Macro Outlook

Existential Doc asked my macro view. I ran across this video that pretty well sums up where I’m at. I think we are on the precipice if not in recession. I’ve written about the moral hazard and over leverage based on the idea it’s now the FED’s policy to save the day, in lieu of unemployment and inflation. This video sets up a model of forward leaning indicators which in some respects describe the future. The model does not look at levels either absolute or relative it looks at first and second derivative data, i.e. the rate of change, change in direction of the rate of change, and acceleration in the rate of change (rate of change of the rate of change). The model looks at multiple descriptors of Economy mathematically and it looks at cycles in which these changes have happened before. So the video is a little mathematically dense and quantitative but is explained in a totally accessible way.

The speaker is clear the trigger has not been pulled yet on recession. He gets paid the big bucks to not over analyze or under analyze but to correctly analyze. I get paid no bucks and may be over analyzing a bit, but I’m concerned enough to make some changes to my risk profile toward risk off based on the economy, and I haven’t done that since 2007.

I’ve watched about 20 videos this past couple weeks and not one was rosy. Some non committal but cautionary to the down side, some flat out predicting recession 100% and some touting terror. Some have an agenda to support so I don’t take everything as truth, but when the happy talk disappears with the smartest players in the room, the diagnosis, natural history, and prognosis starts to become visible. Yes a 9 cm mass in your lung could be pneumonia or fungal but most likely it is what it is.

One thing to consider is the world was rolling over before the trade war. So trade wars are not a cause but a side bet that will be used as a scapegoat against Trump. If somebody like Warren or Sanders gets in, fergitaboutit.

4 Replies to “Macro Outlook”

  1. Based on these posts/videos etc, it gave me the impetus to finally start de-risking my portfolio, especially when I am in my T minus 5 year and counting plan to retire.

    Added gold to the portfolio based on the great analysis you did. Was contemplating taking a small flier on Bitcoin as well but haven’t pulled trigger on that because don’t understand it as well.

    1. I’m buying BTC every day. My exchange allows only $1000/day. I’m using half from cash and half from some stocks I sold. My goal is 3% of my portfolio in BTC. I’ll eventually write a post on my AA and analyze the risk management.

      1. I’ll be waiting for this post. I’m curious about your AA and analyzing your specific risk management.

        For someone 20-25 years pre-retirement, would you say that the best way to de-risk said person’s portfolio is to change the AA in the tax advantaged accounts towards a higher bond tilt and leave the taxable accounts as is?

        1. Pretax has the advantage of being pretax so bonds if they throw off interest avoid the tax of the interest. Stocks avoid the tax of appreciation called cap gains so I wouldn’t layer just based on asset type but also tax treatment. If you have stocks that appreciate and want to move some to gold pretax is a nice way to do that. So maybe buy and hold VSTAX in the post tax and hold forever and do your risking and derisking in he pretax, or tax loss harvest the post tax account so you can trade risk without tax consequence. When I say trade I don’t mean do it often, just to be trading. My last derisking was 2007 and rebalancing to higher risk 2009. Once a decade seems about right or when ever you have substantial gains you want to protect. Looking at classes my portfolio is about
          58% stocks including all flavors
          9% Bonds medium duration
          7% bonds long duration
          16% short duration interest bearing cash equivalent
          7% GLD
          3% BTC

          My bet is (GLD BTC Long bonds and Intermediate) appreciate, while stocks crash so the 2 groups end to cancel and I’ll live off the cash if I can detect a bottom I will rebalance back into stocks. If stocks don’t crash they continue to grow and likely the others will do OK as well since nothing is strongly negatively correlated If not I’ll just live off cash and let that act as a glide path until we claim SS. At that point I will RMD a reduced size TIRA and start to sell down the stock portfolio. Eventually I will run out of cash and have to re-figure out my funding. If stocks are up I’ll sell stocks, bonds sell some bonds BTC sell some of that gld some of that etc. By then I’ll likely have only 10 more years of retirement to fund. If it works out I’ll have more than I have today available when I RIP, if not I’ll still a few mil in the bank according to the Monte Carlo

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