A change of heart about the PP after reading another Harry book

[D1984]

I have had this view for about the past 10 years, once I saw that the US government/Fed was continue to blow bubble after bubble to postpone the depression that would be needed to clear out the malinvestments that have been accumulating for decades.

What is the nature of these malinvestments, exactly? If a decade ago they had already been accumulating them "for decades" that means they were made in the 80s, 90s, and early 2000s and maybe even as far back as the 70s. I am aware that we (the US as a whole) invested too much into residential construction (housing) from the early 2000s to roughly 2006-07 but given the housing bust of the past few years this has actually turned into a SHORTFALL of invesment in housing (Brad Delong has some excellent graphs and data on this point if you go to his blog). What other US-wide and not just sector-specific "malinvestments" were made in the past few decades in your opinion? The stock market dotcom bubble? Didn't that pop already in 2000-02?

[Libertarian666]

I have had this view for about the past 10 years, once I saw that the US government/Fed was continue to blow bubble after bubble to postpone the depression that would be needed to clear out the malinvestments that have been accumulating for decades.

What is the nature of these malinvestments, exactly? If a decade ago they had already been accumulating them "for decades" that means they were made in the 80s, 90s, and early 2000s and maybe even as far back as the 70s. I am aware that we (the US as a whole) invested too much into residential construction (housing) from the early 2000s to roughly 2006-07 but given the housing bust of the past few years this has actually turned into a SHORTFALL of invesment in housing (Brad Delong has some excellent graphs and data on this point if you go to his blog). What other US-wide and not just sector-specific "malinvestments" were made in the past few decades in your opinion? The stock market dotcom bubble? Didn't that pop already in 2000-02?

The continuing government deficits have caused the creation of trillions of dollars out of thin air, which have bid up the price of all assets and kept interest rates below what they would have been in an unhampered market. This has caused investments to be made that would not have been made without such interference in the market.

In the long run, it actually does not matter where the money went. Wherever it went, it has caused misallocation of resources, which cannot be remedied due to the continued interference in the market.

If they stop printing at any point, the banking system will collapse. And of course if they continue printing, the same will occur through the "flight to real goods", aka the "crack-up boom". The rest is a matter of timing, which I'm not very good at.

[murphy_p_t]

What other US-wide and not just sector-specific "malinvestments" were made in the past few decades in your opinion?

military / imperial budget ?

[happyspec]

In the long run, it actually does not matter where the money went. Wherever it went, it has caused misallocation of resources, which cannot be remedied due to the continued interference in the market.

You are right, misallocation of capital is the name of the game in a non-free-market-economy. Sad story but a true one.

If they stop printing at any point, the banking system will collapse. And of course if they continue printing, the same will occur through the "flight to real goods", aka the "crack-up boom". The rest is a matter of timing, which I'm not very good at.

Beware of social automatisms, Libertarian666 - especially if you base your investment plan on them! As an Austrian one should be aware that society is made up of and by millions and billions of individuals with their own aims and own minds. We cannot know for sure how they will react to any circumstances and I would not dare to predict it. That means: The crack-up-boom is no sure thing because men are men and not social automats.

[Libertarian666]

In the long run, it actually does not matter where the money went. Wherever it went, it has caused misallocation of resources, which cannot be remedied due to the continued interference in the market.

You are right, misallocation of capital is the name of the game in a non-free-market-economy. Sad story but a true one.

If they stop printing at any point, the banking system will collapse. And of course if they continue printing, the same will occur through the "flight to real goods", aka the "crack-up boom". The rest is a matter of timing, which I'm not very good at.

Beware of social automatisms, Libertarian666 - especially if you base your investment plan on them! As an Austrian one should be aware that society is made up of and by millions and billions of individuals with their own aims and own minds. We cannot know for sure how they will react to any circumstances and I would not dare to predict it. That means: The crack-up-boom is no sure thing because men are men and not social automats.

Yes, of course I do know that society is made up of many individuals. But I also know that people will not take unbacked fiat paper forever if its supply is increasing too rapidly, and that stopping the printing (or printing too slowly) will cause the banking system to implode. I also know that the margin for error in the precise amount of money printing decreases as the malinvestments accumulate. What we don't know is which of these two will happen and when.

[Libertarian666]

I suspect I have the most unusual portfolio here. My allocation is roughly as follows:

gold: 70%
silver: 10%
Swiss francs: 20%
dollars: -10%
real estate: 10%

May I ask what instrument(s) you use to access the Swiss francs?

A Swiss fixed annuity, which unfortunately is no longer sold to US persons, as far as I know.

My latest update on the fixed Swiss annuity product is that they are not available to anyone, even Swiss persons, any more. I guess the interest rates the insurance companies can earn are too low to make them profitable. Which is yet another horrible consequence of the insane Fed policy of keeping the pedal to the metal until everything blows up.

