Permanent Portfolio- PRPFX

[cute fuzzy bunny]

Google "price of gold adjusted for inflation. You'll see that its largely lost real value. It doesnt "go up in value consistently". It goes sideways and downwards consistently with very infrequent periods of speculative spikes, with very poor correlation to any economic data. I'm not going to have the "GOLLLLDD!" discussion again, its been done. The data doesnt support it as a useful asset class except in small amounts for speculative purposes.

We dont live in Japan and dont run our economy the same way.

Lastly, how various asset classes respond to the four economic conditions you mentioned are very different now than they were 50 or 100 years ago.

[BigTex]

Originally Posted by cute fuzzy bunny

Google "price of gold adjusted for inflation. You'll see that its largely lost real value. It doesnt "go up in value consistently". It goes sideways and downwards consistently with very infrequent periods of speculative spikes, with very poor correlation to any economic data. I'm not going to have the "GOLLLLDD!" discussion again, its been done. The data doesnt support it as a useful asset class except in small amounts for speculative purposes.

Let me be clear--I do not want to have the gold discussion either. I am well aware that gold is very volatile and can just as easily go up or down. The fact is, however, that gold was $35 an ounce in 1971 and it was $800 an ounce this morning. Not that great compared to some investments, but pretty good compared to others. You know enough about HB's thinking to understand how gold works in the PP strategy. HB's PP strategy is far more subtle than "GOLLLLDD!", however.

We dont live in Japan and dont run our economy the same way.

In what way is out economy different from Japan's that precludes a long deflationary period in the U.S.?

If you included the decline in housing prices in the CPI, we would have a core rate right now of under 2%, which would mean that the long bond market is not nearly as irrational as some people believe.

I assume you are aware that it is not possible to escape deflationary forces simply by printing more money if you are in a serious and systemic credit contraction....sort of like right now.

Lastly, how various asset classes respond to the four economic conditions you mentioned are very different now than they were 50 or 100 years ago.

What's different? Credit contraction is deflationary. Inflation expectations, easy credit and poor fiscal policy lead to inflation. High energy prices lead to recession and inflation. Economic growth leads to expansion. I'm really curious about why these forces are different today.

It's true that since the demise of the gold standard, there does appear to be a long term controlled devaluation of fiat currencies, but that's about the only fundamental difference I see in today's world compared to the past when it comes to investments. Can you elaborate more on how investing is different today? Hasn't it always been a matter of finding the most efficient places to deploy capital, finding the most creditworthy borrowers at a given interest rate, and finding reliable stores of value?

Far from a bubble, I think that the price action in gold since 2001 confirms the soundness of Harry Browne's original PP allocation strategy. His strategy provides over a 9% annual return since 1972. How much longer of a period than 36 years do you need before you say that the strategy may be a sound one?

What portfolio allocation do you like going forward?

What has your investment return been for the past one and five year periods (if you care to share)?

BTW, here is the bogleheads discussion I mentioned above: http://www.bogleheads.org/forum/view...4219d5ac4a8882

Here are the results of HB's actual 25/25/25/25 allocation (through 2003): http://harrybrowne.org/PermanentPortfolioResults.htm

Here is a YTD comparison of the permanent portfolio to other passive strategies: http://madmoneymachine.com/portfolios/

[cute fuzzy bunny]

I think I already answered all of your questions in prior posts in this thread. Have a gander.

Aside from that, did you actually just link to a chart with a custom graded Y axis to make a line thats almost flat look like it goes smoothly upwards towards the upper right quadrant?

Investment returns? I retired a multimillionaire at 39. My average annualized returns are in excess of 14%. I'm down this year, but I was also down in 2001 just prior to making a killing. I'm up about 90% total in the last 5 years.

What would I recommend vs this dog of a fund? I'd buy broad based equities over the next few months and if I was in the right area, I'd look for bargain priced real estate over the next couple of years. I like "endowment" style investments such as the vanguard managed payout funds.

