European PP achilles heel?

[Arturo]

Arturo,

You mention VYETS where does it quote, what currency, what volume this is all we have to look at for choosing assets.


Sincerely

Hi Spark,

you are right. Thanks for your tips. By the way, which broker are you using?

regards

[spark]

Hi arturo,


My broker is not in europe. I pay more fees but i think it is better to have a broker outside europe for the moment.

[frugal]

Morning

Anyone of you has the monthly turnover of the European PP over the last decades?
I only find yearly charts.

Regards

[Marc De Mesel]

Anyone of you has the monthly turnover of the European PP over the last decades?
I only find yearly charts.

You can find them since 1999 on my website:

Returns Permanent Portfolio After Inflation

Or do you mean before 1999? If yes, that is impossible to calculate as every nation had another currency as the euro did not exist yet so you can only show returns in for example Deutsche Mark and you would want to have a German PP then.

[Marc De Mesel]

Is there a fundamental/theoretical weakness in implementing a PP in Euro since no country has a central bank which can monetize to pay interest on LTT like the FED can in the US?  For example, Germany can't just print money to pay bund holders if they were short of money?

Japan, US, UK, Canada...other major countries, don't have this limitation?

It is correct that the Eurozone countries cannot print money anymore but neither can the 52 states in the USA. Just like the USA, the Eurozone has The European Central Bank whom like any other central bank is authorised to print at will and buy government bonds to finance the authorities. And print they do!, especially since 2011 with the coming of the Italian ECB president Draghi. Here are the numbers:

ECB Balance sheet expansion:
2008: +49%
2009:  -9%
2010:  +5%
2011:  +44%
2012: up to September +54%

To compare with the amount of currency printed in USA and Japan see:
Returns Permanent Portfolio After Inflation

Interesting to note on the table is the the Japanese actually print much less (since 2000) then both Europe and the USA. Their lack of inflation is no mystery to me anymore and I admire them for it.

[frugal]

Anyone of you has the monthly turnover of the European PP over the last decades?
I only find yearly charts.

You can find them since 1999 on my website:

Returns Permanent Portfolio After Inflation

Or do you mean before 1999? If yes, that is impossible to calculate as every nation had another currency as the euro did not exist yet so you can only show returns in for example Deutsche Mark and you would want to have a German PP then.

Right!

What do you think about having CASH in our home country instead of Germany.

With inflation, the 25%CASH in Germany will be losing to much!

One savings account CD guaranteed by state, will give at least 3%.


Best regards.

[Arturo]

Anyone of you has the monthly turnover of the European PP over the last decades?
I only find yearly charts.

You can find them since 1999 on my website:

Returns Permanent Portfolio After Inflation

Hi Marc!,

just to mention it, in your EUR-PP historical statistic tables, you use iBoxx Germ 10+ index for long german bonds, obtaining a 6.4% of return since 1999. But if you use the real Germany long term bonds values (in stead of a index), you could get 6.8% annual return. Did you notice that?

regards!

Or do you mean before 1999? If yes, that is impossible to calculate as every nation had another currency as the euro did not exist yet so you can only show returns in for example Deutsche Mark and you would want to have a German PP then.

[Gosso]

Another potential Achilles heel of the European PP:

The potential exit of Germany from the Euro.  What impact would this have on foreign holders of German bunds?  My guess is the split would not be pretty and Germany would feel no obligation to support the other Euro countries.  Germany may only convert German bunds located in domestic banks, and tell all foreigners to take a hike.

I really do not like the idea of giving 50% of my portfolio to a foreign government.  In most cases I'd prefer to take my chances with the domestic government (as long as government is not overly corrupt), since they should have every interest in protecting my principal, likely at the expense of foreign investors.  Am I thinking clearly here?

Here is an except from an FT article, Why exit is an option for Germany

The danger for Germany, in the event of a break-up of the euro, is that there might be too much of the German currency as a result of non-residents’ efforts to convert into the new money. The Bundesbank could prevent this, however, by restricting conversion to German residents alone. Losses would then fall on residents of the countries whose new currencies would collapse in value.

If I were in a non-German EU country I'd be tempted to put 50% in a US PP (US is more agnostic than Germany towards whole EU mess) and 50% in a domestic PP.  If Euro bonds are ever introduced then I'd feel more comfortable in a 100% Euro PP.

[Arturo]

Another potential Achilles heel of the European PP:

The potential exit of Germany from the Euro.  What impact would this have on foreign holders of German bunds?  My guess is the split would not be pretty and Germany would feel no obligation to support the other Euro countries.  Germany may only convert German bunds located in domestic banks, and tell all foreigners to take a hike.

I really do not like the idea of giving 50% of my portfolio to a foreign government.  In most cases I'd prefer to take my chances with the domestic government (as long as government is not overly corrupt), since they should have every interest in protecting my principal, likely at the expense of foreign investors.  Am I thinking clearly here?

