THANK YOU! I am in debt to you for your words of encouragement. Buy-and-hold dead? SIMPLER Portfolio! IOUSA now online. VSS. Rehab. PlanetBoyer.
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Topics in this week’s show include:
- Roubini Lashes out at Cramer
- Does dollar-cost-averaging matter after 10, 20, 30 years?
- Is Buy-and-Hold dead? Only if your capacity for risk changed. Can you sleep at night knowing how you’re invested?
- SIMPLER Portfolio
- We need a single world currency: GOLD! MSNBC article doesn’t cut it.
- I.O.U.S.A. is out on Google Video
- New Vanguard ETF: FTSE All-World Ex-US Small Cap fund (VSS)
- Active Investor Rehab: Stock Pickers
- Stay subscribed to the feed and this site to get the All New PlanetBoyer podcast next week. If you see this sign in iTunes: (!) then listen to one of the new shows (with the blue dot) for a few seconds at least, then you’ll get the newest shows again.
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Is this the last episode of the Mad Money Machine? It is all about Financial Freedom.
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Topics in this week’s show include:
- Where Did The Money Go by 54-40 .
- You still own the same number of shares, but what people are willing to pay has gone down.
- Discussion of how and why to keep this show going. With the underlying central theme being "Financial Freedom." How do I deal with discussions of threats against our financial freedom?
- Another look at dynamically adjusting one’s risk capacity.
- How do I talk about preserving our Financial Freedom without talking about the threats to it? And I may not be up to that task.
- So the Mad Money Machine podcast may (continue to) change.
- For Sale: MadMoneyMachine. Make offer.
- Good movie: Deep Impact (1998). Substitute Financial Meltdown for Comet Impact and watch it.
- Can the Free Market work in the USA?
- Subscribe to the Index Funds Advisors podcast in iTunes and get their Quote of the Week.
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Gardening. Gold for bread. Out of ammo. Heh, gold, guns, and grub. Online bill payment woes. Mutual fund charts. Making it in America. MU Sponsorship. 2nd Step of Rehab. Cookie Diet.
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Topics in this week’s show include:
- Trying to build our own "self-contained gardening system"
- Gold for bread . Get yours before you have to go panning for it.
- Bass Pro Outlets: out of handgun ammo.
- Online bill payment woes.
- Fernando wants to know if mutual fund fees are in the charts.
- Making it in America . Who will advocate frugal living?
- How’s it feel, Mr. and Mrs. US Taxpayer, to sponsor Manchester United?
- Active Investor Rehab: the second step is knowing there are higher powers to help you.
- The Cookie Diet . Helps you realize how many calories you actually eat.
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Music from music.podshow.com:
X-RAY Dogs – Alta Plaza
Boyer vs. Stewart vs. Cramer. Active Investor Rehab. Grooveshark.com. Pneumonoultramicroscopicsilicovolcanoconiosis. 100 Free Trades.
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Topics in this week’s show include:
- Stewart vs. Cramer .
- Active Investor Rehab: the first step is knowing that you’re an active investor and what that means.
- TOOL: GrooveShark.com
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Music from music.podshow.com:
Runaway Train – Under Feather
Here’s the link to see all three parts, including some that did not appear on TV, of The Daily Show’s Jon Stewart and Mad Money’s Jim Cramer.
I’ll discuss on show 150.
Yeah, Cramer v. Stewart . I’ll be watching (once my DVR has finished recording it). Thanks Barry for doing the compilation. I especially like #3.
How to win at Roulette. Buffet. Harvey. Bauer. Cramer. Paul. Clinton. Getting paid to throw snowballs. Tool. Guru. Kindle. Best and worst year? I’m available to take Paul Harvey’s slot.
The Mad Money Machine is proud to advertise Index Funds Advisors at ifa.com
Topics in this week’s show include:
- Warren Buffet
- Paul Harvey
- (ABC Radio: I am available to take Paul Harvey’s slot. Call me at 571-366-7121. And hey, my name’s Paul too!)
- Jack Bauer
- 401K to IRA = 100 Free trades. What to do with them?
