Beginning two months ago I expanded the performance information. I believe you will find it much more useful and practical. Each month you will see the performance for that month, the performance for the year-to date, and the performance for the entire period from January 1, 2000 to date. For simplicity, I have assigned a value of 100 to my portfolio on 1-1-00, hence the title Jay’s PF Index. Later dates show what $100 invested in my portfolio has grown to. In addition, for comparison purposes, you will see my portfolio compared to gold and the DJIA compared to gold for all of these periods of time. I believe these additional performance figures will add valuable perspective to our investment analysis. Here are the performance figures in the new format.

V A L U E S Date Jay PF Index in USD Gold Price in USD Oz. of Gold / 1 USD JPF/Gold DJIA Dow/Gold 01-01-2000 100.00 282 0.003546 0.3546 11,497.12 40.7699 01-01-2009 352.28 881 0.001135 0.3999 8,776.39 9.9619 11-30-2009 412.83 1,177 0.000957 0.3507 10,344.84 8.7892 12-31-2009 396.85 1,097 0.000912 0.3618 10,428.05 9.5060   P E R F O R M A N C E Period Jay PF % Chg in USD Gold % % Chg in USD USD/Gold % Change JPF/Gold % Chg DJIA % Chg Dow/Gold % Chg 12-01-2009 to 12-31-2009 (Month) -3.87% -6.80% -4.70% 3.14% 0.80% 8.16% 01-01-2009 to 12-31-2009 (Year) 12.65% 24.52% -19.65% -9.53% 18.82% -4.58% 01-01-2000 to 12-31-2009 (Decade) 296.85% 289.01% -74.28% 2.02% -9.30% -76.68%   Notes: (1) "USD/Gold % Change" is simply the reciprocal of the gold price in dollars. You cannot precisely compare the dollar with gold without adjusting for interest. The dollar earns interest. Gold does not. With interest rates near zero, this seems insignificant, but over time it is not. Interest rates must eventually rise. On the other hand, GATA and other experts on gold claim that the price of gold has been artificially manipulated downwards for many years by concentrated short selling on the futures markets. Some experts also believe that a significant percentage of physical gold supposedly held by futures exchanges does not exist. Furthermore, central bankers regularly talk down gold. After all, it competes with their fiat currencies and threatens their job security. (2) The Dow Jones Industrial Average (DJIA) does not include dividends given to shareholders. These are typically reinvested, but nowadays the dividends are usually quite small. It also does not include the brokerage fees and capital gains taxes that usually accompany investments in the stock market.

Interpretation: For the month of December, 2009, my portfolio lost 3.87%, and for the year-to-date, it is up 12.65%. For the entire period 1-1-00 to 12-31-09, my portfolio index increased from 100 to 396.85, a gain of 296.85%, and Gold increased from 282 to 1097, a gain of 289.01%. Thus, I have outperformed gold by 2.71% for the decade-to-date. By the way, my performance of 296.85% for the decade works out to an annual compound rate of growth of 14.8% per year over the ten year period, slightly greater than the growth rate in gold. Note also that the Dow lost 9.3% in dollars during the decade, but the Dow lost 76.7% for the decade when denominated in Gold. At the beginning of the decade, it took 40 ounces of Gold to buy the Dow. At the end of the decade, you could buy the Dow with just 9.5 ounces of Gold. The chart below, courtesy of JS Mineset, shows this in picture form: Other recent useful charts from JS Mineset: Long term charts for Gold, the US Dollar Index, HUI and the Dow/Gold ratio Long term charts of Gold in assorted currencies I made five transactions during December. They are listed under Jay’s Recent Transactions, and will be discussed in the comments section below. Here is my portfolio as of December 31, 2009:

CASH	30.0%	(MINIMUM 30%)  (US Treasury Bills 6.6%, HAFGF 1.8%, Bank deposits & Money Market 21.6%)
GOLD & SILVER	42.7%	(MINIMUM 30%) Gold – 15.1% (Swiss 1-oz bars 5.3%, 1-oz Kruggerands 10.1%)                          Silver – 27.6% (90% coins 18.0%, 1-oz eagles 2.3%,                                                  1000-oz bars 2.5%, SVRZF 4.8%;                                                  note: silver was down 8.7% in December)
MINING SHARES	17.5%	SSRI 6.7%; GDX 4.3%; SLW 3.3%; SA 1.0%; VGZ 1.3%; AUY 0.9%
NON-GOLD & SILVER PHYSICALS	9.8%	Oil & Gas W/I – 9.3% (Non-publicly traded investment)
PUTS & CALLS	0.0%
TOTAL	100.0%

