European Permanent Portfolio

Hi, Thank you for posting. I would change the fo...

2012-03-06T12:57:19.430+01:00

Hi,

Thank you for posting.

I would change the following:
Bonds, only German or Netherlands as you need the strongest ones from the eurozone, otherwise they don't go up as much as stocks in eurozone tumble.

Stocks only Eurozone so there is no currency risk, I have Euro Stoxx 50 (20%) and some DAX ETF (5%) as there are otherwise too few german companies, and I do have german bonds.

Gold, no etf but Bullionvault or goldmoney, is more safe and Bullionvault even equally cheap.
USD PP belongs in your variable portfolio as it is a speculation on the USD. I think you have better speculations than that. I have gold.

Good investing,
Marc

Hi Marc, I'm from the Basque Country, in Spain...

2012-03-06T12:56:29.715+01:00

Hi Marc, I'm from the Basque Country, in Spain, and planning on investing some money in an European permanent portfolio. I'd go with Germany, Spain or both (don't know yet) for the SHORT TERM BONDS and LONG TERM BONDS; Germany with ishares 1.5-2.5 and 10.5+ and Spain directly with the treasury 1.5 year and 30 years. The cost and average maturity of the Spain treasury would be better, but maybe a bit more risky, we'll see. For equity in both cases I'd go with ishares EURO STOXX, and maybe throw in some ishares STOXX EUROPE 600 to include UK and Switzerland also. For the GOLD part I'm thinking of using ZGLDEU (it's in euros) and maybe some ishares IAU for rebalancing purposes. One thing I don't have crystal clear is this: what's better for an european pp, a regular gold etf (or physical gold for that matter) or an euro hedged gold etf? What's your take on this? Also, I'd like to ask you if I'm missing something or doing something wrong in my approach to an european pp. I'm also considering a US pp for currency and country diversification, because it's so easy to implement: VTI+SHY+TLT+IAU; does it make any sense, or you think it's worthless and it's better to stick just to an euro pp.

THANK YOU.

Crisis in Europe is not really effecting a lot of ...

2012-02-16T08:58:29.245+01:00

Crisis in Europe is not really effecting a lot of investment.

What assets do you use to build the euro PP, exact...

2012-01-12T23:48:08.504+01:00

What assets do you use to build the euro PP, exactly?

I mean, what does fund or ETF track Markit Iboxx Germany 10+, or similar?

I´ve just found Ishares eb.rexx Gov germany 10.5+, but it charges very high fees at purchase and redemption. I think it´s not good for a PP

@Plurimus Nice to see you are writing and researc...

2010-10-30T11:47:37.186+02:00

@Plurimus

Nice to see you are writing and researching also about Euro PP!

I am sorry, I don't have daily or monthly data. But I can send u my spreadsheet with yearly data. Also from Eurozone going back to 1999.

Please send me email at marcdemesel@gmail.com

Do you have a spreadsheet also that tracks the per...

2010-10-21T10:36:17.153+02:00

Do you have a spreadsheet also that tracks the permanent portfolio on a week-to-week basis or similar instead of only year-end to year-end?
I am trying to replicate the permanent portfolio in Euro (http://bit.ly/cIVkgz) and would love to compare to see, if I make any errors ;-)

Your spreadsheet is a bit confusing. Are the resp...

2010-10-07T16:09:18.454+02:00

Your spreadsheet is a bit confusing. Are the respective totals in the purchasing power row before or after the rightmost inflation figure? And is < 100% a reduction in purchasing power or only < 0%?

Any chance on doing the portfolio for Argentina? I think that would be more illustrative of the West's future than Iceland's tiny economy.

@Chris Thanks for the U.K. PP returns! Greatly ap...

2010-08-06T23:09:54.944+02:00

@Chris

Thanks for the U.K. PP returns! Greatly appreciated!

I have been reading the EXTENSIVE Bogleheads PP fo...

2010-06-25T19:23:35.829+02:00

I have been reading the EXTENSIVE Bogleheads PP forum and ran across the U.K. PP results yesterday.

http://www.fool.co.uk/news/investing/investing-strategy/2009/06/29/feeling-cautious-load-up-on-gold.aspx

I remeber seeing the returns for the U.K. also but...

2010-06-16T11:40:32.629+02:00

I remeber seeing the returns for the U.K. also but can't find it anymore. Anyone knows where I could find it?

If have asked Verde from the boglehead forum that posted the original Japan returns for the returns of 2009 but have not heard from him. Anyone knows returns for Japanese PP for 2009 ?

JPMorgen is indeed a bad idea! http://www.telegrap...

2010-06-04T15:58:28.694+02:00

JPMorgen is indeed a bad idea!
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7800471/UK-hits-JP-Morgan-with-record-33.3m-fine.html

I think Vanguard is not in good hands there.

Thank you for your prompt answer. About Vanguard...

2010-06-04T12:44:41.586+02:00

Thank you for your prompt answer.

