Gyroscopic Investing

As most of you know, PRPFX holds 10% of its assets in short dated Swiss franc debt.

Many people think of the Swiss franc as an inflation and U.S. dollar devaluation hedge.

The problem, of course, is that the Swiss franc, unlike gold, has a government standing behind it, and that government is subject to political pressure at home to stop a rise in the vaue of its currency that is no doubt choking Swiss exporters.

So today we see an almost 10% decline in the value of the Swiss franc against the dollar.

That's not good. 

If there is any part of PRPFX that has become obsolete, I think it is the Swiss franc exposure.  The Swiss franc is not the same currency that it was in the early 1980s (and the world is obviously not the same place it was then either).  Today, we live in a world where it's basically a race to the bottom for all currencies.  No one wants to have a strong currency because everyone wants to rebuild their economy through exports.  Gold has been telling us this for many years but many hang onto the idea that it is only the U.S. dollar that is in trouble.

All fiat currencies around the world are in the process of a semi-orderly devaluation.  It's all that the economic experts in power today know how to do.  There is nothing special about Switzerland.

If the Swiss franc continues to be strong (notwithstanding today's huge move down), it will only be because the Swiss government failed in its attempts at devaluation.  That's not a bet I would want to make with 10% of my portfolio.

Looks like the Swiss government has made its currency a REALLY bad investment

http://www.guardian.co.uk/business/2011 ... franc-euro

It's now pegged to the Euro!

MediumTex wrote:
If the Swiss franc continues to be strong (notwithstanding today's huge move down), it will only be because the Swiss government failed in its attempts at devaluation.  That's not a bet I would want to make with 10% of my portfolio.

So are you selling PRPFX?

Adam1226 wrote:

MediumTex wrote:
If the Swiss franc continues to be strong (notwithstanding today's huge move down), it will only be because the Swiss government failed in its attempts at devaluation.  That's not a bet I would want to make with 10% of my portfolio.

So are you selling PRPFX?

I don't know.  PRPFX is still very convenient for things like Coverdell education accounts.  It's frustrating that there isn't a better PP-like all-in-one product out there.

I was speaking more from the perspective of Cuggino.  I have to think at some point that PRPFX will re-think its allocation in light of the fact that the premises upon which it was based 25 years ago are simply no longer valid (at least with respect to the Swiss franc).

The fact that the Franc is now pegged to the Euro is going to have an impact on the fund.  I will be interested to see how management addresses this blip. If I were running the fund I would move that 10% into ultra-conservative USD denominated bonds which I have always believed were underweighted in PRPFX.  That said, while I believe the HB-PP to be the superior investment over the long term, PRPFX is probably the best second choice especially for those who don't want to be bothered with any kind of money management.  But be warned, actively managed mutual funds over the long term almost always under-perform passively managed portfolios that are indexed.  F&E + taxes hugely detract from long term compound returns.

I just emailed the fund and requested that they change their holding to LT Treasuries instead of Francs. Let's see if they respond.