Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer.

Mostly Mary [0:19]

And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor. Broadcasting to you now from the comfort of his easy chair, here is your host, Frank Vasquez.

Mostly Uncle Frank [0:36]

Thank you, Mary, and welcome to Risk Parity Radio. If you are new here and wonder what we are talking about, you may wish to go back and listen to some of the foundational episodes for this program. Yeah, baby, yeah! And the basic foundational episodes are episodes 1, 3, 5, 7, and 9. Some of our listeners, including Karen and Chris, have identified additional episodes that you may consider foundational. And those are episodes 12, 14, 16, 19, 21, 56, 82, and 184. And you probably should check those out too because we have the the finest podcast audience available.

Mostly Mary [1:28]

Top drawer, really top drawer.

Mostly Uncle Frank [1:31]

Along with a host named after a hot dog.

Mostly Voices [1:35]

Lighten up, Francis.

Mostly Uncle Frank [1:38]

But now onward, episode 250. 250, that's a nice round number.

Mostly Voices [1:44]

You are correct, sir, yes. And I suppose that means it's supposed to be a time of reflection. Looks like I picked the wrong week to quit amphetamines.

Mostly Uncle Frank [1:55]

And it has been a good run so far, starting out in July of 2020, and we're up to about 450,000 downloads, and I've met a lot of nice and interesting people through this podcast. Yeah, baby, yeah! And I want to thank you all again for listening into this. It's been an enjoyable creative experience, and so I think I will Keep doing it. Surely you can't be serious. I am serious. And don't call me Shirley. And I suppose that's enough musing and reflection for the moment.

Mostly Voices [2:31]

You are talking about the nonsensical ravings of a lunatic mind.

Mostly Uncle Frank [2:38]

Today on Risk Parity Radio we'll be doing our weekly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the portfolio's page. And since it's the end of the month, we'll also be talking about the distributions for April.

Mostly Voices [2:54]

Time is money, boy. But before we get to that, I'm intrigued by this. How you say? Emails.

Mostly Uncle Frank [3:05]

And first off, first off, if an email from Carmelo.

Mostly Mary [3:15]

Hi Frank, do you agree with Tom Piketty that there would be no built-in inflation if our currency were still pegged to gold?

Mostly Uncle Frank [3:26]

Well, I suppose the answer is both yes and no. Historically, yes, there can be inflation in a system based on gold if a lot more gold is discovered and ends up going into the system. And this actually occurred in Europe when the Spanish started bringing back shiploads of gold from the Americas. There was a lot of inflation in Europe because there was more gold, therefore more money floating around, and thus it was less scarce and valuable than it had been in the past. The same thing actually also occurred in the United States at the time of the California Gold Rush. And what was interesting about that is that we were on a bimetallic standard then, using both silver and gold as money. And the problem with bimetallic standards is that when you fix the value or the ratio between two things, and then things happen in the real world that make one of them more valuable than the other, Gresham's Law says that the more valuable money gets hoarded and taken out of the system, and people only use the less valuable money for transactions. And so at the time of the California Gold Rush, prior to that, gold was more valuable than silver. And so people tended to hoard gold and use silver money as the money for transactions. Following the gold rush, though, gold actually became less valuable than silver. And so people started hoarding the silver and using the gold as money. Which leads me to my next historical observation that Piketty is correct about, that when you have a gold standard like we had in the United States beginning in 1873, the trend was to have deflation or a series of depressions. And that's because the economy was expanding quicker than the stock of money valued in gold was expanding. So gold is becoming effectively relatively more valuable. And when that happens, you tend to have deflationary episodes and not inflationary episodes. So in a perfect world, you would have the supply of money expanding exactly at the same rate as the economic output of a society that's expanding. And then you would be at a kind of balanced or zero inflation scenario. In the real world, that's not practical and nobody could ever do that because the real world is a lot more complicated than that. And so you end up with these current targets of a 2% inflation rate. And the reason that you want to have some positive inflation in a system is to encourage people to spend money. Because when people are hoarding money, you get deflationary episodes and bad things like the Great Depression. So whenever I hear people saying we should go back on this gold standard because our problems would magically be fixed, it's like they don't have any appreciation for history and what happened when there was a gold standard and why people didn't like it anymore. In fact, this was the major political debate in the latter half of the 19th century as to what would be the money in society. because there were a lot of people who wanted silver to be used as money as well, which led to one of the most famous speeches in American political history, what is known as the Cross of Gold speech given by William Jennings Bryan at the Democratic Party presidential convention in 1896. And I'll link to a little article about that in the show notes because it's got a nice history as well of monetary standards in the United States, and why people fought about them, and still fight about them. Because if you don't know your history, you're probably going to make the same mistakes that somebody made in the past. That's the fact, Jack! That's the fact, Jack! Anyway, it's an interesting topic, but not really the subject matter of this podcast. So I think that's enough on that, and thank you for your email.