I wouldnt touch commodities or things that the investor doesnt understand, especially if the investor is buying them simply because they went up a lot in the last couple of years. I wouldnt buy gold or gold related products until they hit about $300-350 an ounce. Then I'd buy a very small amount simply because there are a good set of people that'll buy it and run the price up, independent of any economically or financially sound reasons.

I'm not above making money on other peoples irrationality.

[BigTex]

Originally Posted by cute fuzzy bunny

I think I already answered all of your questions in prior posts in this thread. Have a gander.

I didn't see anything about why the deflation that has plagued Japan for 15 years can't happen here.

That's probably the thing I'm most curious about, especially since lots of folks think that fiat currencies can't experience deflation.

Aside from that, did you actually just link to a chart with a custom graded Y axis to make a line thats almost flat look like it goes smoothly upwards towards the upper right quadrant?

It's the chart on HB's website. Starting value was 100 in 1970 and 2000 in 2003. That's not an almost flat line.

Investment returns? I retired a multimillionaire at 39. My average annualized returns are in excess of 14%. I'm down this year, but I was also down in 2001 just prior to making a killing. I'm up about 90% total in the last 5 years.

What was the source of your millions, if you don't mind sharing?

Wouldn't you be up 90% over the last five years if you'd been in PRPFX?

I'm not above making money on other peoples irrationality.

Irrationality is a relative term. You're the one who is down for the year, right?

[cute fuzzy bunny]

Originally Posted by BigTex

I didn't see anything about why the deflation that has plagued Japan for 15 years can't happen here.

Principally because socially, economically, financially and culturally the two countries have practically nothing in common. To experience Japans deflationary economic situation, most americans would have to sharply reduce spending and begin massive savings programs, companies would have to stop capital expansion and begin shifting profits to paying off debt, and government supported corporate zombieism would have to spread far past the "big three".

I suppose one could argue that freddie and fannie and a couple of the financial institutions that have had to be bailed out are functional zombies, but I dont think that problem is going to continue on and be as widespread and tolerated as long term as Japan has. Most of this smells more like criminal endeavor that will end up being punished in some manner than broad based, widespread government sponsored corporate stupidity.

So I guess the thesis that strong deflation could happen here is possible, just highly implausible. And should it become prevalent, eh...stocks and bonds have traditionally produced fabulous returns in deflationary economies presuming that they werent accompanied by a depression.

You could say "But japans stock market has gone nowhere!"...the stocks of the well regarded non-zombie companies have done just fine. So I suppose the key learning from that would be to avoid index funds full of zombie companies.

I have to say that its sort of a boring topic to talk about, principally because it is so unbelievably unlikely to happen, and secondarily because its one of the first quick-draw responses often seen in goldbug conversations. As soon as someone points out that gold went nowhere for 30 years despite inflationary pressure, the "what about deflation just like japan!?!" comes out, only the person throwing that out usually has absolutely no idea about the implications that would have to be fulfilled for such a comparison to be fully drawn.

I know you keep saying we're not having "the goldbug conversation", but when you're pumping up a fund that holds significant amounts of gold, and proposing an alternative thats 20-25% in gold...well...yes we are!

It's the chart on HB's website. Starting value was 100 in 1970 and 2000 in 2003. That's not an almost flat line.

It is when you factor in inflation and then compare the results to other investments that arent full of lead weight. When the vanguard wellesley fund kicks your ass over a 30 year period using only two mundane asset classes with equally low volatility, very good inflation response, better dividend payouts and no threats of mailing out bags of securities if the fund should liquidate...you've got a stinky fund!

Plus the Y axis WAS manipulated to make the trend line look stronger.

What was the source of your millions, if you don't mind sharing?

So many questions about ME!

Stock options given for job outperformance, real estate, and general investing...in roughly equal proportions. I didnt make any of it by buying underperforming, overpriced assets that I didnt understand and then watching them drop like a rock.

Wouldn't you be up 90% over the last five years if you'd been in PRPFX?

