(yawn) Not much to report this time. I had an influx of cash to invest prior to this rebalancing check, so these numbers actually reflect a mid-period rebalance, after which the portfolio became more fully invested. Technically, I should be taking a few percent of exposure to cash this time, but trailing volatility is not much above the 12% threshold I use for risk management purposes, and the portfolio is quite well-balanced. So I’m just going to let it ride this month.
Underling exposures, accounting for leverage:
30% S&P 500 Futures
20% Laddered Treasury Futures
12% EM Small Cap
12% ex-US Large Cap
~105% notional exposure
This month’s performance snapshot is quite representative of how the strategy should be expected to perform more generally. It trails equity markets in bull rallies, but makes that up with significantly shallower drawdowns. Over long time periods, you end up with something like a 100% equity return profile, but a 60/40-like drawdown profile in deflationary conditions. Of course, the gold exposure should ensure that the drawdown profile in inflationary conditions is far superior to a 60/40 portfolio. Granted, that’s not a macro regime we’ve had to deal with for some time.
Of course, the definition of “equity markets” is in the eye of the beholder. Below are the returns for ACWI as of 07/31. This is a much more appropriate investable benchmark for a globally diversified equity portfolio. The performance of the leveraged permanent portfolio compares quite favorably. Actually, the leveraged permanent portfolio has annihilated ACWI so far. Performance versus other permutations of the global 60/40 portfolio is similarly strong.
On an unrelated note, I’ve not posted much on here lately, partly because I’ve fully articulated a lot of the ideas around markets and asset allocation that I originally wanted to share on here. By no means do I intend to shut the blog down. But I consider myself in a bit of a “reset” phase in terms of ideas. I hope to be posting with more frequency again sometime soon. In the meantime, at a bare minimum I will continue to post these monthly updates.
It certainly wasn’t planned, but I rather like where the portfolio is positioned today. There is still nearly 100% notional exposure due to the leverage, but a 20% cash position. On the surface, this looks like a lot of hassle just to match the Morningstar Large Cap Index (similar to the S&P 500). But the underlying portfolio here is much, much better diversified than that index. Even within the equity bucket, nearly half of the exposure is ex-US. For perspective, ACWI (which is a reasonable investable proxy for market cap weighted global equity exposure) is -5.50% YTD.
In an ironic twist, I am experimenting with monetizing a blog called Demonetized. I have added a tip jar to the site. It will either display at the top right of the sidebar or the bottom of the list of posts, depending on the size of your device screen. It is marked with a charming little vector graphic of a piggy bank. Which is meant to represent my piggy bank.
I have a couple reasons for taking this step:
First and foremost, it would be nice to make more money.
Second, even a minimal amount of tips will help defray the (admittedly low) cost of site upkeep.
Third, I am interested in experimenting a bit with “business models” (that is being overly generous here) that might work well for my particular skill set. This blog is not, and never will be, paywalled in any way. But, candidly, I have considered launching something that would lend itself to some kind of subscription model. The tip jar is simple test of whether people think my work might be worth paying for.
My latest Epsilon Theory note is about the seemingly obviously nonsensical idea that “words can be violence.”
[I]n case you’re wondering, no, words are not equivalent to physical violence. That is nonsense.
What is not nonsense is the notion that if you can deftly manipulate the symbols people use to assign and create meaning in their lives, you can manipulate their thoughts and behavior. We have a name for this outside academia and the culture wars.