Mostly Voices [7:42]

You're insane, Gold Member. And that's the way, -huh, -huh, I like it. Keshi on the Sunshine Band. Second off. Second off, we have an email from Trevor. And Trevor writes.

Mostly Uncle Frank [8:01]

Hey, Uncle Frank.

Mostly Mary [8:04]

Thanks again for putting together these great episodes. I've learned so much thanks to you and your listeners. I have a couple of questions for you. One, can you go over how leveraged funds are made, potentially the history of leveraged funds, and particularly why they aren't good long-term investments or at least interpreted with caution? And are there any data that we do have over 5, 10, 15, or 20 plus years? For context, I'm 30 years old and generally believe that stocks will go up over the long term. Does this mean I should add them to my accumulation portfolio? Two, why do you go over the short-term returns of the different risk parity portfolios after each podcast? Personally, I am interested in long-term returns since I'm only in the accumulation phase. Is there something I'm missing that hearing weekly returns will be of value to me? The valuable insight I gain is hearing what normal noise is in the market. Thanks for everything. Appreciate your time, Trevor.

Mostly Uncle Frank [9:11]

All right, let's first talk about leveraged funds. We've talked about those a lot on this program, and I will give you some episodes to listen to. Definitely go listen to episode 152 and also episode 211. You will also find discussions of leveraged funds in episode 71, 91, 96, 125, 141, 143, 166, and 221. But 152 will give you probably the most information because we are talking about the Leveraged Fund UPRO in that episode and how it is constructed and how other levered funds are constructed. basically there are several ways to construct a levered fund. One is by using options and futures. Another one is actually taking on debt, and another one is using swaps contracts, which are usually done with large banks and tend to result in some of the more stable constructions. But yes, levered funds notoriously and this applies in particular to the commodities kind of funds and VIX related kind of funds. We're only good as very short term trading vehicles because the options or futures contracts used to construct them would roll and you would lose or get decay out of them whenever that happened in the cycle of the fund. But more recent constructions have used swap contracts or very long term options and futures to construct more stable funds that hopefully will not decay over time. Now, the oldest variations of these things were closed end funds, and typically they would take on leverage, reinvest it, and that would allow them to get returns that were multiples of what they were actually holding. And so places like Nuveen specialized in things like that going back to the 1990s, particularly with regard to debt instruments. The kind of 2x and 3x leverage trading vehicles really took off in the first decade of the 21st century. And that's where you saw oil funds like USO and then stock index based funds like UPRO be formed and people started trading them. And what we've discovered in the past 10 or 15 years is that Some of those funds are very bad vehicles to be holding for any length of time because of their decay characteristics. And some of them are not so bad because they are constructed in ways that allow them not to decay or not to decay so much. And so people had begun using some of those things as longer term holdings. There's a whole website devoted to this called optimizedportfolios.com that I've linked to before and I will link to again in the show notes, but that's where you'll find lots and lots of information and articles about all things leveraged funds. Much more recently, as in the past five years, there have now been developed leveraged funds that are designed for long-term holdings as core holdings in a portfolio. A good example of that is NTSX, which we talked about in episodes 59 and 61. And that is basically a 60/40 portfolio, S&P 500 and treasury bonds levered up 1.5 to 1. So it's like a 90/60 portfolio. And the idea of holding something like that is that you then have more space in the portfolio for alternative investments and other investments. And so we use that as the basis in one of the sample portfolios, the levered golden ratio portfolio. Now, as you can imagine, based on this history, we do not have lots of data that goes back decades in time because these things have not existed that long. So the data that goes back in time is of a theoretical nature for the most part. Now, I asked your question, should you add them to your accumulation portfolio? My answer is, I'm not sure, but you really do need to have the stomach for it if you're going to do it. because it's going to be a very wild ride. You have a gambling problem. I do have at least one listener who held UPRO from 2010 until at least 2020 and was very happy with his results, although I'm not sure how happy he is given what happened in 2022. I am very interested in this method of investing. I'm just not sure it's ready for prime time with the funds that we have so far. In theory, it should work fine, and I will link to something from the Rational Reminder podcast, a video about using leverage and accumulation that I've linked to before, but is worth looking at if you are interested in that topic. If you want to experiment with this idea, I think the place to do it would be in a Roth IRA. Because you are trying to take the most risks to get the most reward. And assuming you get that reward, you will not be taxed on it in your Roth IRA like you would somewhere else if you got a big reward. Well, you have a gambling problem. Personally, I don't think I'd have the stomach to make this a core part of my investing approach. But some people have more ironclad stomachs. for that sort of thing. You can't handle the gambling problem. Anyway, check out the links, listen to those other podcasts I mentioned, and I think that will inform you about as well as I can inform you. That is the straight stuff, O Funkmaster. Moving to your next question, why do we go over the short-term returns of the different sample portfolios? every week. Boring. Well, first recall that what we are most interested in for this podcast are portfolios that you can draw down upon that have higher safe withdrawal rates. And so part of what we are doing here is just showing the mechanics of that kind of management and showing how you can take a set of rules for doing that and then implement them over time. The other thing I was very interested in showing was how it actually feels to go through a drawdown that last months or years. Because when you run these simulations and you look at something it's like, oh, it only had a three-year drawdown. Well, it's still three years. And I really wanted to show what that actually looked like in practice. And the only way to do it is by actually doing it. Let's do it. Let's do it. And I also wanted to get away from the kind of theoretical discussions I often hear in the personal finance space. I'm a big proponent of demanding that people actually show their work, and I'm often highly critical of many approaches that do not seem to measure up to those kind of standards or based on crystal balls or other popular notions about buckets and things. So I thought it would be only fair if I actually showed the work that we were doing here, for better or for worse.

