COMMENTARY

2009 MAR 31

Due to the uncertain state of world capital markets and economy, it is more important than ever to maintain the Permanent Portfolio structure.

The world and its economy is at a very uncertain and critical point. Which way the markets tip is a complete guessing game.

Adding to and regularly re-balancing your portfolio is a must, especially in a down market.

My best "guess" is that real estate pricing will continue to hold or perhaps trend lower over the next few years.

Remember, our intent is to invest, NOT speculate.

When we invest, our Permanent  Portfolio will ALWAYS trend upward, even in the short term (3-5 years). Speculating is completely different.

We want to build some certainty in an uncertain world.
 

WHAT HAPPENED IN 2008?

What do you get when you combine the lowest interest rates in decades, easy mortgages (even for subprime borrowers), the securitization of those mortgages into substitute new financial instruments, and unhedged speculation in those instruments? A global credit crisis in 2007, followed by a global market meltdown a year later.
 

What made the collapse so lethal was that an inverted pyramid of novel financial assets had been erected upon the flimsy base of mortgages. Banks had bundled together loans, sliced and diced them and resold them to investors around the world as "collateralized debt obligations" and the like. Ratings agencies pronounced the top tier of those instruments AAA: the quintessence of financial alchemy. When the supposed gold turned into lead and then into toxic waste, the consequences were devastating.

For an excellent explanation of how and why the financial mess occurred in 2008, please refer to the article  'Financial Meltdown 101' at the web address:

www.alternet.org/story/102672/

A relevant comment by PETER SCHIFF, analyst and fund mamager:

"I'm as negative as I've ever been because everything the government is doing now is going to make the situation much, much worse. They're trying to reflate this bubble. All along I knew that what would potentially be fatal wasn't the recession itself but the government's response. But what they've already done exceeds even my worst-case imagination."

Two gut-wrenching bear markets since 2000 have shown investors and brokers alike that the "stocks are best for the long haul" mantra may not be the best alternative. After all, what is the "long haul?" Unfortunately, buy-and-hold strategies may require a time period far beyond the realistic time horizons of many investors.