We seem to be nearing the end of the current debt supercycle where the marginal return on debt across society (individual, corporate and government) is no longer enough to produce growth, and so some form of deleveraging of the debt has to occur. This can be in the form of inflation or deflation, but either labour/profits need to rise to meet capital (inflation) or asset prices must decrease to meet labour and corporate profits.
As these two powerful forces push against each other, like two tectonic plates of the earth’s crust, mainstream 60/40, risk parity, index or target-date funds, may not perform as they have during the period from the 1970s until now. This is especially true as interest rates reach 0% and both the valuations of both bonds and equity discounted cashflow models reach their maximum.
It may be possible to tactically pivot between the swings between inflation and deflation that were present in both the period after the great depression and today. But even a successful trader may want a proportion of their capital in hard assets to protect against potential insolvencies in everything from banks to brokers and even as far as exchanges and currencies.
For those that aren’t willing or able to so actively manage their positions, there are still some portfolios that may provide examples to preserve wealth through complex times.
1. 100 Year / Dragon Portfolio
- 20% Gold
- 20% Commodity Trend
- 20% Equities
- 20% Long Volatility
- 20% Fixed Income
2. The Cockcroach Portfolio
- 25% Equity (Real Asset / Long Duration)
- 25% Bonds (Financial Asset / Long Duration)
- 25% Gold (Real Asset / Short Duration)
- 25% Cash (Financial Asset / Short Duration)
3. The “Old Money” Portfolio
- 33% Gold
- 33% Realestate
- 33% Fine Art