PP performance and the European debt crisis.

[explodingdust]

I'm curious about the relationship between stocks and treasury bonds in countries like greece, italy, and spain because the yields on their treasuries are very high right now which means that their values have gone down significantly. This puzzles me because their stock markets have all been beaten down the last few years as well. Could something like this happen in the united states even though stocks and treasuries are supposed to move in opposite directions during a market crash? How has the PP performed in countries like this during the debt crisis?

[Greg]

I'm curious about the relationship between stocks and treasury bonds in countries like greece, italy, and spain because the yields on their treasuries are very high right now which means that their values have gone down significantly. This puzzles me because their stock markets have all been beaten down the last few years as well. Could something like this happen in the united states even though stocks and treasuries are supposed to move in opposite directions during a market crash? How has the PP performed in countries like this during the debt crisis?

I certainly don't know as much as some of the other well-read people on this forum but I can take a shot at this. I would say there is not a perfect correlation between stocks and treasuries, so occasionally they can move together. You could say the same thing for gold and stocks that over the past 3 years we have had stocks and gold rise when normally they might not move in the same direction at the same times. I'd also refer to the 1970's as a time when stocks and treasuries didn't do too great due to inflation and monetary troubles.

Greece, Italy, etc. also somewhat have monetary troubles and that can reduce confidence in both stocks and bonds if people are just not trusting of them in general and want to move their money fully out of the country. This would affect both stocks and bonds.

I don't know how great the PP performs in countries such as this, but I would think if you lived in these countries, you might want for the bonds portion a bigger, more stable country's bonds such as Germany's. Various internation PPs are littered on this forum.

Hopefully I scratched the surface a bit on this for you.

[hoost]

To add to that, I think you would also have to look at how gold has performed against the Euro.  So essentially, the question is, how has a Greek, Italian, or Spanish PP performed recently?  I don't know the answer, but it's important to look at all of the assets together.

[Lone Wolf]

I'm curious about the relationship between stocks and treasury bonds in countries like greece, italy, and spain because the yields on their treasuries are very high right now which means that their values have gone down significantly. This puzzles me because their stock markets have all been beaten down the last few years as well. Could something like this happen in the united states even though stocks and treasuries are supposed to move in opposite directions during a market crash? How has the PP performed in countries like this during the debt crisis?

The PP would have sidestepped this particular problem.  A Euro-based Permanent Portfolio should not be invested in Greek, Italian or Spanish bonds.  The ideal setup would have you set up in the highest quality bonds denominated in your home country's currency.

IMO you'd want to go with the most fiscally prudent nations in the Eurozone.  For that reason, I can't imagine going with anything except German bonds.  Germany's bond yields have dropped throughout this crisis.  They are now quite low (lower than the United States and, IIRC, getting into the neighborhood of Japan's very low yields.)

Buying Greek, Italian, or Spanish bonds exposes you to unnecessary default risk.  That may be acceptable for some strategies but it just doesn't work for the Permanent Portfolio.