Gyroscopic Investing

Sounds like he's punting for now. I have to imagine/hope this is something he's watching closely.

The logos behind him look so dated. It looks like a game show. I know the portfolio is supposed to be "Permanent" but maybe they should think about changing the logo someday

Maybe change the name of the fund to "Semi-Permanent Portfolio."

I'm not one to tinker, but I think that the Swiss franc being pegged to the euro represents a complete invalidation of the premise behind including the Swiss franc in the PRPFX mix in the first place.

MediumTex wrote: Maybe change the name of the fund to "Semi-Permanent Portfolio."

I'm not one to tinker, but I think that the Swiss franc being pegged to the euro represents a complete invalidation of the premise behind including the Swiss franc in the PRPFX mix in the first place.

He has said on a number of occasions that the premise for including the Swiss franc is simply to hedge against the dollar. But, it seems like the fund is essentially holding Euros now (since the Swiss franc is now pegged to the Euro). Perhaps that still validates the official underlying dollar-hedge premise, but I'm not sure the Euro is an ideal hedge against the dollar.

If the Euro goes kaput, perhaps the Swiss Franc can just "unpeg" itself or something  ???

Gumby wrote:

MediumTex wrote: Maybe change the name of the fund to "Semi-Permanent Portfolio."

I'm not one to tinker, but I think that the Swiss franc being pegged to the euro represents a complete invalidation of the premise behind including the Swiss franc in the PRPFX mix in the first place.

He has said on a number of occasions that the premise for including the Swiss franc is simply to hedge against the dollar. But, it seems like the fund is essentially holding Euros now (since the Swiss franc is now pegged to the Euro). Perhaps that still validates the official underlying dollar-hedge premise, but I'm not sure the Euro is an ideal hedge against the dollar.

If the Euro goes kaput, perhaps the Swiss Franc can just "unpeg" itself or something  ???

I think if I had my choice between the euro and the dollar, I would choose the dollar.

PRPFX really should have gotten rid of its Swiss franc exposure when Switzerland ended gold convertibility in 2000.

As I mentioned in another thread, the Japanese yen would probably be the best replacement for the Swiss franc, since the yen seems to zig when the dollar zags pretty reliably.

MediumTex, do you think we should sell PRPFX?

neil wrote: MediumTex, do you think we should sell PRPFX?

I don't know.  I would say that it is not as good a fund as it was before the Swiss made their devaluation plans explicit, but it's still a better fund than anything else out there for an investor who likes the PP and wants the convenience of one-stop shopping.

It's also entirely possible that the Swiss will fail in their efforts to devalue their currency, just as the Japanese have failed in their efforts to devalue the yen.

MediumTex wrote:

Gumby wrote:

MediumTex wrote: Maybe change the name of the fund to "Semi-Permanent Portfolio."

I'm not one to tinker, but I think that the Swiss franc being pegged to the euro represents a complete invalidation of the premise behind including the Swiss franc in the PRPFX mix in the first place.

He has said on a number of occasions that the premise for including the Swiss franc is simply to hedge against the dollar. But, it seems like the fund is essentially holding Euros now (since the Swiss franc is now pegged to the Euro). Perhaps that still validates the official underlying dollar-hedge premise, but I'm not sure the Euro is an ideal hedge against the dollar.

If the Euro goes kaput, perhaps the Swiss Franc can just "unpeg" itself or something  ???

I think if I had my choice between the euro and the dollar, I would choose the dollar.

PRPFX really should have gotten rid of its Swiss franc exposure when Switzerland ended gold convertibility in 2000.

As I mentioned in another thread, the Japanese yen would probably be the best replacement for the Swiss franc, since the yen seems to zig when the dollar zags pretty reliably.

Yes, if the cost gets too high (i.e., excessive monetary growth in Switzerland begins creating problems, as it probably will) the Swiss can "unpeg" the franc from the Euro just as easily as they decided to "peg" it this week.  In fact, that is exactly how the Bretton Woods System became unglued in the early 1970s when the Swiss, Germans and Japanese and others decided to stop pegging their currencies to the dollar, after the dollar was "unpegged" from gold by President Nixon in 1971.  It would actually be much easier now as there is no formal multilateral agreement involved.  How long that will take to happen is anyone's guess, of course, but I doubt the current peg will last very long.