Mostly Voices [16:53]

Real wrath of God type stuff.

Mostly Uncle Frank [16:58]

And as painful as a year like 2022 was, it makes the whole process a lot more interesting in terms of analysis over time. But now I do realize it is not very interesting to listen to for most people, and so feel free to skip that portion if it does not interest you. You can't handle the dogs and cats living together. I think the whole thing will ultimately be more interesting after we've gone through at least one economic cycle, which we have not completely gone through yet. Where we started with it is in July of 2020, so there had been a recession and a partial recovery at that point in time. So the next good point in time for analysis and comparison purposes is after we have another recession that's been promised but has not been delivered yet so far, and have recovered from that. And then I think we'll have a good reference point for comparing what we've actually done here with other potential constructions, 60/40 portfolios and other things. But right now, the sausage is still being made, so you'll just have to wait. Hopefully that'll give you some insight as to why we're doing all that. And thank you for your email. Bowed to your sensei. Bowed to your sensei. Next off, we have an email from Timothy, and Timothy writes：hi, Frank.

Mostly Mary [18:36]

What do you think of the Hindenburg Short Sales Research Group and how this is even legal in the United States?

Mostly Uncle Frank [18:44]

Well, Timothy, short selling has been going on in markets pretty much as long as there have been markets going all the way back to the 19th century. And so what Hindenburg is doing is pretty standard in the short seller world. I think it's magnified now by the use of Twitter and other social media. There have been many other famous short sellers, both successful and unsuccessful. Names like Jim Chanos, Michael Burry, and the housing crisis, the whole big short thing. More recently, you'll find a guy named Mark Cahooties, who famously sniffed out FTX before it collapsed. But all of this is just standard fare or standard operating procedure for what goes on in Wall Street. Has gone on in the past and will continue to go on in some respects in the future. So bold strategy, Cotton. Let's see if it pays off for them.

Mostly Voices [19:38]

Sometimes these guys famously fail.

Mostly Uncle Frank [19:42]

Bill Ackman tried to short Herbalife for quite some time. and that didn't work out for them. Just be aware for long-term investors, the existence of short sellers is just noise.

Mostly Voices [19:53]

One thing I hate all that noise, noise, noise, noise and

Mostly Uncle Frank [20:01]

shouldn't really matter one way or another long term. So pay no attention to those short sellers behind the curtain.