About Vanguard Eurozone I think behind it is JPMorgan and I really don't trust JPMorgan at all...

here in Greece is accused for the spread crisis in combination with Goldman Sachs(or as we say Goldman sucks...) and the Deutche Bank and in conjuction with our Goverment ("our" priminister with these three organized the spread crisis by changing the rules of our bond tradings, naked short selling...etc, the t+10 for failed transactions and so on...the greek bonds reached 700 spread with a sale of less than 4 million!! in a whole day...there was nobody bying it even our Bank of Greece! colpo grosso!! I think the whole thing has to do with something bigger than Greece,there are voices that say there will be no eurozone in 30years, or a more moderated with a scenario that wants Eurozone to be divided in Eurozones and each zone to have differnent borders not necessarily neighbores) and so on...

about the 30yr german bonds read this...
http://online.barrons.com/article/SB127193332870480995.html

german tagesanleihen sound very good

Thank you again and any help is welcome.

Hi Greek citizen, I think your solution is indeed...

2010-06-04T12:43:59.810+02:00

Hi Greek citizen,

I think your solution is indeed a European permanente portfolio.

As you could see on the article above, even in Iceland this has worked.

Stop trying to predict the future. You cannot know what will happen in your country, with the Euro, with gold. Nothing is certain.

You just have to make sure, that no mather what happens tommorrow, you will always have an asset that will profit and help preserve the purchasing power of your complete portfolio.

So I would get started as soon as possible.

Buy:
25% physical gold
25% stocks (I have Vanguard Eurozone)
25% 30 year gov bonds (I have german bunds)
25% 1 year gov bonds (I have german tagesanleihen)

I found your blog while I was browsing for a solut...

2010-06-04T12:41:44.069+02:00

I found your blog while I was browsing for a solution to chaos!

I found your permanent portfolio idea quite great!

I have now all my savings in a form of deposit accounts in Greek banks.

I tried before 3 months to open an account in CHF currency in Switzerland but they told me that since I am a Greek Citizen!!! there is a minimum amount of cash the I should deposit (300.000,00 euros) in order to open an account (both UBS and Credit told me the same amount)

I would not find it a wise idea to place all my savings in swiss account, even if a had that amount..

So I felt planked...and what I did was to sell all my stocks and convert my savings in a portfolio like this:

85% euro cash in a greek bank, 10% USD cash in a greek bank, 5% in gold sovereign in a safe deposit box.

But know we have again rumors about uncertainty in our greek bank system.

Already a great number of greeks have started to withdraw all their accounts(euros)...from the banks and keep the in their homes.

Also rumors and scenarios here in greece ,right now, explain to people that after summer there is a possibility greece to get out of the Euro!!!... and return to greek currency!!!

And they have found also the name of our new currency the "Eurodrachma" that would be 30% or more devaluated...!!!

My first thought was to increase my savings in gold sovereign to 20% or more but I heard George Soros to say that with a price $1200 gold is the ultimate bubble!!! (first shock)

and then (second shock) rumors in Greece saying that buying gold in physical form will be a move out of use...cause in case that Greece goes out of Euro and returns to Greek currency the government will forbid trades with gold sovereigns and may even ask owners of gold sovereigns to return them bank to the central bank of Greece!!

In a such chaos between rumors ,real Greek debt crisis and global depression please give me a leg up!

Please, I would appreciate it if you could share your views with me and above all if you could give me a piece of advice.

Thank you in advance!

@ITP Thanks for your comment. I added the results...

2010-06-04T12:39:46.720+02:00

@ITP

Thanks for your comment. I added the results for 2009 at the bottom of the article.

The stock market continued to fall down. Bonds, gold and cash did well in 2009.

I succeeded in getting the numbers starting in 2003.

This is a great analysis. In my opinion it shows t...

2010-05-24T07:58:16.253+02:00

This is a great analysis. In my opinion it shows that the Permanent Portfolio, while excellent, does have a bit more vulnerability in small/vulnerable economies, particularly import-dependent ones. For this reason, if I lived somewhere like Iceland or Venezuela, I would have some of the stocks, bonds, and cash components in G7 Treasuries/stocks e.g. German Bunds, US T-bonds. For example, instead of 25% long Icelandic stocks, have 15% Icelandic stocks and 5% EU stocks, 5% US stocks. Ditto for the 25% bond allocation.

It would be interesting to run the numbers on 2000-2009 for Iceland, both with the classic PP, and the "partially international" PP.

Anyway, I must congratulate you on thinking outside the box, and doing the research on a neglected area. Iceland's fate demonstrates the true wisdom of Harry Brown's investment advice, but it would surprise me if even a single Iceland citizen followed it in 2007-2009.

Any update on how the Iceland PP did in 2009-2010?

Hi Gember! Thank you for letting me know! That is...

2009-12-02T23:58:04.267+01:00

Hi Gember!

Thank you for letting me know! That is quite sad news. I have send him an email, hope to get back to you soon here.

Hello Marc, Craig (http://crawlingroad.com/blog/)...