- Roulette System
- Voice talent gets up to $300/hour.
- Reboot the Bill of Rights.
- H.R. 1207, Federal Reserve Transparency Act
- Getting paid to throw snowballs.
- Jim Cramer says buy Silver.
- I’d like to see Cramer, Buffet, and Ron Paul talk for an hour (or a day!) and come to an agreement.
- For all my ranting, I really haven’t personally been all that affected. Perhaps it is just fear of what’s to come.
- TOOL: RecessionJunction.com
- Take a class to learn how to trade ETFs for only eighty four ninety five. $84.95? Nope. $8495!
- GURU: Bill and Hillary sold .
- Kindle for iPhone let’s me read the 3 books I bought.
- Learning Earning: When did the worst and best 1-year rolling returns happen?
- Subscribe in iTunes to "Index Funds Advisors " podcast to hear me do the Quote of the Week!a
Got Feedback: Try any one of these methods:
- email: feedback AT MadMoneyMachine DOT com
- voicemail: 571-366-7121
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Music from music.podshow.com:
Runaway Train – Under Feather
Woke gasping. Sovereign states? Time-saving show (for me). Buy and Hold vs. Lazy Portfolios. Cramer says buy gold. Says SKF is evil. What about silver? Rich Dad’s education. Rolling periods now include great depression. Restaurant.com. Glenn Beck. EarthBox.com.
The Mad Money Machine is proud to advertise Index Funds Advisors at ifa.com
Topics in this week’s show include:
- Woke up with a gasp: This is really happening!
- IFA has the best way to invest.
- Save me some time on this show
- Buy and Hold vs Lazy Portfolios, yes there is a difference!
- Jim Cramer said, "Buy Gold." Does that mean it is time to sell?
- Is SKF non-correlated to XLF like Cramer says?
- What about silver?
- Rich Dad’s chapter 2 is out: The Conspiracy of Education
- Learning Earning: Rolling Period Returns now include the Great Depression.
- TOOL: Restaurant.com buy coupons to save money
- GURU: Glenn Beck war gamed worst-case scenarios.
- Grow your garden this year: EarthBox.com
- Scott, a pilot, geocaches and recommends these podcasts: Podcacher, Icenrye Videozyne, Cache-A-Maniacs and Cachers of the Round Table. I was even interviews on Cache-A-Maniacs, show #103. http://www.cacheamaniacs.com/index.php?post_id=409919
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Music from music.podshow.com:
Runaway Train – Under Feather
On Jim Cramer’s Mad Money show on Monday February 23rd, Jim said about SKF , the 2X UltraShort Financials ETF:
"…they don’t even perform as expected. The index the SKF tracks is down 14% over the past three months, so you’d figure an ETF that double or triple shorts that index would offer great returns, right? Wrong. The SKF is down 28% over the same time period.
I took a quick calculation of XLF vs SKF to see if he is right. I brought weekly historical quotes from Yahoo finance into a spreadsheet, inverted the SKF’s weekly returns and divided by two and charted it. Here’s the chart, you decide if he’s right.
Titles. Up? Gmail calendar sync. Eliminate Cable TV? Rick Santelli. Why airports have metal detectors. Short the UltraShorts? Why have an advisor? We know where the interest comes from. iTunes trick. StockTwits.com. Ben Bernanke, inflation, and a portfolio. Podshifter.com
The Mad Money Machine is proud to advertise Index Funds Advisors at ifa.com
Topics in this week’s show include:
- 00:00 What title to pick? Gotterdammerung? Emergence thru Emergency? Gunga la Gunga? On the Brink? Tipping Point?
- 03:10 Anyone think stocks can rise from here?
- 03:40 Thanks for your Birthday greetings
- 04:05 Please support IFA.com
- 04:20 Show table of contents
- 04:50 Gmail Calendar and Contact Sync. I discovered how to turn my iPhone into a Blackberry (with push email).
- 05:34 Can I get rid of my Cable TV?
- 06:50 Guru: Rick Santelli and his rant
- 09:05 The real reason the have metal detectors in airports.
