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It is important to keep in mind that the permanent portfolio actually is a barbel on the fixed income side .
It’s duration is about the same as a total bond fund .
You have 25% of the money in Tlt , and 25% in cash instruments….in a conventional 50/50 that would be the same as 50% in a total bond fund …at the end of the day the barbel is actually down less even though the hit on Tlt was larger then on a total bond fund ..
There is a reason the PP has been in use around the world for 50 years now ..it has more books ,articles and videos on it then any other portfolio ever .
It isn’t magical and tight money recessions will have it falling but tight money isn’t a long term major scenario like
Prosperity
Depression
Recession
High inflation / weak dollar .
Eventually we fall in to one of the big 4 and it’s then that the assets in the pp tend to part ways and react to the various economic outcomes.
Unlike a conventional 50/50 or 60/40 where stocks are the only lead horse , the pp uses assets that have the came capability of big moves as equities do …
Long term treasuries and gold all can meet or exceed the moves in stocks .
What is also interesting is that over most time frames stocks and gold have actually beaten stocks and bonds ….
In fact gold has beaten equites the last 20 years .
Yet gold is a competitor to bonds and the dollar not equities ….if one buys gold it should be out of the bond and cash budget not equities.
There have been loads of dr Frankenstein versions of the PP created over the years using all kinds of assets like oil , commodities , real estate and going even cashless as well as using leveraged funds .
Some did well under some years and worse under other years but overall none have had the balance and predictability to economic outcomes as the original .
Over the years the permant portfolio fund has not been anything like the harry brown 4x4 do it yourself version of the permanent portfolio…the fund has lacked the basic 4 asset version over most time frames as the fund veered off into other investments .
For those who don’t know , the harry brown 4x4 permanent portfolio can be made up with just 4 assets
25% total market fund or S&P fund , vti or voo as example
25% gold , gld or Iau as example
25% long term treasuries TLT , vglt
25% cash instruments or very short term notes and bonds.
The pp is not for growth ….it is for after you have grown your money over decades .
It is for capital preservation and LONG TERM INFLATION PROTECTION. .
It is not going to help in a tight money recession but these are temporary and usually short lived and under 18 months
Last edited by mathjak107; 10-22-2022 at 04:00 AM..
The current primary threat to long-term Treasuries is quantitative-tightening which represents the FRB reducing the holding of its own issued Treasury securities. The situation is also called a reduction in the size of the FRB balance sheet.
Rising interest rates, as increases in overnight bank rates by the FRB, are not the primary threat to long-term Treasuries because rising interest rates have more of a single purpose of reducing inflation.
Now ticker TLT is a fund of long-term Treasury bonds
.
Agreed to disagree. The criterion of truth is practice. TLT went down from 154 Dec 3-rd to 110 in June 9 prior any quantitative tightening has been implemented. https://g.co/finance/TLT:NASDAQ?window=YTD
Quantitative-tightening does not explain difference in reaction to tightening between T-bills and 30-year treasuries.
But let us leave disagreement aside.
Harry Browne portfolio has been tested since 1971. It could not be tested in 1929-33 as gold had fixed priced related to dollar. The closest to current economical condition tight money recession was in 1981.
According to Mr. Browne, whole portfolio dropped to 6% without inflation adjustment. Another source, mentioned in mathjak107 post, gives us 14% inflation adjusted drop in the portfolio.
Paul Volcker raised rate from 8.5% June 5, 1980 to 20% December 5, 1980. Two recessions followed with GDP -1.8% and unemployment of 10.8% in 1982. In 1983 inflation was 3.2%
Is that example is an equivalent of rate increase from 0% to 3% with planned 4.5%?
Based on reaction of Permanent Portfolio, which is almost 20% down this year, it is not. This is non inflation adjusted number.
Based on reaction of the assets expected recession can be steeper, deeper and shorter. Quantitative tightening has already decreased M2 money supply by 1.3%.
According to Friedman and Schwartz 2.5% changed of money supply in 1930 was the trigger of depression.
My conclusion is that there are two possible outcomes from current tight money state:
- rising rate to the target and continuation of quantitative tightening followed by depression
- Feds pivots followed by easing money supply through different mechanisms and inflationary environment.
I believe regardless of outcome it will be a real test for Harry Browne portfolio. He stipulated in his book that long term treasuries will carry whole portfolio during deflation followed by slashing change of fed’s rate
Agreed to disagree ...
Quantitative-tightening does not ...
At this level, it's sufficient to say that the FRB has two distinctly different operations targeting the current economic environment of inflation. Those operations are overnight bank rate increases and, additionally, quantitative-tightening.
As for these newly inspired proponents of long-term bonds, they must be calling a bottom. That's not an unreasonable viewpoint but not assured. And there is the famous Hamlet misquote of "me thinks he doth protest too much".
Now the next month-over-month inflation report will show whether or not the three-month MoM inflation acceleration continues or tops out
.
TLT continues to get crushed. PP is on track for a 20% decline this year and zero return over a 5 year period (negative real return when accounting for inflation). Retirees are getting absolutely killed this year. I can’t imagine how stressed I would be if I just retired within the last couple years (unless of course I had a fat pension).
Well that would be me. I retired in March and the market went off a cliff. Kind of par for the course, for me.
I do have a pension - not “fat”, but between that and SS, I can live. No splurges though. It’s gonna be a long time before things get comfy enough for me to loosen the purse strings.
At this level, it's sufficient to say that the FRB has two distinctly different operations targeting the current economic environment of inflation. Those operations are overnight bank rate increases and, additionally, quantitative-tightening.
As for these newly inspired proponents of long-term bonds, they must be calling a bottom. That's not an unreasonable viewpoint but not assured. And there is the famous Hamlet misquote of "me thinks he doth protest too much".
Now the next month-over-month inflation report will show whether or not the three-month MoM inflation acceleration continues or tops out
.
I like “newly inspired proponents” phrase.
The genius of Harry Browne does not require anybody to be a proponent or opponent of anything.
It uses agnostic approach in investing.
Then the Permanent Portfolio mutual fund is not holding a bond duration anywhere near that length
.
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