Saturday, July 30, 2016

July 30 Update: Boing!; Bailing on Bonds


The value of the Schiff-Maloney portfolio bounced up off of the rising lower trend line, netting a 1.5% gain for the week. (click chart to enlarge)


I'm shaking up the portfolio this weekend by selling both of the bond funds (ALD, AUNZ) and replacing them with foreign currency funds, which are analogous to bank accounts or money market funds.  Thanks to some fortuitous timing I was able to take advantage of a six-month window of opportunity in which the value of the dollar relative to Schiff currencies started falling while the global bond bubble continued to inflate.  The closing gains for the ALD and AUNZ positions are 3.5% and 8.5%, respectively.

Given that global bonds are in a bubble, it was technically against the philosophy of the Schiff-Maloney portfolio to invest in them at all, but I had a reason for briefly surfing the bond wave before it broke.   A sizeable chunk of my savings is in a group retirement plan that has access to only a limited number of funds.  Most of them are tied to doomed U.S. stocks and bonds, and none of them invest in foreign currencies, but a few of them have bonds from several countries, including Schiff countries.  To maximize my diversification while getting some protection from the dollar collapse, I was obliged to invest in three foreign bond funds and hope for the best.  In the interest of convincing myself that these funds were adequate, and to demonstrate this decent alternative to other investors with similar limitations, I found ALD and AUNZ and used them in my accounts where I have complete freedom to choose any investment.

A recent post by Mike Maloney inspired me to take a closer look at the bond situation, and what I've seen convinces me that it's a great time to sell the bonds in the Schiff-Money portfolio.  First, Maloney points out that the "yield curve" in the U.S. recently made a big move towards "flattening":

When bond yields fall it means bond prices are rising, and in the chart below you can see long-term U.S. treasury bond prices (20-30 year maturities) have reached a rising upper trend line (green) for only the fourth time since 2008:

There's also a lower trend line (red) that will intersect the upper trend line some time in 2018.  Market technicians call this a "rising wedge" pattern, and in this situation the price usually reverses and falls below the red line well before the trend lines meet, thus it's quite possible that this is THE peak in bond prices.  A drop back to pre-2008 prices would be a ~35% drop, and in this interconnected global economy all foreign bonds would be dragged down as well.  Most bond funds have shorter average maturities (5-10 years), so the fall will not be as steep for ALD, AUNZ, or the mediocre funds that I'm stuck with in my group plan.


I've used the bond sale proceeds to purchase six exchange traded funds (ETFs) that invest in foreign currencies.  Three of the funds are in currencies of top Schiff-approved countries, and three more are second-tier currencies included for diversification.

FXF: Swiss Frank CurrencyShares
FXA: Australian Dollar CurrencyShares
FXSG: Singapore Dollar CurrencyShares

FXS: Swedish Krona CurrencyShares
FXB: British Pound Sterling CurrencyShares
FXC: Canadian Dollar CurrencyShares

The new funds are listed at the bottom of the table below.  Presently they're each sitting at an $8 loss, reflecting the trading fee for a Fidelity account.  (For some reason the ticker symbol for the Singapore fund [FXSG] doesn't add or subtract from the value of the portfolio in the chart, but does for the table. I'm not sure yet how to solve this.)

Finally, this week I encourage you to visit your local coin store with a wad of cash and establish good relations with the proprietor(s).

Saturday, July 23, 2016

July 23 Update: Made in China

The Schiff-Maloney portfolio had another down week with a drop of nearly 1%, but as you can see in the chart below, this is actually an expected decline that takes the value down to the rising red trend line for at least the 8th time since February.  Assuming the current trend holds, this is probably a good time to add money to the portfolio.

Schiff-Maloney Portfolio performance (CLICK TO ENLARGE)

I end today's quick update with something tangentially relevant that I find darkly amusing.  The Wall Street Journal recently produced a video on the Panama Canal expansion project:

The video is informative enough, but at the 1:30 mark the video explains the primary justification for the expansion project, and in doing so it inadvertently lets us glimpse the house of cards that we're sitting on.  The nice young lady explains, "[it] would make it cheaper and faster to get (Asian) consumer goods to big cities along the Atlantic Seaboard," and as an afterthought she notes that it might make it easier for the U.S. to export food and energy.  Even assuming that the canal helps our exports, a country with a supposedly 21st-century, high-tech economy can't stay that way if it's importing most of its consumer goods in return for sending some corn, coal, and treasury bonds.

People assume that this one-way flow of manufactured products can somehow go on forever, but it won't last.  China is wise to what's coming, as evidenced by their recent massive purchases of gold bullion:

Most of us won't be able to afford Chinese goods after the dollar collapses, but Chinese consumers with good manufacturing jobs and gold-backed money will be happy to buy their own products in our stead.