Permanent Portfolio Analysis for week ending 3/2/07
I'm late with my post since I was at a remote, isolated Costa Rican jungle location on vacation last week. What a surprise it was to pick up a copy of the jungle news after a week of isolation and read that CNBC was being sold to the Chinese National Broadcasting Company, hell, they don't even need to change the call letters! It's really interesting to get away while the markets melt down.
OK, I lied. Staying at the Four Seasons Resort Peninsula Papagayo, Guanacaste, Costa Rica is living in the lap of luxury. I saw the market melt down between golf, swimming, good food, drinks, sailing, reading, windsurfing and monkey watching. Too awesome to describe here. What was interesting, however, was that the resort seemed to empty out on Tuesday. Not sure why but I'm speculating that a number of the guests were in some way intimately tied to the markets...."Dear, I believe we may need to cut this vacation short as I've got to get back to New York/London to check our hedge fund...We're short a few Yen/Swissies and long mortgages and stocks". Gulp.
Our Permanent Portfolio took a hit too but I'm not worried; just a good time to balance and maybe buy when the time is right. I love market corrections like this as it allows me to spend some cash on distress sales.
Because I'm late you get today's readings as a bonus!
Last week I was saying how much I loved it when the gold market goes up. Now I'm saying that I love it when the gold market goes down. WOW! What a fantastic investment strategy when you can love it when prices go up and down!
What this movement is presenting, dear reader, is a buying opportunity. We're sitting right on the 180-day MA and since I like gold I usually buy now. But Wait! Could I buy a lot cheaper? Perhaps. Maybe I'll wait a while to see what happens. You know, we're way over the median for gold. I might buy a few dozen coins to get myself in balance as we took a huge hit the past five days. 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, now would be a good time to buy some gold.
Last week I suggested selling a few coins. That was not bad advice. If you are balancing your Permanent Portfolio to get gold to 25% buying or selling now is OK. Also, last week I suggested putting any gold sales into the long-bond. That, too, was not bad advice.
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: Gold goes up and down but, unlike stocks, it never goes to zero. Love, Dad.
The thing I like about the long-bond is that it has a tendency to rise when all else is going down the toilet. Unfortunately, Bonds did not take up the huge amount of slack from stocks and gold last week but I'm glad I've got about 20% of my portfolio in the bonds. It helps cushion the blow.
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 -.55 and 10.26 respectively. If you are just starting to build your portfolio, now is an OK time to accumulate the long-bonds though they could move higher into the "Shed" region in short order.
When I'm buying I either buy the actual 30-year bond or TLT.
The drop last week put me into the <15% stock balance in the portfolio so today I bought some S&P500 defense-sector stocks. It seems, at the end-of-the-day they did OK. I'm not prepared to buy the whole S&P500 yet. It became relatively cheaper all week long but still has a long way to go before I start buying in earnest.
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 have been suggesting to wait for the correction before buying the S&P500 and while we are in the midst of a correction I would still wait to see what happens next week...next month...maybe next year. Be patient. Remember, you can hold as much as 35% of your portfolio in cash, bonds or gold and still be compliant with the strategy.
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.
My cash position is now about 35% of the portfolio. As I said last week, "I believe something is going to give and I want to have some cash available to take advantage of it". Holding cash in this environment is prudent.
I speculate in Yen and Swiss Francs. Tracking Yen on my charts shows that it is about .0004 below median. Francs are also moving up a little. I'm holding these currencies and was fortunate that an Icelandic CD I had that was paying 12% expired on 2/28/07. I'm learning a little about the "carry trade" and was just plain damn lucky.
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 to build to that position you might as well forget about it.
The Permanent Portfolio Fund:
As I said last week, "Something is going to give. Stand by." As we get closer to the 180-day MA it may be time to look at all asset classes for purchase. Something is still giving, wait patiently to take.
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:
- You are working and have money to invest in a Permanent Portfolio
- You are retired and are living off your Permanent Portfolio
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.
Last week, I was accumulating t-bills and the long bond. I am now balancing the portfolio, picking up S&P500 defense-sector stocks and buying a little gold & more t-bills. I remain waiting for Stocks to become more reasonable before I start buying the general S&P500 in earnest. If you are just starting out now to build your Permanent Investment Portfolio, gold would be a good place to start as it is relatively cheap.
Not believing it was a computer glitch,