Comments by Major Allocation

CASH: Last month I mentioned that my cash allocation was 23.9%, or about 6% below my target. I said that I might increase it at some point, but didn’t know when that might be. That time came just before the end of the year. I increased cash to 30%. My main reason for doing so was the conviction that I should be closer to the permanent portfolio plan, which hedges against both inflation and deflation. I was well hedged against inflation, but not so well hedged against deflation. I have many reasons to believe my top experts have 30% or more in cash. Some of them state it. Others make statements which indicate it. In order to increase my cash allocation to 30%, I had to sell other assets to raise the 6%. I am growing less and less enthusiastic about holding commodity ETFs. Studies are showing they are not accurately tracking the performance of the underlying commodities. In addition, there is higher risk in them because they are funded by commodity futures contracts which carry counter-party default risk. It was an easy decision to sell my RJA, RJI and RJN. Don’t misinterpret this action. I am still very bullish on the long term potential of all commodities, but until I can find a way to own them directly (like gold and silver), I don’t consider the risk acceptable. I made up the remainder of the 6% needed to raise cash to 30% by selling a portion of my SVRZF. This was also an easy decision as SVRZF had risen to a 13% premium over its net asset value. I made a profit of about 25% on this sale in four months! If SVRZF’s premium over net asset value continues to increase, I will likely sell more to capture the arbitrage. Note that I have diversified some of my cash out of money market into US Treasury Bills, since starting on September 18, 2009, money market funds were no longer insured by the FDIC. I will probably move some more of my cash into T-Bills, the safest way of holding US dollars.

GOLD AND SILVER: This allocation dropped a little to 42.7% for two reasons. First, in December gold dropped 6.8% and silver dropped 8.7%. Second, the SVRZF sale discussed above. Here’s a question I’m hearing fairly often lately: “Is it time to sell some gold or silver?” Here’s a question put to Richard Russell, and his answer.

RUSSELL WISDOM (from Richard’s Remarks, December 31, 2009, www.dowtheoryletters.com):
 

Notice this last sentence. There may be times when you sell a portion, or change your allocation to gold and silver, but it should always be in any portfolio using the Permanent Portfolio strategy.

MINING SHARES: My top experts are in general agreement that we are probably not more than half way through the secular bull market in gold, and the blow-off or bubble stage lies well ahead. I have no intention of missing that. That’s when I expect our mining shares will rise exponentially and provide leverage to the gold price. The current correction in gold and silver, which could last from a few weeks to a year or more, could produce some great opportunities in mining shares. I’ll have more to say on this in the future.

NON-GOLD AND SILVER PHYSICALS: I’m down to just one investment in this asset class, my oil and gas producing properties. This is a non-publicly traded investment which produces monthly cash flow. It is a way of directly owning a physical commodity, and I am very bullish on the potential for oil and gas for the next five to ten years at least. If I did not have these direct interests, I would have an investment in one or more of the natural gas royalty trusts (SJT, PGH and PWE would be my current choices).

CONCLUSION: As you can see, my portfolio is becoming simpler. Sometimes simplicity becomes elegant. I am happy to sit with 30% cash, 42.7% gold and silver, 17.5% mining shares and my 9.8% oil and gas interests and wait for further developments. I stand ready to reduce my gold and silver some at higher prices, or take a nice arbitrage profit out of my SVRZF if it is handed to me. I would also consider adding some to my mining shares if this correction carries them to super bargain prices. Otherwise, I’m happy to do nothing in my portfolio, and use the time for far more important things instead.
 

The law of Your mouth is better to me than thousands of coins of gold and silver.

(Psalm 119:72 NKJV)

And let our people also learn to maintain good works, to meet urgent needs, 
that they may not be unfruitful.

(Titus 3:14 NKJV)
 

Bullion Dealers and Bullion Info  |  Practical Ideas on Buying Gold and Silver
 

WORDS WE HOPE TO HEAR ONE DAY
"Well done, good and faithful servant; you were faithful over a few things,
I will make you ruler over many things.  Enter into the joy of your lord" (Mt. 25:21 NKJV)

WORDS OF WARNING
The Apostle Paul wrote, "Now godliness with contentment is great gain. We brought nothing into the world and it is certain that neither can we take anything out. So having food and clothing we will be content with that. But those who want to get rich fall into temptation and a snare and into many foolish and harmful desires, that plunge people into ruin and loss; because the love of money is a root of all kinds of evil; in their greediness some have been led away from the faith and have impaled themselves on many distresses." (1 Tim. 6:6-10 NKJV)

DISCLAIMER
The information on this page is the responsibility of Mr. E. Jay O'Keefe, but all your decisions are your own responsibility.