The Perfect Storm for the Permanent Portfolio?

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Browser
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The Perfect Storm for the Permanent Portfolio?

Post by Browser » Thu Jun 20, 2013 9:13 am

The theory behind the Permanent Portfolio is that you should divide your portfolio equally between stocks, long duration bonds, and gold, based on the idea that these three assets have very low correlations and when some go down others go up and help save your bacon. However, I have long thought that abnormally low interest rates have created an environment in which rising rates, or the anticipation of same, would bring about large losses in all three of these asset classes. Now that seems to be unfolding. Gold is absolutely getting trashed along with stocks and bonds, just as I expected would happen. It will be interesting to see how this unfolds going forward. I sure would be having some sleepless nights if my portfolio were entirely invested PP-style these days. Wonder what craigr and medium tex are saying about this?
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rmelvey
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Re: The Perfect Storm for the Permanent Portfolio?

Post by rmelvey » Thu Jun 20, 2013 9:18 am

The thing is, in the short run tapering is no good for any asset except for cash. No major asset class is up today. The PP can not work magic. For someone that is in a PP, departing from a PP almost necessarily means moving to something less diversified which runs the risk of blowing up later.

FafnerMorell
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Re: The Perfect Storm for the Permanent Portfolio?

Post by FafnerMorell » Thu Jun 20, 2013 9:21 am

I would think that this would be a great buying opportunity for someone with PP - they can rebalance their cash to stock up on gold, bonds, stocks.

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Re: The Perfect Storm for the Permanent Portfolio?

Post by Browser » Thu Jun 20, 2013 9:23 am

rmelvey wrote:The thing is, in the short run tapering is no good for any asset except for cash. No major asset class is up today. The PP can not work magic. For someone that is in a PP, departing from a PP almost necessarily means moving to something less diversified which runs the risk of blowing up later.
I think you're right about cash -- that's why I moved a large portion of my portfolio to cash, CDs, I-Bonds, and other similar investments to protect principal from rising rates. When you see a bright light moving toward you, sometimes it's a good idea to get off the tracks.
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Re: The Perfect Storm for the Permanent Portfolio?

Post by FafnerMorell » Thu Jun 20, 2013 9:23 am

Browser wrote:The theory behind the Permanent Portfolio is that you should divide your portfolio equally between stocks, long duration bonds, and gold
I think you left out cash. (If I recall, PP is a 25% in each - it's not my portfolio so I don't know the details, but I seem to recall that from the discussions).

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nisiprius
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Re: The Perfect Storm for the Permanent Portfolio?

Post by nisiprius » Thu Jun 20, 2013 9:43 am

Doesn't look very stormy to me. Orange is the Permanent Portfolio ETF which supposedly is the real Permanent Portfolio but hasn't been out long; blue is the Permanent Portfolio mutual fund which has a long track record but isn't quite the real Permanent Portfolio--or it is one of the real Permanent Portfolios but not the "right" one, or something.

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I hold no gold and don't like the Permanent Portfolio, but I wouldn't be losing sleep if I held it. And frankly, with the greed-inspiring gold-fueled performance the Permanent Portfolio has turned in over the past decade or so, anyone smart/lucky enough to have been holding it for more than a few years could afford to lose a lot and still be way ahead of my own portfolio, or other traditional portfolios as illustrated here by LifeStrategy Moderate, STAR, and Wellington.

Believe me, I have as much confirmation bias as the next guy and I want gold to crash, crash, crash so that I can feel like a winner and all, but even gold by itself hasn't been all that awful. So, it's only up fivefold instead of sixfold? If that's getting trashed I wish my investments would get trashed that way.

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Look, what I personally want to see happen to gold, for petty emotional reasons, is for the current peak to be a bubble like 1980. Fivefold gain over three years, then a fivefold loss just as fast. Well, it's hasn't happened this time. And I am not going to type in the word "yet." :oops: Oops, I just did.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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