2009-12-02T16:38:34.932+01:00

Hello Marc,

Craig (http://crawlingroad.com/blog/) is ending his blog on the Permanent Portfolio. Maybe it's an idea to ask him if you could copy his FAQs on the Permanent Portfolio and paste them somewhere on this blog.

Hi Clive, Thanks for your comment. I think it is...

2009-09-24T22:58:23.482+02:00

Hi Clive,

Thanks for your comment. I think it is incorrect to state that gold is in USD. Gold is also in euro and in pounds, yen and RMB. The USD is the world reserve currency but so is gold.

If there exists a relationship between the usd and gold it is an inverse one. When dollar goes down, gold goes up. Meaning having gold does not mean that you have dollars, to the contrary.

Bonds however are very connected to the currency. Stocks are less but also connected to the currency as shown in the article above but as shown also during typical hyperinflations. Stocks are going up considerably in the local currency but compared to stocks around the world they do become very cheap meaning that stocks are connected to the currency.

The permanent portfolio is indeed yearly rebalanced as we are talking about a permanent portfolio. The difference between a European investing in the American PP versus the European PP is 64% yield versus 73% yield. A difference of 9% more capital after 10 years investing for the European pp.

This indeed is not much and can change very quicly depending on the exchange rate. However with my article I want to show that yearly results between an American PP expressed in Euro and a European PP do differ widely. Ie: the American pp simply does not work very well for a European.

Just like Harry Browne I agree that one does not want any international stocks, bonds or cash in his permanent portfolio. The 25% gold is sufficient to protect your permanent portfolio against your own currency as Iceland 2008 proved very well.

Even more: having your stocks, bonds or cash in other currencies is a dangerous play and may cause your permanent portfolio to malfunction.

Thank you for your support Clive. Appreciate it.

I did not do a calculation of the Icelandic PP for...

2009-09-10T11:18:21.514+02:00

I did not do a calculation of the Icelandic PP for the years before 2008 but one can see indeed that the stock market went up in value 700% from 2003 till 2007.

It's very clear you sold a lot of stocks in that period and bought bonds and gold with your pp. Also the currency was relatively strong. This way your purchasing power towards imports went up considerably.

ok, thanks. did you do a calculation at all of th...

2009-09-10T02:57:54.676+02:00

ok, thanks.

did you do a calculation at all of the growth of $10,000 over the last 5 years of the icelandic PP?

my hunch is that the PP suffered a loss in 2008 but that would have been minor compared to the earlier gains. I had no idea the Icelandic stock market had gone up so much.

Hi, notice that the PP in Iceland did not have a d...

2009-09-08T23:01:22.177+02:00

Hi, notice that the PP in Iceland did not have a drawdawn of-50%. In fact it had a yield of +46%. It would be the same as the American PP having +46% (in dollars ofcourse) but at the same time the dollar tanking and losing 70% of its value against other major currencies. The consequence being that imports became a lot more expensive.

The PP in Iceland lost 50% purchasing power against imports as the currency itself dropped in value. I don't think the PP needs to be changed as the PP in Iceland also gained 100% purchasing power versus imports the years before the crisis as the local currency rose in value considerably. The crises of 2008 just gave back the purchasing power it had won the years before.

The pp proved to also give in Iceland the most stable returns of any investment strategy.

I know that the PP had the lowest drawdown, but it...

2009-09-03T23:26:40.889+02:00

I know that the PP had the lowest drawdown, but it still lost 50%. does the PP need to change at all given Iceland's example.

50% would be the largest drawdown by far for an American or US PP.

Hi Marc. Living in England, my PP is comprised of...

2009-09-02T14:22:07.777+02:00

Hi Marc.

Living in England, my PP is comprised of Gold in USD, Bonds in domestic UKP and stocks in a mixed bag of currencies (including Euro).

I believe your data in effect assumes yearly rebalancing. If however you started and ended the period you showed without any rebalancing, then the Euro Dollar difference over the entire period was relatively small, something like a 1.5% change. A Euro investing the US PP would therefore have achieved near the same as the US investors return.

Thanks for the Blog articles. You've given me food for thought as to whether instead of currency diversifying using component parts, perhaps I should hold 50/50 allocations in domestic/foreign within each component and periodically rebalance the two halves back to 50/50 levels.

Commodities are priced internationally so I would ...

2009-09-01T20:01:58.314+02:00

Commodities are priced internationally so I would suppose that they became much more expensive as any other imports due to the local currency dropping in value.

Commodities like oil, sugar, all fell in price in dollar terms through 2008 but since the Krona lost 70% in value, prices for commodities in Icelandic Krona did not fall but rose.

The only advantage an Icelander could have is when he did not import but sold/export commodities to the international market. To my knowledge they export a lot of fish. The fish farmer received 3 times more Krona for his fish than the year before as he converts his dollars from exports into local currency. He can now buy 3 times more real estate than last year.

He suddenly earns very good money and can probabaly expand his business unlike all the years before where his earnings were contracting as he received less and less Krona as it was rising against the dollar.

I did not do research on this commodity question in Iceland. It seems logical to me but I could be wrong.