I guess I'd have to go look and see. Only problem is that I dont think that 5 years ago I'd have been very interested in a fund that had extremely weak appreciation over its entire existence and was full of obscure investments largely designed to overcome problems that I dont think we're going to see and for which available data shows an inadequate correlation.

Standing here now as its 'shot its wad' on substantial coincidental speculative appreciation that is already reversing itself, I think I'm still not interested. One last time..."buy low, sell high!"

Irrationality is a relative term. You're the one who is down for the year, right?

Hey, nice jab! I usually define irrationality as someone who looks at the available data and then makes a decision that is contrary to all of that data. Buying this fund would qualify. Anyone who looks at an investment and says "Oh my, its gone up a lot over the last 5 years, its full of stuff that is supposed to act in a certain manner but thirty years of available data shows otherwise, and its got GOLD! in it...where do I sign up?" is not a very good investor and is showing signs of irrationality. A rational investor buys underpriced products with good prospects for future returns, or steady return products that produce a reasonable real return equal to or in excess of the assumed risk.

And isnt practically everyone down this year? If you're invested in a manner to have avoided all paper losses, you probably missed out badly on all the upside in the past and the future. If you changed allocations just in time to avoid the downturns in almost every asset class, then you were nothing short of lucky.

Why...even PRPFX is down for the year!

Anyone that bought this fund 5 years ago and lucked out into a nice speculative return...you might seriously consider divesting yourself of it promptly. You may thank me profusely in a year or two...

This has been a fascinating conversation to have had for the third or fourth time, thanks for all the memories...

[BigTex]

Those are good thoughts bunny. I appreciate the feedback.

Believe it or not, on the WHOLE internet, yours is the only voice that I have found that is solidly anti-PRPFX with a lot of coherent reasoning behind it.

Hopefully people who are interested in this fund will come across this discussion.

It will be interesting to see where it goes from here.

Which of Harry Browne's writing have you read? I've read most of them, and he was really a unique voice. If you haven't checked out that bogleheads thread I linked to, you (or anyone else here) might want to. It's a good discussion of the PP strategy and other similar approaches.

What are your thoughts on the baby boomers mass exodus from the work force and what that might do to future stock market returns and the productivity of the U.S. economy? Part of what hurt Japan in the last 20 years has been a similar aging of a large band of the population.

Does the level of U.S. government debt and unfunded future entitlements trouble you? It bothers me a little. I don't know how healthy an economy can be with the levels of taxation that will be necessary to pay all those future promises. If you add in a few more energy security related military engagements, that just muddies the water even more.

***

If you are interested in a little different take on things that may have a few nuggets of truth, check out the "Crash Course" here: http://www.chrismartenson.com/crashcourse

You probably won't agree with all of it, but I think it is a useful perspective to have as part of an overall investment strategy.

[unclemick]

1. US stock
2. US intermediate treasuries
3. Foriegn fixed - closed end fund
4. Foriegn stock
5. Real estate
6. Physical PM - gold, platinum, silver
7. Mining, resource stocks - gold, copper, other, oil, gas.
8. I skipped commodities ??

My version of Harry Browne from the late 70's early 80's before the relentless march of my Index 500 in 401k overwhelmed it in the long haul.

The portfolio wasn't all that bad - but I picked the wrong two decades and became more and more a Boglehead as time went on - including some Psst Wellesley(a little forum humor).

heh heh heh - Now my crystal ball is giving hints of inflation ahead - but I am not going back - will stick with Target Retirement and adjust to hold an SEC yield 'floor' of 3% plus this time around.

[cute fuzzy bunny]

Originally Posted by BigTex

anti-PRPFX

I'm not against any particular thing. What I'm against is people buying investments they dont understand, with unrealistic performance expectations coupled with an inability to articulate where they expect those returns to come from.

Right next to that are folks who persistently make claims about investments and asset classes when a mountainload of data suggests a very different conclusion.

Right next to that are people who get excited about an asset class that has run up and want to jump on the bandwagon, figuring the train will keep on rolling.