The Swiss can (and have historically) acted in their own long term economic self interest more adeptly than any country I know of.  The current problem is that the franc has risen so fast, even their flexible economy has not had time to adjust.  It will eventually.  Although it certainly appears to be overpriced now, I have more far more long term confidence in the Swiss franc than any other major non-dollar currency, including the yen.  That's not to say I would always prefer it to the dollar, just that I believe it is the best long term fiat currency alternative to the dollar.   

Also, I'm pretty sure Swiss franc convertiblity into gold ended many years before 2000.  As far as I know, it hasn't been "directly" convertible into gold since the beginning of the Bretton Woods System in the 1940s.  It was "indirectly" convertible (like most other currencies) to gold from about 1944 to 1971 under the Bretton Woods System in that the Swiss government could buy US dollars with francs and then convert the dollars to gold.   

 

If you want to hold PRPFX but are unhappy with the Swiss Franc exposure, go short the currency to the tune of 10% of your PRPFX investment.

From my reading of the fund's SAI, and from what HB said about PRPFX's allocation on one of his radio shows, it sounds like Cuggino can't dump the Swiss Francs without shareholder approval.

Each Portfolio’s fundamental investment policies and limitations cannot be changed without approval by a “majority of the outstanding voting securities”? of the Portfolio. A majority of the outstanding voting securities of a Portfolio is defined under the 1940 Act as the lesser of: (i) 67% or more of the Portfolio’s shares present at a meeting if more than 50% of the outstanding shares of the Portfolio are present and represented by proxy; or (ii) more than 50% of the outstanding shares of the Portfolio. In addition to those fundamental policies described in the Prospectus, the following investment limitations are fundamental and cannot be changed without such shareholder approval...
Source: Statement of Additional Information (PRPFX)

...and the Prospectus specifically says:

Except as indicated otherwise, the investment objective and policies of each Portfolio, as described below, are fundamental. A Portfolio’s fundamental investment objective or policy may not be changed without the approval of the lesser of: (1) 67% of the shares of a Portfolio represented at a meeting at which more than 50% of the outstanding Portfolio shares are represented; or (2) a majority of the outstanding shares of the Portfolio.
Source: Prospectus (PRPFX)

That may make it more difficult to do the right thing.

MediumTex wrote:PRPFX really should have gotten rid of its Swiss franc exposure when Switzerland ended gold convertibility in 2000.

I agree. I think that these currencies can be swapped out for gold in the PRPFX fund with no impact on performance. I think gold is the most neutral of all the currencies.

For the record, I do not believe the Swiss will keep their peg to the Euro. They are going to import Europe's inflation into their country and I am willing to bet it will be just as unpopular as it was in the late 1960s/early 1970s when they were importing the dollar's inflation. This ultimately resulted in breaking of Bretton Woods as the Swiss and others refused to prop the dollar up any longer.

craigr wrote:

MediumTex wrote:PRPFX really should have gotten rid of its Swiss franc exposure when Switzerland ended gold convertibility in 2000.

I agree. I think that these currencies can be swapped out for gold in the PRPFX fund with no impact on performance. I think gold is the most neutral of all the currencies.

Here is the current mix for PRPFX, according to the Prospectus:

----------------------------------------------------------
Investment Category            Target Percentage
----------------------------------------------------------
Gold..................................................... 20%
Silver..................................................... 5%
Swiss franc assets.................................. 10%
Stocks of U.S. and foreign real estate
 and natural resource companies.............. 15%
Aggressive growth stocks......................... 15%
Dollar assets.......................................... 35%
================================
Total                                                   100%

...and in the Statement of Additional Information, it says:

Swiss franc assets tend to appreciate during periods of rising inflation because, although the Swiss franc is a fiat currency, the Swiss government traditionally has acted with a high degree of restraint in permitting the issuance of new currency. Such restraint is generally taken to indicate that a currency will preserve its purchasing power. If the rate of inflation does rise, the prices of common stocks (other than those of U.S. and foreign real estate and natural resource companies) and, more especially, of dollar assets, are likely to decline.

