Is there a salary number that would make you feel secure?
The way I've thought about this was not with a number but an idea. In years past I've said "if you make enough to pay the bills and save a little for the future with a little left over to have some fun, then you're doing pretty well."
I view the question of financial security as being about how long you can last financially if things go really sideways. The simplest example is the one we talk about all the time where someone in their 50's has their hand forced at work into early retirement or a serious underemployment. I've framed out a thought process previous posts, can I make it to penalty free IRA withdrawals at 59 1/2 and then, can I make it to claiming Social Security early at 62 and if I can last until 62, how much further beyond 62 can I make it (assumes this person's Plan A was to take SS later not earlier)?
In your 30's, you hopefully/probably have an easier time being able to replace your income in a new job and so you don't need to be able to last as long financially. I was 35 when I got laid off at Schwab in 2001 and it took me two months to find a job and it turned out to be a higher paying job. When my old firm got shut down a couple of years ago (partner malfeasance having nothing to do with me, I was never a partner) I was 56. I was emotionally prepared to not be able to land anywhere. It turned to take less than two months but that may have been 100% luck, there's no way to know.
The ReturnStacked guys had a post about crowding into certain alternative strategies and whether too much AUM could influence the outcome. TBH, that part of it wasn't compelling but this sentence was a succinct explanation for using several alts. "By carefully selecting a mix of divergence and convergence premia, investors can potentially build more robust portfolios that are resilient to crowding risks." Divergence and convergence as they are using the words is just a fancy way of saying diversify your diversifiers. Instead of more resilient to crowding risks, it's simpler to frame it as resilient to a diversifier doing poorly like managed futures has been lately.
Obviously the post was in support of their version of portable alpha. I built the following to see what 40% leverage to add a diverse basket of alts would do. MERIX is a client/personal holding.
Portfolio 3 is plain vanilla 60/40.
First, I can never get what they talk about to work well. I don't think it is their process, I think it's the bonds they are willing to hold. If you've decided to not have AGG-like exposure or treasuries with duration then the appeal of leverage, if there's any appeal, is lessened.
I would not assume the the return outperformance would stay the same going forward but attributes related to volatility, maintaining a better Sharpe Ratio, Calmar and kurtosis have a better chance of being reliable going forward.
Speaking of reliability. Bloomberg quoted Alex Brazier of Blackrock as saying “The stock-bond correlation now is much less reliable than it used to be. Portfolios are shifting both from sort of 60/40 to be more 50/30/20 as you get more private markets and the investable universe expands. Within the public market sleeve, people are looking much more now at strategies that are market-neutral."
This conversation is one that has been happening here forever. The issue with bonds was an obvious problem for years before late 2021. For anyone new, I blogged about it at the AdvisorShares blog and then at ETFmaven after that long before bonds finally cracked. You don't need an (deep cut alert) HP 12C to understand that getting 2% or less for ten years takes a lot of risk with very little reward. The ReturnStacked guys argue for 60/40 and then leveraging up to get alt exposure which avoids tracking error (their argument). I don't see the appeal of maintaining the traditional 40.
Politico wrote about a new bubble not in crypto broadly but in Bitcoin treasury companies like Strategy (MSTR) that leverage their balance sheet issuing convertibles and preferreds to buy Bitcoin. On the positive side of the ledger is the Bitcoin mining operation in Bhutan which has had a huge impact on the country. It is not a wealthy country and its Bitcoin cache accounts for about 40% of the GDP. The country has abundant hydroelectric power which makes mining much cheaper than other places which contributes to how this all can work.
As I read both of these articles, it clicked in my head that Bitcoin will never be what the touts say it will be. I've owned Bitcoin for a while and I am not selling but I have also been skeptical the whole time. It is never going to be the currency solution for the planet. That doesn't mean it will disappear. It can go to $1 million like Michael Saylor recently said or maybe even $3 million like Tom Lee recently said or it could go down 99.9% (literally going to zero is off the table) which has nothing to do with whether it becomes the universal means of payment. It could continue to be a wildly successful, speculative asset as it has been.
It's a fixed supply at 21 million that has kind been cornered with others also trying to corner it. 21 million isn't really the number. The real number is more like 17 million. About four million Bitcoin are gone due to lost hardware and lost passwords. "Satoshi Nakamoto" owns about 1 million Bitcoin. All of the ETFs combined are getting close to that number. Strategy owns a little over 500,000 Bitcoin. How many Bitcoin might the other Bitcoin might the other companies pursuing the Bitcoin treasury end up with? I don't know but this doesn't add up to being anything like the global currency to replace anything. Are 10 constituencies going to own 5 million Bitcoin while the rest of the planet fights out for the other 12?
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