Here is an except from an FT article, Why exit is an option for Germany

The danger for Germany, in the event of a break-up of the euro, is that there might be too much of the German currency as a result of non-residents’ efforts to convert into the new money. The Bundesbank could prevent this, however, by restricting conversion to German residents alone. Losses would then fall on residents of the countries whose new currencies would collapse in value.

If I were in a non-German EU country I'd be tempted to put 50% in a US PP (US is more agnostic than Germany towards whole EU mess) and 50% in a domestic PP.  If Euro bonds are ever introduced then I'd feel more comfortable in a 100% Euro PP.

Gosso,

what about opening an account through a german broker? i am thinking about this option for long and short german bonds. The only issue is that from 1 of January 2013, the german treasury will not let open anymore accounts for personal investors, and will not let buy new future long bonds, so the only option is buying them through a german broker and trust its custody (and of course, that will not bankrupt).

i am always saying that USA-PP is far more trustful and easy to be done, but if you are living in Europe, definitly a EU-PP is a must.

[Gosso]

Another thought.

Would an FDIC (Euro equivalent) savings account / CDs be more desirable than government debt?  The reason here is that it is far easier for the government to guarantee the savings accounts of its own citizens rather than guarantee its debt to foreign creditors and corporations...especially when they don't control the printing press.

If the domestic government is truly by the people for the people, then it will protect domestic interest over foreign. 

Iceland is a good example.  As far as I know all domestic Icelandic banking accounts were made whole during the banking collapse, while foreign accounts were not.

Another example is Greece.  With their partial default they were able to write off 1/3 of their debt, while again the domestic saving accounts remained whole.  The main concern with Greece is that they convert all domestic bank accounts back to the Drachma, along with a significant devaluation.  This would hurt, but it is also possible that Greece would introduce currency exchange controls and limit the amount of external Euros to be converted back into Drachma out of fear of inflation or pegging to a stronger currency.  If the grocery store only accepts Drachma, and your cash is stuck in a German bank, well then you're kinda screwed.  Although, maybe this is a worst case scenario and I'm just fear mongering??

[Gosso]

Gosso,

what about opening an account through a german broker? i am thinking about this option for long and short german bonds. The only issue is that from 1 of January 2013, the german treasury will not let open anymore accounts for personal investors, and will not let buy new future long bonds, so the only option is buying them through a german broker and trust its custody (and of course, that will not bankrupt).

i am always saying that USA-PP is far more trustful and easy to be done, but if you are living in Europe, definitly a EU-PP is a must.

Giving money to Germany seems like giving money to your wife/husband when the marriage is on the rocks.  I'd rather give it to one of my rich brothers (aka the USA, Switzerland, UK) for safe keeping, since they have no reason to not give it back (at least at the moment).

That's all of course IMO.  The bond market disagrees with me.

[Arturo]

Gosso,

what about opening an account through a german broker? i am thinking about this option for long and short german bonds. The only issue is that from 1 of January 2013, the german treasury will not let open anymore accounts for personal investors, and will not let buy new future long bonds, so the only option is buying them through a german broker and trust its custody (and of course, that will not bankrupt).

i am always saying that USA-PP is far more trustful and easy to be done, but if you are living in Europe, definitly a EU-PP is a must.

Giving money to Germany seems like giving money to your wife/husband when the marriage is on the rocks.  I'd rather give it to one of my rich brothers (aka the USA, Switzerland, UK) for safe keeping, since they have no reason to not give it back (at least at the moment).

That's all of course IMO.  The bond market disagrees with me.

Hi Grosso,

but buying bonds from no EUR countries is also entering the exchange risk. I am starting to figure out that there are no perfect solutions, but the less bad solution :-)

[Gosso]

Hi Grosso,

but buying bonds from no EUR countries is also entering the exchange risk. I am starting to figure out that there are no perfect solutions, but the less bad solution :-)

You're right.  The best solution is to diversify.  I feel like placing 50% of a portfolio in one foreign country is not a wise move, and especially one where relations are being stained.

You are in France, correct?  Personally I'd be fine with building a similar portfolio to the one I use in Canada:

40% CDs in a five year ladder at local French bank
10% French LTT (could possibly go German here if you feel like it)
10% Euro stocks
20% World stocks
20% Gold

That gives you 60% exposure to the Euro, and 40% to gold and a basket of foreign currencies.  Worst case scenario is the Euro breaks up and your CDs are converted to Francs, but since France has a large economy I don't see this being a huge problem...it's possible the Franc would even appreciate, since all the uncertainty has now been removed.

[frugal]

Im happy to read your posts.

Why you have 40% in cash? 25 is balanced

Why dont you create a pp and a vp portolio? Instead of mixing it all.

CD is a good option?



Thanks

Hi Grosso,

but buying bonds from no EUR countries is also entering the exchange risk. I am starting to figure out that there are no perfect solutions, but the less bad solution :-)

You're right.  The best solution is to diversify.  I feel like placing 50% of a portfolio in one foreign country is not a wise move, and especially one where relations are being stained.