Mostly Voices [20:09]

Do you presume to criticize the great odds? You ungrateful creatures think yourselves Lucky that I'm giving you audience tomorrow instead of 20 years from now.

Mostly Uncle Frank [20:24]

And thank you for your email. The Great End has spoken. Last off, we have an email from Andreas.

Mostly Mary [20:38]

And Andreas writes. Dear Frank, thought you might like to know that fidelity seems to have hopped on your train. Quite an interesting paper. What do you think of it? Keep up the great work, Andreas.

Mostly Uncle Frank [20:53]

Well, Andreas, the link that you sent me has been corrupted in some way, so it did not work. But I was able to find the page for Fidelity's Institutional Risk Parity Fund, which is relatively new. They just started it last year. And there are some presentations and other materials there, which I'll link to in the show notes. so you can check it out. And it looks like a fairly complex thing that they've constructed there, which dropped 10% immediately since they started it in July of last year, then recovered and now is up 3% or 4% this year so far. So it's similar to our sample portfolios actually in some ways, at least in performance. To me all this is telling you is that this idea and this style of investing is now a pretty standard accepted part of the investing landscape. As I've referenced a number of times, it is written up in its own chapter in the CFA Institute manual from 2018. And really the only people that have not gotten the memo yet seem to be the ones in retail and in personal finance. Did you see the memo about this? But we are working to remedy that. Didn't you get that memo? And hopefully, before the decade is out, it will be more well known and implemented by more do-it-yourself investors. And I'll go ahead and make sure you get another copy of that memo. Okay. So yes, indeed, it's a sign of the times. And thank you for your email. Now we are going to do something extremely fun. And the extremely fun thing we get to do now is our weekly and monthly portfolio reviews of the seven sample portfolios you can find at www.riskparityradio.com on the portfolios page. And it looks like we all finished this month on a high note.

Mostly Voices [23:00]

Hey, do we have any of that plutonium and Nyborg left? Uh, yeah, just one big. It's in the transmitter compartment. Thanks, man.

Mostly Uncle Frank [23:15]

Just looking at the markets themselves last week, the S&P 500 was up 3.48% for the week. The NASDAQ was up 3.37% for the week. Small cap value was one of the big winners, represented by VIoV, was up 4.14% for the week. Gold was up to I love gold.

Mostly Voices [23:34]

Gold was up 0.

Mostly Uncle Frank [23:38]

25% for the week and is around $2,000 an ounce these days.

Mostly Voices [23:46]

I love gold so much that I even lost my genitalia in an unfortunate smelting accident. Hence the name Goldmember.

Mostly Uncle Frank [24:01]

Long-term Treasury bonds represented by the fund VGIT were down slightly. They were down 0.52% for the week. REITs represented by the fund R-E-E-T were the big winner last week. They were up 4.94% for the week. Commodities represented by the fund, PDBC were up. They were up 3.42% for the week. And preferred shares were also up. Our representative fund, PFF was up 3.89% for the week. And finally, managed futures was down, the big loser for the week. Representative fund DBMF was down 2.33% for the week. It's interesting looking at that because that was the big high flyer for the year of 2022, but just recently in March suffered one of its worst performances ever when we had that Silicon Valley bank collapse and short term interest rates dropped by 1% overnight. It's a good example of why you do not want to chase last year's big winner, because oftentimes you get bad results in the next period. But that's how diversification is supposed to work. Some things are going up and some things are going down at the same time. You never know what you're going to get. Anyway, now moving to the seven sample portfolios. First one is this All Seasons Portfolio. It's a reference risk parity. style portfolio, it's only 30% in stocks in a total stock market fund, 55% in intermediate and long-term treasury bonds, and the remaining 15% is divided into gold and commodities. It was up 1.13% for the week. It is up 5.69% year to date and is still down 2.83% since inception in July 2020. We are distributing out of this portfolio at a 4% annualized rate. That means we'll be taking $30 out of it for April. It will come out of the cash that has accumulated from the payment of income. That will be $117 year to date and $1,091 since inception in July 2020. Moving to our three kind of bread and butter portfolios. First one's a golden butterfly. This one's 40% in stocks divided into a total stock market fund and a small cap value fund. It's got 40% in treasury bonds divided into long and short and 20% in gold. It was up 1.38% for the week. It's up 5.38% year to date and up 12.99% since inception in July 2020. We'll be distributing out of this one at a 5% annualized rate. So it'll be $41 for April. It's also coming out of accumulated cash. That'll be $164 so far year to date and $1,462 since inception in July 2020. And all of these started with $10,000 or thereabouts on their inception dates. Next one is the Golden Ratio. This one's 42% in stocks divided into three funds. including large cap growth and small cap value. It's got 26% in treasury bonds, long-term treasury bonds, 16% in gold, 10% in a REIT fund, and 6% in a cash money market fund. It was up 1.98% for the week. It is up 6.25% year to date and up 8.92% since inception in July 2020. We are distributing out of this one at a 5% annualized rate, so it'll be $40 from April and this one always comes out of the money market, the cash fund, because that is how the management is set up for it. That'll be $157 year to date and $1,442 since inception in July 2020. Next one is our Risk Parity Ultimate where we try to include a little bit of everything. So there are 15 funds in it that I will not go through, but it was up 2.16% for the week. It is up 7.06% year to date and up 1.19% since inception in July 2020. We're distributing out of this one at a 6% annualized rate. So it'll be $43 for April. It is also coming out of accumulated cash. We will have distributed $170 year to date and $1,666 since inception in July 2020. We are intentionally distributing out of these portfolios at an aggressive distribution rate to push them and show they can withstand that kind of abuse over time. But now moving to our experimental portfolios. These involve the levered funds we were talking about before.