- 10:00 Short the UltraShort ETFs! A guaranteed win?
- 12:30 Why hire someone to manage your financial freedom?
- 16:42 Finally, we know where the interest comes from thanks to Trey.
- 19:19 iTunes trick for sorting by Artist, then album chronologically
- 20:39 TOOL: StockTwits.com is the community to join if you are a Twitter user and like to talk stocks, investments, or the economy.
- 24:25 Ben Bernanke talks about inflation. He says when it starts to get out of control, he will control it. (I’m paraphrasing there.) I talk about the correlation between assets and inflation. Read about it from a previous posting here .
- 34:37 Podshifter.com can speed up your podcasts and add hours to your week.
- 38:04 Tell a friend about the Mad Money Machine podcast.
Subscribe in iTunes to "Index Funds Advisors " podcast to hear me do the Quote of the Week!
Got Feedback: Try any one of these methods:
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Music from music.podshow.com:
Runaway Train – Under Feather
The Austrian economists anticipated the present crisis. Should we listen to them when it comes to their predictions about what comes next? In one voice they are saying we will experience inflation unlike we’ve seen in the USA in over 100 years. Inflation is defined as the increase in the supply of money and credit. We are certainly experiencing an increase in the supply of money at present. But the draw-down of credit is counter-acting the monetary inflation and we are hovering in inflationary stasis at present.
Fed Chairman Ben Bernanke said the same thing on February 18th:
Some observers have expressed the concern that, by expanding its balance sheet, the Federal Reserve will ultimately stoke inflation. The Fed’s lending activities have indeed resulted in a large increase in the reserves held by banks and thus in the narrowest definition of the money supply, the monetary base. However, banks are choosing to leave the great bulk of their excess reserves idle, in most cases on deposit with the Fed. Consequently, the rates of growth of broader monetary aggregates, such as M1 and M2, have been much lower than that of the monetary base. At this point, with global economic activity weak and commodity prices at low levels, we see little risk of unacceptably high inflation in the near term; indeed, we expect inflation to be quite low for some time.
He acknowledged that they are inflating. But he threw a red herring into the mix by talking about weak economic activity and low commodity prices (Heh, except gold, right Ben?) trying to infer that they are somehow the cause of inflation. No, they are the result of inflation. Next, he went into how they will correct their inflation:
However, at some point, when credit markets and the economy have begun to recover, the Federal Reserve will have to moderate growth in the money supply and begin to raise the federal funds rate. To reduce policy accommodation, the Fed will have to unwind some of its credit-easing programs and allow its balance sheet to shrink. … However, the principal factor determining the timing and pace of that process will be the Federal Reserve’s assessment of the condition of credit markets and the prospects for the economy.
Bernanke recognized that the plane is in a nosedive and at the last minute he plans to push on the stick and go airborne again. I hope it is not a cloudy day when he has to judge how far the plane is from the ground. He wrapped up his thoughts on inflation and how to avoid it:
As we consider new programs or the expansion of old ones, the Federal Reserve will carefully weigh the implications for the exit strategy. And we will take all necessary actions to ensure that the unwinding of our programs is accomplished smoothly and in a timely way, consistent with meeting our obligation to foster maximum employment and price stability.
What do *you* think the chances are that the Fed will get all of the necessary actions right? Have they gotten the necessary actions right up to this point? Let us examine a scenario where they are not able to get it right and we do indeed experience undesirable inflation, which I will define to be anything above 5% annually.