As far as being the only voice on the internet who doesnt think this is a worthy investment, a quick google search turned up the following:

Permanent Portfolio PRPFX

Lots of discussion on the fundalarm board, not much of it very positive.

[jIMOh]

Originally Posted by cute fuzzy bunny

As far as being the only voice on the internet who doesnt think this is a worthy investment, a quick google search turned up the following:

Permanent Portfolio PRPFX

Lots of discussion on the fundalarm board, not much of it very positive.

Fundalarm has a significant user base which is invested in this fund- myself included.

Most of the core posters (rono, others) are still holding and in some cases buying more (I am also buying more). There have een negative posts about performance chasers getting out.

I use this fund for my "secondary cash"- cash I would have in taxable accounts for mid term expenses 3-10 years down the line. The position I have is less than 1/200 of my portfolio. That is less than 1/2 of 1%.

[cute fuzzy bunny]

Thats a very good amount.

Fundalarm has this to say about the fund:

"1. Mr. Cuggino is the manager, sole member, President and Chief Executive Officer of Pacific Heights.
2. shareholders of the Permanent Portfolio fund have paid $10,641,000 to Pacific Heights for its services over the past three years. For the year ended 1/31/07, shareholders paid $5,615,303 for Pacific Heights' services.
3. Mr. Cuggino's total investment in the Permanent Portfolio fund is somewhere between $1 and $10,000. And that ownership occurs "[t]hrough Mr Cuggino's ownership of Pacific Heights" rather than through a personal investment. I guess that's an improvement from last year when "As of April 30, 2006, Mr. Cuggino and his immediate family members owned no shares of the Fund" (SAI, 5/30/06).
Mr. Cuggino also "has day-to-day management responsibilities [for] certain personal accounts. The management of the Fund's Portfolios and these other accounts may result in Mr. Cuggino devoting unequal time and attention to the management of the Fund's Portfolios and these other accounts. If Mr. Cuggino identifies a limited investment opportunity which may be suitable for more than one Portfolio or other account, a Portfolio may not be able to take full advantage of that opportunity."
So, the warning is that Mr. C. might become too interested in management of his personal account to devote full time and attention to his fund. And if he finds a really interesting little investment, he might allocate it between his personal account and his fund in a way that doesn't allow the fund "to take full advantage of that opportunity." ."

Rather faint praise. The fund manager and his family have practically no money in the fund and his contract lets him keep his best discoveries in his own account to the exclusion of the fund.

Could you point me to a thread on Fundalarm where this 'significant ownership' and positive comments are made? All the threads I looked at basically said the same thing I've been saying. Maybe I missed something.

[jIMOh]

Originally Posted by cute fuzzy bunny

Thats a very good amount.

Fundalarm has this to say about the fund:

"1. Mr. Cuggino is the manager, sole member, President and Chief Executive Officer of Pacific Heights.
2. shareholders of the Permanent Portfolio fund have paid $10,641,000 to Pacific Heights for its services over the past three years. For the year ended 1/31/07, shareholders paid $5,615,303 for Pacific Heights' services.
3. Mr. Cuggino's total investment in the Permanent Portfolio fund is somewhere between $1 and $10,000. And that ownership occurs "[t]hrough Mr Cuggino's ownership of Pacific Heights" rather than through a personal investment. I guess that's an improvement from last year when "As of April 30, 2006, Mr. Cuggino and his immediate family members owned no shares of the Fund" (SAI, 5/30/06).
Mr. Cuggino also "has day-to-day management responsibilities [for] certain personal accounts. The management of the Fund's Portfolios and these other accounts may result in Mr. Cuggino devoting unequal time and attention to the management of the Fund's Portfolios and these other accounts. If Mr. Cuggino identifies a limited investment opportunity which may be suitable for more than one Portfolio or other account, a Portfolio may not be able to take full advantage of that opportunity."
So, the warning is that Mr. C. might become too interested in management of his personal account to devote full time and attention to his fund. And if he finds a really interesting little investment, he might allocate it between his personal account and his fund in a way that doesn't allow the fund "to take full advantage of that opportunity." ."

