Now here is a spicy update.
Current allocation:
This is about 118% notional exposure due to the leverage in NTSX.
From an attribution perspective, the main pain YTD has been in gold and bonds, with some ancillary pain from my growth equity tilt. I don’t have a lot of Deep Thoughts about this other than that I think what we are seeing is a reflationary trade post-Covid. I would expect this to be bad for Treasuries and bad for gold in the short term, and for the bond pain to ease up a bit as rates find their footing again.
A historical comp to this kind of behavior would be 2013. That was another period where the markets were wrestling with a reflationary dynamic. Here is historical data on a plain vanilla permanent portfolio. The 2013 return is a mere 1.23% (market cap weighted US equities returned 33%; bonds -2.26%; gold -28.33%). So if the dynamic we are experiencing YTD in 2021 continues through year-end, I would not expect much performance-wise.
I shall leave you with the below words of encouragement. This gets at the philosophy underlying the permanent portfolio concept.
There is a Taoist story of an old farmer who had worked his crops for many years. One day his horse ran away. Upon hearing the news, his neighbors came to visit. “Such bad luck,” they said sympathetically.
“Maybe,” the farmer replied.
The next morning the horse returned, bringing with it three other wild horses. “How wonderful,” the neighbors exclaimed.
“Maybe,” replied the old man.
The following day, his son tried to ride one of the untamed horses, was thrown, and broke his leg. The neighbors again came to offer their sympathy for what they called his “misfortune.”
“Maybe,” answered the farmer.
The day after, military officials came to the village to draft young men into the army. Seeing that the son’s leg was broken, they passed him by. The neighbors congratulated the farmer on how well things had turned out.
“Maybe,” said the farmer.