Mostly Voices [28:57]

I think this is enough. Nah, go for broke, good thinking, man. First one is the Accelerated Permanent Portfolio. This one's 27.

Mostly Uncle Frank [29:09]

5% in a levered bond fund, TMF. 25% in a levered stock fund, UPRO. It's also got 25% in a preferred shares fund, PFF, and 22.5% in a gold fund, GLDM. It was up 2.83% for the week. It is up 11.74% year to date and down 14.84% since inception in July 2020. We are distributing out of this currently at a 6% annualized rate. So it'll be $35 coming out of it for April and it's also coming from accumulated cash. We will have distributed $136 year to date and $1,961 from it since inception in July 2020. The next levered portfolio is this aggressive 5050, which is our most levered and least diversified portfolio. It's 33% in a levered stock fund, UPRO, 33% in a levered bond fund, TMF, and the remaining third divided into an intermediate treasury bond fund, VGIT, and a preferred shares fund, PFF, and those act as ballast. It was up 3.21% for the week, so it's the big winner here. It is up 12.51% year to date on that leverage, but it's still down 22.05% since inception in July 2020. It does tend to move in increments of 3 to 5% pretty often on a weekly basis. We are distributing out of this one at a 6% annualized rate. So it'll be $32 coming out of the bond fund, which has been doing the best recently. for April, so it's coming out of TMF. We will have distributed $124 year to date and $1,957 since inception in July 2020. And moving to the last one, the levered golden ratio. This one's only been around since July 2021. It's got 35% in that levered composite fund, NTSX. That is the S&P 500 and Treasury bonds. 25% in gold, GLDM, 15% in a REIT, O, 10% each in a levered bond fund, TMF, and a levered small cap fund, TNA, and the remaining 5% divided into a volatility fund and a Bitcoin fund. It was up 2.12% for the week. It is up 7.39% year to date, but down 17.78% since inception in July 2021. We're distributing out of this at a 5% annualized rate currently, so it'll be $31 for April coming out of accumulated cash. We will have distributed $122 year to date and $932 since inception in July 2021. And that concludes our weekly and monthly portfolio reviews.

Mostly Voices [32:05]

Oh, wow. Good, DIB.

Mostly Uncle Frank [32:09]

I will be posting the monthly data with all the other monthly data up there on the Portfolios page for your perusal and entertainment. But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.com or go to the website www.riskparityradio.com Put your message into the contact form and I'll get it that way. I'm only about two months behind, but we'll work on remedying that in April. We're on a mission from God. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars, a review. That would be great. Mmmkay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off.

Mostly Voices [33:05]

You're okay to land this thing? No problem, man. I think you're going a little high, man. It's okay, man. If there's one thing I know, it's how to drive when I'm stoned. It's like you know your perspectives. Fuck. So you just gotta let your hands work the controls as if you're straight. oh, wow. Good Landing, man.

Mostly Mary [33:43]

The risk parody radio show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute Financial investment. tax or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.