You are in France, correct?  Personally I'd be fine with building a similar portfolio to the one I use in Canada:

40% CDs in a local French bank
10% French LTT (could possibly go German here if you feel like it)
10% Euro stocks
20% World stocks
20% Gold

That gives you 60% exposure to the Euro, and 40% to gold and a basket of foreign currencies.  Worst case scenario is the Euro breaks up and your CDs are converted to Francs, but since France has a large economy I don't see this being a huge problem...it's possible the Franc would even appreciate, since all the uncertainty has now been removed.

[Gosso]

Why you have 40% in cash? 25 is balanced

Sorry, I should have been more clear (I'll edit my previous post).  It should be CDs built into a five year ladder.  This gives you an average duration of just under 2.5 years.  Once you include the 10% LTT then that gets you to about a total duration of 5 years.  That typically is good enough to provide a decent yield while keeping volatility down.  It will provide a similar return as the STT/LTT barbell (ie 25% in each).

CD is a good option?

I don't like the debt of most Euro countries, especially if you don't live in the country.  I think domestic deposit insurance is more likely to protect 100% of your savings.  The main reason is the government must maintain confidence in the banking system, if any deposits are allowed to fail then they have a guaranteed bank-run on their hands.  Even if things get truly horrible then the banks will be nationalized and deposits protected (eg Iceland).  It's true the government may limit withdrawals to just enough to pay bills and buy food, but I don't see how owning German bonds would improve that situation.  IMO, the last thing to fail before the government dissolves will be bank deposits.

Having said that, I'd keep your savings in one of the larger more respectable banks, rather than one of the more obscure banks even though they will pay a higher yield.

Why dont you create a pp and a vp portolio? Instead of mixing it all.

Because I get bored and like to complicate my life.   A better answer is that I see this as a "core" portfolio.  I then have a VP which works together as a separate unit.

[frugal]

Hello,

I took only in consideration the management FEE. Distribution of dividends I don't know how to find. Please advice.

Best regards.

[frugal]

Hi,

no opinions from you ?!

[frugal]

Hello,


what do you think of dividing each asset for all the ETF's I discovered for each class ?

After I can rebalance in just one ETF.

Please advice.

[frugal]

Hi,
how are you?

My global TER is 0,26% for EU-PP.

And yours?



Regards

[Observer]

Hello everyone

I am trying to find past performance history for PP in different global markets, ie japan uk, europe , us, iceland - marc de mesels website had it a number of months ago with comprehensive data - now the links dont work - does anyone in this community have it downlaoded or will marc de mesel put it up again do you think?

his website was

http://europeanpermanentportfolio.blogspot.co.uk/

thanks

mitul

[Pfanni]

I am in the process of setting up a mixed European / US Permanent Portfolio.
My country of origin is Germany.

My two cents:
-Euro is a bad idea
-Euro is fundamentally quite a weak currency, without Germany holding up the trade balance it would melt like chocolate in a hot pan
-taxes in Europe are outrageous, this kills entrepeneurship and innovation, IT for example: all the innovators Apple, Google, Microsoft, Oracle are US companies (sole exception is SAP)
-Europe has a big, big demographics problem, how can there be real growth with a lack of people?Who's gonna pay the baby boomers' medical bills?
-DAX = 1/3rd car makers, kinda scary to imagine when the emerging markets have a moment of crisis and postpone the purchases of the latest 7 series BMW... think Russia at the moment
-there is no substantial amount of investment in Europe anymore, which is a necessity for prosperity (old economy, people making things and so forth)
-basic materials industry for example, they run existing factories but new ones seem to be built offshore only
-buddy of mine works at (insert name of big power plant supplier), they complain that there is no demand for their products in Europe -  no investment happening
-European capital markets are a mess tax-wise, it's a pain in the a** to buy non-German ETFs tax-wise if one does not happen to be a tax acoountant
-if I'd buy a spanish stock, I'd have to open a spanish banking account just to reclaim withholding tax on dividends (nobody does that of course)

All of that makes me think that Europe is not a good place to park your money.
However, I might be wrong and Europe might boom again, and I still have to pay my bills in EUR.

That's what I came up with:
25% EUR savings account, German bank, 0.5% yield
25% Gold coins, physical
25% US government 30 year bond (I promise to never buy a EUR bond in my lifetime)
25% stocks
  -50% MSCI USA ETF
  -50% MSCI Europe ETF

There is no MSCI World ETF with easy, automatic taxation available in Germany.
Most ETFs are based in Luxemburg (tax haven), one would have to keep bank records & documents for decades - unfeasible for private, retail investors. That's why I have to accept a high TER of 0.3% for these Germany-based MSCI ETFs.

(I'm really annoyed that the most basic things don't work in Europe when it comes to capital markets).