The PP makes the assumption that LT Treasuries and Gold are a binary pair. Treasuries are correlated with deflation and gold is correlated with inflation. You can't have inflation and deflation at the same time.
I am somewhat concerned with the recent correlations between gold and treasuries. They are moving in similar directions more often than I am comfortable with. Both investments have carried the PP, which confuses me.
Is there a logical explanation? I'm worried that one of the assets is in a bubble that won't be offset by the other.
Gold and Treasuries Correlation
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Gold and Treasuries Correlation
everything comes from somewhere and everything goes somewhere
Re: Gold and Treasuries Correlation
It is not possible to explain market behavior because there are so many variables involved. My own feeling is that we do have the Fed in the background doing things to influence bond prices to stave off deflation. But we also have the gold market that thinks what they are doing is going to be inflationary.
Realize that economic transition periods are not well defined events. We can look back and say that such-and-such a period was inflation or deflation or prosperity. But at the time it was going on there could have been a lot of market turmoil that took a while to sort itself out.
I wish I had a better answer for you, but I don't think there is one. I hold the assets and see the same thing as you. My experiences though have been to just hold on and eventually one of them is going break out. If gold and bonds both fall in price it's likely that the stock allocation could pick up the slack. There are not many places to hide in the market except for cash and if inflation comes even that will get hit hard. The current market conditions is actually the reason why I hold the Permanent Portfolio. It is not placing a bet in any particular direction. Take profits where you can from rebalancing and buy the laggards. That's the best advice I can offer because nobody knows how the thing will play out in any asset class. Investment gurus are quick to offer ex post explanations for market activity but they are just guessing like the rest of us.
Realize that economic transition periods are not well defined events. We can look back and say that such-and-such a period was inflation or deflation or prosperity. But at the time it was going on there could have been a lot of market turmoil that took a while to sort itself out.
I wish I had a better answer for you, but I don't think there is one. I hold the assets and see the same thing as you. My experiences though have been to just hold on and eventually one of them is going break out. If gold and bonds both fall in price it's likely that the stock allocation could pick up the slack. There are not many places to hide in the market except for cash and if inflation comes even that will get hit hard. The current market conditions is actually the reason why I hold the Permanent Portfolio. It is not placing a bet in any particular direction. Take profits where you can from rebalancing and buy the laggards. That's the best advice I can offer because nobody knows how the thing will play out in any asset class. Investment gurus are quick to offer ex post explanations for market activity but they are just guessing like the rest of us.
Last edited by craigr on Fri Oct 22, 2010 11:22 pm, edited 1 time in total.