Permanent Portfolio Analysis for week ending 3/9/07
The markets seem to be undecided. I wish there would be a good old-fashioned correction so I would feel comfortable spending some money.
Last Monday would have been a good time to pick up some gold. I didn't get my order in so I'm hoping to see a little bit more downside so I can buy at a slightly better price.
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.
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.
I don't think the market knows what it wants to do.
Bonds moved relatively higher last week. 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.
When I'm buying I either buy the actual 30-year bond or TLT.
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. If you are starting to build your portfolio it's okay to buy the S&P500.
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 a couple of weeks ago, "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 .0005 below median and, after a brief bit of excitement, it has retreated.
The Permanent Portfolio Fund:
PRPFX recovered a little last week but isn't it interesting how the permanent portfolio regularly bounces up over two standard deviations above the MA and retreats close to the MA. We haven't seen a significant period of time in the last several years that PRPFX has dropped below the MA, let alone get into the "Buy" regions.
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.
I'm still buying T-Bills and waiting. If you are just starting out now to build your Permanent Investment Portfolio, gold, stocks and bonds are all relatively lower in price now so feel free to buy some, just don't go overboard.
Wanting 2X Daylight Savings Time,