Permanent Portfolio Analysis for week ending 2/16/07

By: Robert Moore | Sat, Feb 17, 2007
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The Permanent Portfolio fund hit a new record high this week. Everything just keeps going up and up and up... Where will it stop and what will stop it? What asset classes will bring it down a bit? What's relatively high and low right now? I have no clue where it will stop and what will stop it, but I do know what asset classes are relatively high or low. That's what we look at in this weekly review.

Gold:

Gold has continued to hang slightly above the one standard deviation, "Shed", mark all week. I'm not buying or selling right now. I am bullish on gold so I always buy when the price gets close to the 180-day Moving Average and I back up the truck and load it when the "Accum" trigger is hit, now at -.37. If you are building your portfolio, you might want to wait for the next dip. If you are in sell-mode the past few days would have been a-good-a-time-as-any to sell a few coins to get you through the month. If you are balancing your Permanent Portfolio to get gold to 25% selling now is OK. Put the proceeds into the Long Bond or into whatever class you are short.

I buy the physical metal and bury it. I also buy "Paper Gold" in stocks and funds that are highly correlated to the price of gold (e.g. ASA, GLD, TGLDX, etc.). When I get ready to sell the first thing that goes will be the paper. I'll hold the physical metal until the end.

Note to kids: I got a creepy email from some guy that is spying on me so I moved the gold map. You can find its new location by reading the laser engraving on the cat whisker that's in the safe where I keep the automatic weapons. You can use the microskop that I bought you for Christmas when we were in Germany. It's in with the beanie babies in the attic. Love, Dad.

Bonds:

Bonds are starting to move relatively higher. I always buy when the "Accum" trigger is hit and the price is below the Median, now at -.56 and 10.26 respectively. If you are just starting to build your portfolio, now is an OK time to accumulate the long-bonds. I need to rebalance a little bit as I've got too much in the Cash asset class so I'll likely buy some bonds next week.

When I'm buying I either buy the actual 30-year bond or TLT.

Stocks:

The S&P500 just wants to ride along the plus one standard deviation line. It briefly poked into "Shed" last Thursday. How long can this go on? It's been good for my 20% or so that's invested here but I hate to rebalance and buy now.

I am bearish on Stocks so I always buy when the "Accum" trigger is hit and the price is below the Median, now at -.88 and 17.68 respectively. It looks like I'm going to be waiting a while... I know this graph looks bullish but if you are just starting to build your portfolio I would wait to see what happens next week...next month...maybe next year. Be patient and wait for the correction. Remember, you can hold as much as 35% of your portfolio in cash and still be compliant with the strategy (I'm over that now myself). If you're selling, watch the S&P500 and if it goes up next week shed a few shares to balance your portfolio or use it to treat yourself and your family.

I'm currently speculating on the energy and defense sectors as it seems we're going to be in this war for a while. Heck, you can't do anything about it so you might as well try to make some money.

Cash:

I just bought another T-bill yesterday...whatever... I believe something is going to give and I want to have some cash available to take advantage of it.

I speculate in Yen and Swiss Francs. That's about as boring and unprofitable as it can get these days. No interest...No glory...No fun... Tracking Yen on my charts, however, shows that it has moved out of the "Accum" region and is only about .0004 below median. Whoopee!

I'm just you're average Bob so I get no points for suggesting www.everbank.com as a potential vendor for your transactions but I use them to buy foreign currencies. It seems to me that in order to play the currency game you've got to be ready to speculate about $250K in it so unless you want build to that position you might as well forget about it.

The Permanent Portfolio Fund:

The Permanent Portfolio Fund is trading in the Strong Sell region (two standard deviations above the 180-day moving average) and set another record last Thursday. PRPFX has been trading above the MA for quite a while and I believe the approach used helps to support this general trend.

Playing the Permanent Portfolio Game:

Harry Browne suggested an allocation of 25%/each to gold, stocks, bonds and cash. He said that this would produce a return of 8% if followed carefully and rebalanced annually. I have no reason to doubt it and if one looks at a similar portfolio, PRPFX, one will see that this approach has worked fairly well. We haven't seen a huge drop in any of these asset classes over the past history of this fund and the approach seems logical to me so I'm going to stick with it. The long-term graph seems almost ridiculous! Gold and stocks have both been moving up during the almost parabolic increase in PRPFX. I'm interested to see what happens when one of these classes starts to break down. The near-term past has been very good to us.

There are two simple scenarios that I try to consider in this weekly post:

I am working and have income to invest so I'm looking for investments that are relatively cheap among the four investment classes and buy them. Others may be retired and are living off their portfolio. For those selling, I try to identify the classes that are relatively expensive and are candidates for selling and/or re-balancing to maintain a 25% allocation to gold, stocks, bonds and cash.

Harry Browne believed that one should have a plan for investing and divesting that was simple and would not require constant maintenance and worry. Through these posts I try to identify the investments that are relatively high or low so that you can quickly see what of your current portfolio may need attention. You should never be put into a position that you are constantly worried about your investments. Harry's Permanent Portfolio strategy, does, in fact, give one "peace-of-mind" but when you want to either invest or divest it's helpful to have some guideposts.

Summary:

I am currently accumulating short-term T-Bills and may buy some long bonds next week just to keep myself in balance. I remain waiting for Gold and Stocks to become more reasonable before I start buying more. If you are just starting out now to build your Permanent Investment Portfolio, long-term bonds and cash would be a good place to start as they are relatively cheap.

Stuck on the runway for 11 hours without a smoke, nicotine gum or a patch, damn-it!

 


 

Author: Robert Moore

Robert Moore

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