Will the Shorts Sellers get

Burned?

US Treasury Shorts Hit Record High As Foreign Banks Dump Bonds

DYI:  Two out (1&2) of five of my recession warning indicators have gone negative since the economy bottomed out in 2009 speculators shorting Treasury notes and bonds appear to be a bit premature.  With so many economic imbalances and this extraordinary length of time a recession will be with us sooner than later.  However the last three indicators are not present just keeping us on our toes for a possible upcoming downturn.  So…The early bird short sellers may make some money but the Johnny come lately types will get burned when the next inevitable recession arrives and interest rates drop. 

     

Recession warning checklist:

1. Widening credit spread…Comparing yields between the 5 year Treasury note and Vanguard’s High-Yield Corporate Bond Fund.
2. Moderate or flat yield curve…10 year Treasury bond yield less than 2.5% of 3 month Treasury bills.
3. Falling stock prices…S&P 500 fifty day moving average below the two hundred day moving average.
4. Falling Home Builders Index…The indexes fifty day average below its respective two hundred day average.
5. Purchases Managers Index:  PMI below 50

Investing the DYI Way!

The Law of Averages:

The principle that supposes most future events is likely to balance any past deviation from a presumed average.

For DYI’s purposes using the law of averages to our favor with the construction of my averaging formulas.  Simply put when stocks, long term bonds, or gold valuations are way above the mean our model asset allocation will have very little or none at all.  Or when stocks, long term bonds, or gold are below their respective means DYI’s model portfolio will have significantly more.  Cash is my default position when there is left over percentages.  Think of cash as the waiting room when the other three valuations improve for future purchase.

This is a play off of the late Harry Bowne’s Permanent Portfolio concept.  His concept was a static (fixed) allocation of each asset category with 25% among the same as DYI’s assets of stocks, long term bonds, gold, and cash (short term bills & notes).  If stocks, long term bonds and gold were at their respective means, at the same time, our portfolio would be just like Harry’s.  But alas markets are not like that and valuations can be measured with a reasonable degree of accuracy.  Our goal is to out perform Harry’s permanent portfolio over rolling 5 year periods of time.
   

Harry’s Browne Permanent Portfolio over a very long period of time [30 years plus] will be very close to the same return [during the same time period] as a 100% stock position with significantly lower volatility.  This is a great concept for the likes of institutions such as Yale or Harvard founded before America was born.  But such mortals that we all are and only having a finite time to put together a nest egg for retirement is why I came up with our averaging formula in order to out perform the Permanent Portfolio over shorter time periods. And attempt to come close to the return on a fully invested stock position with significantly reduced volatility.
   

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 5/1/18

Active Allocation Bands (excluding cash) 0% to 60%

64% - Cash -Short Term Bond Index - VBIRX

29% -Gold- Precious Metals & Mining - VGPMX

 7% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

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PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

DYI