I think the shareholder approval clause is going to make it very difficult for Cuggino to change the mix of the fund — even if he wants to. If/when the Euro implodes, we can expect that 30% stock holding will tank. That implies that 40% of the portfolio could tank simultaneously. Will the rest of the portfolio rise enough to offset the loss?

On the other hand, it seems unlikely that the Swiss wouldn't just unpeg their currency if that happened. And then the Swiss Franc would look much more appealing.

Perhaps it's time to start thinking about updating the unofficial 90% PRPFX/10% EDV allocation slightly to offset the Swiss Franc/Euro exposure? It's a tough call.

HB Reader's response, above, rightly explains that the Swiss could unpeg at any moment if they wanted to. So, this may all be moot. It's a very confusing situation. This all makes the 4x25 look much more appealing now.

Gumby wrote:

craigr wrote:

MediumTex wrote:PRPFX really should have gotten rid of its Swiss franc exposure when Switzerland ended gold convertibility in 2000.

I agree. I think that these currencies can be swapped out for gold in the PRPFX fund with no impact on performance. I think gold is the most neutral of all the currencies.

Here is the current mix for PRPFX, according to the Prospectus:

----------------------------------------------------------
Investment Category            Target Percentage
----------------------------------------------------------
Gold..................................................... 20%
Silver..................................................... 5%
Swiss franc assets.................................. 10%
Stocks of U.S. and foreign real estate
 and natural resource companies.............. 15%
Aggressive growth stocks......................... 15%
Dollar assets.......................................... 35%
================================
Total                                                   100%

...and in the Statement of Additional Information, it says:

Swiss franc assets tend to appreciate during periods of rising inflation because, although the Swiss franc is a fiat currency, the Swiss government traditionally has acted with a high degree of restraint in permitting the issuance of new currency. Such restraint is generally taken to indicate that a currency will preserve its purchasing power. If the rate of inflation does rise, the prices of common stocks (other than those of U.S. and foreign real estate and natural resource companies) and, more especially, of dollar assets, are likely to decline.

I think the shareholder approval clause is going to make it very difficult for Cuggino to change the mix of the fund — even if he wants to. If/when the Euro implodes, we can expect that 30% stock holding will tank. That implies that 40% of the portfolio could tank simultaneously. Will the rest of the portfolio rise enough to offset the loss?

On the other hand, it seems unlikely that the Swiss wouldn't just unpeg their currency if that happened. And then the Swiss Franc would look much more appealing.

Perhaps it's time to start thinking about updating the unofficial 90% PRPFX/10% EDV allocation slightly to offset the Swiss Franc/Euro exposure? It's a tough call.

HB Reader's response, above, rightly explains that the Swiss could unpeg at any moment if they wanted to. So, this may all be moot. It's a very confusing situation. This all makes the 4x25 look much more appealing now.

Great post, Gumby.

I think PRPFX is still a good fund.  Who knows what will happen with the Swiss franc. 

Definitely a good idea to hold some EDV along with it, though. 

Adam1226 wrote:
I think PRPFX is still a good fund.  Who knows what will happen with the Swiss franc. 

Definitely a good idea to hold some EDV along with it, though. 

I agree.

If it is used as an investor's core PP holding, it is head and shoulders above other asset allocation funds -- but it does need some additional deflation protection.

Since I currently tend to be a little closer to the "longer term inflation persuasion" than others on this forum, I also like to use it in the taxable portion of my VP as an intermediate term holding vehicle, but that is a discussion for a different thread. 

I emailed the fund again with my concerns about holding Swiss Francs that are pegged to the euro. I am awaiting a reply.

This is starting to get out of hand...

ZeroHedge: Swiss Franc Plunges On Rumor EURCHF Peg To Be Widened To 1.25