Rather faint praise. The fund manager and his family have practically no money in the fund and his contract lets him keep his best discoveries in his own account to the exclusion of the fund.

Could you point me to a thread on Fundalarm where this 'significant ownership' and positive comments are made? All the threads I looked at basically said the same thing I've been saying. Maybe I missed something.

Here are the threads I found with a search of PRPFX

Hey Rono, Jughead, Desi, Betty, and all

PRPFX redemptions

Permanent Portfolio (PRPFX) is it time to buy??

PRPFX

long term chart of PRPFX

Permanent Portfolio (PRPFX) is it time to sell??


forgive thread duplication- I tried to only link to first post of numerous threads. I think some of these are pro, some are con and the advice to anyone is worth exactly what you paid for it.

[cute fuzzy bunny]

I had read those. I frankly didnt find much of anything constructively positive about the fund in them, nor did I see anything about widespread significant ownership of the fund by the Fundalarm membership. Looks to me like a handful of people have a very small amount of money invested and maybe one or two have a little more.

Interesting that your first quoted thread runs off another thread "to all goldbugs".

I think that pretty much sums it up. The few people in the fund were using it as a gold substitute in case 'things go bad' and several were concerned by how much the fund had run up and were considering bailing.

Not much praise, and faint at that.

[Nords]

Originally Posted by jIMOh

Here are the threads I found with a search of PRPFX
Hey Rono, Jughead, Desi, Betty, and all

FWIW, Rono admits that he trades like a hyperactive overcaffeinated bunny rabbit. Good guy but his annual portfolio turnover is probably measured in the thousands of percent.

Jughead sold his house in 2003 because he feared that its resale value would crash revert to the mean any minute. While he moved into a rental he "rebalanced" his portfolio into (among other things) at least 25% cash and 25% gold. I don't know if he's ever going to own a home again.

These people are not nuts or whackos, although as of a couple years ago they weren't retired either. But they don't view asset allocation like 99.99% of the rest of the human race, let alone like Bernstein or Malkiel.

[BigTex]

Ah, what a difference three months can make....

Originally Posted by cute fuzzy bunny

[The reason Japan-style deflation couldn't happen in the U.S. is] principally because socially, economically, financially and culturally the two countries have practically nothing in common.

To experience Japans deflationary economic situation, most americans would have to sharply reduce spending and begin massive savings programs, companies would have to stop capital expansion and begin shifting profits to paying off debt, and government supported corporate zombieism would have to spread far past the "big three".

I suppose one could argue that freddie and fannie and a couple of the financial institutions that have had to be bailed out are functional zombies, but I dont think that problem is going to continue on and be as widespread and tolerated as long term as Japan has. Most of this smells more like criminal endeavor that will end up being punished in some manner than broad based, widespread government sponsored corporate stupidity.

So I guess the thesis that strong deflation could happen here is possible, just highly implausible. And should it become prevalent, eh...stocks and bonds have traditionally produced fabulous returns in deflationary economies presuming that they werent accompanied by a depression.

You could say "But japans stock market has gone nowhere!"...the stocks of the well regarded non-zombie companies have done just fine. So I suppose the key learning from that would be to avoid index funds full of zombie companies.

I have to say that its sort of a boring topic to talk about, principally because it is so unbelievably unlikely to happen, and secondarily because its one of the first quick-draw responses often seen in goldbug conversations. As soon as someone points out that gold went nowhere for 30 years despite inflationary pressure, the "what about deflation just like japan!?!" comes out, only the person throwing that out usually has absolutely no idea about the implications that would have to be fulfilled for such a comparison to be fully drawn.

FWIW, I think that both Wellesley and PRPFX are good buys right now.

Good luck.

[james22]

Heroic effort, cfb.

[lawman]

From "CFB":

"It means that the dollar would be practically worthless, the US economy destabilized, and investors running in wide eyed fear of their lives and property."

I'm buying PRPFX in a fairly big way and I'm doing so in hopes of some protection against the possibility of the above scenerio that CFB so eloquently articulated ....