TIP, FXA are either client holdings, personal holdings or both.
12 comments:
Roger,
Do long/short strategies (likely mutual funds for your readers) play a role in such a portfolio?
Thanks,
Interesting portfolio Roger. There is one country that has surprising relative strength. While europe is lagging other regional mkts...short term...ewn is doing well. Why?
Re foreign bonds...article in mkt watch right next to the currency article in lativia...kind of touts emerging mkt debt. Indeed, those mutual funds or cefs are doing quite well. How is that? It seems counter intuitive.
re long/short; I suppose they could sure. I would note that long short pairings can be very complex and need to be actively watched and probably closed out regularly. Of course the ETF pairing I have been kicking around probably don't need as much trading.
I think the Netherlands market (the AEX) has been a laggard in the last couple of years, if so that might be a reason for doing well now?
As for emerging market bond CEFs, I'm not sure why but would ask what funds are involved and if the NAV is keeping up with the market price.
Re: TIPS - it seems hard to think of inflation being a threat during a crashing market.
Decreasing rates by the FED would seem more likely, and favor regular bonds, or am I missing something?
OG
Intriguing portfolio. Just a few questions. Regarding a possible recession, aren't guns and butter (and gold) the standards? I see the DBA but no guns.
1. How about some PPA or other military/gun fund?
2. Do utilities ever go down? With our mushrooming population (legal and illegal) why not "defensify" with XLU or another utility basket?
3. Lastly, instead of TIP which is just USD notes, why not a diversified fund like BFAFX or LSBRX which hold US and higher yielding foreign bonds and some junk bonds, and cover the waterfront that way?
Thanks and go Ducks! Scoot
Big market drop usually is accompanied with a huge increase in VIX(volatility index), while a gain in stock market tends to lower VIX. When VIX went to 18-20 range during the recent market drops I sold some VIX 18 and 20 Calls for March and April. I figure that the market would have to recever somewhat before making the next big moves. Today VIX dropped to 15 range as predicted.
This makes me wonder has anyone used VIX options to be part of hedge or diversification plan?
The basic idea is buying VIX when it is cheap to gauard against a sudden market drop.
OG, unless there is stagflation. really since I don't envision breadlines it is hard for me to defend the flaws with this.
Scoot, guns make sense especially in AZ (humor attempt) but they are industrial and if there is no military aspect to a potential collapse the sector may not stand up.
BFAFX looks like a fund of fund w/corporates? If so I'd say not for me. Ditto LSBRX. If stocks go down 75%, corporates would drop I'd think.
Utilities, maybe unless we are living in the dark.
VIX options on surface seem to be great in this context but in practice they have issues. Adam Warner knows far more than I do here but Buying call seems like it could be very wasteful most of the time and I think I read somewhere that only near months will reflect the market. I am not sure here and would tell you to look at Adam's site and the Vix and More Blog.
an investor is bullish or bearish. Long or Short. Such a portfolio only exists because an investor feels the need to be invested at all times. I think it makes more sense to have much higher cash/gold position if you think the sky is falling- no need to always be "invested".
I would exchange/swap the allocations in gold and foreign bonds. I too would increase cash position.
I think I read that Powershares was going to do a Mad Max ETF which will invest in guns, ammo, beans, survivalist compounds, and moonshine.
the Mad Max ETF makes no sense, unless it includes tires and auto parts, lol
Add Tina Turner CD to MadMax ETF, right?
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