How might the various asset classes be affected in times of inflation? To answer this question, I utilized Simba ‘s spreadsheet for back-testing portfolios (which I imported into Google Spreadsheets) to do a correlation between CPI (Consumer Price Index, the government’s official inflation number) and various stock fund, bond fund, and gold returns. The data in the spreadsheet uses annual returns of Vanguard index funds along with the yearly closing price of gold from the years 1971 – 2008. The spreadsheet already calculated the cross-correlation between each of the mutual funds and it lists the annual CPI index. So it was very easy to drop the CPI into one of the mutual fund slots and instantly see the correlation between every asset class and inflation. Here are the results, sorted by correlation:
|
|
Asset Class |
Ticker |
Correlation |
|
|
T-BILL (money mkt) |
VMPXX |
0.63 |
|
|
GOLD |
GOLD |
0.52 |
|
|
Long Term Govt Bnd |
VUSTX |
-0.40 |
|
|
Short Term Trsry |
VFISX |
0.28 |
|
|
Commodities |
PCRIX |
0.25 |
|
|
5 Yr T |
VFITX |
-0.24 |
|
|
Wellesley Fund |
VWINX |
-0.21 |
|
|
Wellington Fund |
VWELX |
-0.16 |
|
|
Small Cap Grwth |
VISGX |
0.13 |
|
|
Total Bond |
VBMFX |
-0.12 |
|
|
Small Cap |
NAESX |
0.11 |
|
|
EAFE Dev |
VDMIX |
-0.10 |
|
|
Europe |
VEURX |
-0.10 |
|
|
Intl Value |
VTRIX |
-0.10 |
|
|
EAFE85/EM15 |
EAFE/EM |
-0.09 |
|
|
500 Idx |
VFINX |
-0.09 |
|
|
Large Cap Grwth |
VIGRX |
-0.07 |
|
|
Total Market US |
VTSMX |
-0.06 |
|
|
Simulated TIPS |
S-TIPS |
0.06 |
|
|
Pacific |
VPACX |
-0.06 |
|
|
Emerg Mkts |
VEIEX |
-0.06 |
|
|
Large Cap Value |
VIVAX |
-0.04 |
|
|
Small Cap Value |
VISVX |
0.04 |
|
|
REIT |
VGSIX |
-0.01 |
|
|
Windsor Fund |
VWNDX |
-0.01 |
|
|
Mid Cap |
VIMSX |
-0.01 |
|
|
Micro Cap |
BRSIX |
0.00 |
The table shows those asset classes that were most closely correlated with the CPI at the top. Note in the third column that a value of 1 would mean the asset is perfectly correlated, -1 would mean perfectly correlated inversely (it went down exactly as CPI went up), and 0 means there was no correlation: it was random.
So we see that those assets that were most highly correlated with CPI were T-bills, gold, long-term government bonds (inversely), short-term Treasuries, and commodities. Everything else was below 0.25 correlation. Interestingly, micro cap stocks were totally uncorrelated with inflation.
So how did a portfolio of those assets perform during the years 1973-1981 in which CPI was 8.7, 12.3, 6.9, 4.9, 6.7, 9, 13.3, 12.5, and 8.9%?
I constructed a portfolio along the lines of the Harry Browne Permanent Portfolio (HBPP invests 25% each into total US stock market, long-term bonds, money market, and gold) but I added some small cap value, micro cap, and eliminated the long-term bond fund. I then back-tested that portfolio during those inflation years. Here is the portfolio what I came up with:
The Inflation Portfolio:
VISVX (Small Cap Value) 15%
BRSIX (Micro Cap) 15%
PCRIX (Commodities) 10%
VMPXX (Money Market) 45%
Gold 15%
The "Inflation Portfolio" had a CAGR (Compound Annual Growth Rate) of 15.5% and a risk (as measured by standard deviation) of 10.5%. Plotting that on a chart, here’s what it looks like compared with some other portfolios and the assets themselves:
The chart shows plots for various portfolios during those inflation years. The plot point directly above HBPP simply substituted BRSIX for VTSMX in the HBPP. The major components of the Inflation Portfolio are also plotted separately showing how volatile gold and BRSIX were themselves. When tempered together with VMPXX, the risk came down considerably while retaining significant returns. You can see all of the rest of the details in the Google spreadsheet that I created for this scenario and you can test out other hypotheses yourself.
The Inflation Portfolio worked from 1973 through 1981. If we see inflation return, would it work again? Some folks are discussing these findings at the Bogleheads forum if you want to chime in.
Please note this is not a recommendation to invest your net worth in the Inflation Portfolio!
But, if you just cannot deal with that then go ahead and Play the new show right now
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