[I Shrugged]

I submit that no lifelong investor goes through life with one unchanging plan.  It just doesn't happen.  I am in my mid 50s, retired, and have had several major investment plans or themes during my life.  And I'm not referring to changes due to my situations.  The themes I can recall are:

-Invest in Forbes all-star, or whatever they were called, mutual funds.  They had great 10 year track records so I wasn't just chasing performance, right?    Well they worked out okay, but then so did the market overall.

-Invest in Vanguard funds and reap the benefits of low expenses.  Not necessarily index funds though, because some VG active funds had great track records!

-The above, but start opportunistic buying of sectors that have been trashed.  Example, if emerging markets were down 50%, load up the truck and be patient for a couple of years.  That worked very well btw!  Those were the days of sector rotation in the market, I think.  I also tried to buy some quality stocks.

-I read Bill Berstein.  Realized I was a sorry stock and fund picker, and was paying WAY more taxes than I should have been.  My money is almost all taxable.  Switched into tax efficient index funds, and didn't churn them.  Boy howdy did that make a difference.  I started moving towards my version of the HBPP, then the meltdown hit.  I lost something like 15%, and learned real quick what tax loss harvesting was.

-Switched to a much purer version of the PP during the tax lost harvesting.

Over those cycles I developed a feel for what worked and what my capabilities and limitations were.  Each theme led to the next as I saw what failed and what worked.  I think the PP works.  I will not declare it to be my final theme.  If I don't think it works, I'll go from there.

[k9]

That's an interesting topic.

I think the "one-size-fit-all" of the PP is a little problematic.

For example : someone with a government job ; not necessarily US, I'm talking about what I know : in France, they are very safe ; you cannot lose it unless you make a bad mistake or unless France goes bankrupt. Well, if that happens, your conservative allocation of 50% French bonds will look very bad. A government employee is already long bonds, so he might feel the need to reduce that allocation.

On the opposite, a stock broker's employee is long stocks, so he might need to reduce that part of his PP.

Finally, my personal situation : I'm paying off my mortgage, little by little. I consider this is equivalent to a TLT investment (but it is safer and has a better yield ) so I don't invest in long bonds at all (I would be way too much long on deflation). So my PP is 33 gold / 33 cash / 33 stocks.

[Dieter]

That's an interesting topic.

I think the "one-size-fit-all" of the PP is a little problematic.

...

Finally, my personal situation : I'm paying off my mortgage, little by little. I consider this is equivalent to a TLT investment (but it is safer and has a better yield ) so I don't invest in long bonds at all (I would be way too much long on deflation). So my PP is 33 gold / 33 cash / 33 stocks.

I'm unclear on this one - don't folks with a fixed mortgage (like me) gain inflation protection vs deflation protection? Aka, wouldn't a fixed mortgage lead more to reducing Gold than LTT?

[dragoncar]

That's an interesting topic.

I think the "one-size-fit-all" of the PP is a little problematic.

...

Finally, my personal situation : I'm paying off my mortgage, little by little. I consider this is equivalent to a TLT investment (but it is safer and has a better yield ) so I don't invest in long bonds at all (I would be way too much long on deflation). So my PP is 33 gold / 33 cash / 33 stocks.

I'm unclear on this one - don't folks with a fixed mortgage (like me) gain inflation protection vs deflation protection? Aka, wouldn't a fixed mortgage lead more to reducing Gold than LTT?

A mortgage is short bonds, but paying off the mortgage is long bonds.

[Kshartle]

I submit that no lifelong investor goes through life with one unchanging plan.  It just doesn't happen.  I am in my mid 50s, retired, and have had several major investment plans or themes during my life.  And I'm not referring to changes due to my situations. 

Over those cycles I developed a feel for what worked and what my capabilities and limitations were.  Each theme led to the next as I saw what failed and what worked.  I think the PP works.  I will not declare it to be my final theme.  If I don't think it works, I'll go from there.

That was extremley interesting to someone in their mid 30s who hasn't experiences nearly as many cycles or investing plans. It's a pity we have to spend so much time and take so much risk keeping our purchasing power. We can't just find safe growth and protection from loss without studying and learning. There are so many theives, in the financial business and government.

Have you every tried your own global economic analysis?

[I Shrugged]

I submit that no lifelong investor goes through life with one unchanging plan.  It just doesn't happen.  I am in my mid 50s, retired, and have had several major investment plans or themes during my life.  And I'm not referring to changes due to my situations. 

Over those cycles I developed a feel for what worked and what my capabilities and limitations were.  Each theme led to the next as I saw what failed and what worked.  I think the PP works.  I will not declare it to be my final theme.  If I don't think it works, I'll go from there.

That was extremley interesting to someone in their mid 30s who hasn't experiences nearly as many cycles or investing plans. It's a pity we have to spend so much time and take so much risk keeping our purchasing power. We can't just find safe growth and protection from loss without studying and learning. There are so many theives, in the financial business and government.

Have you every tried your own global economic analysis?

Good insight!

I do agree on the thieves.  Early on, I found out about avoiding the thieves on the business side.  But only lately have I had to worry about a government actively planning to screw savers.

I used to buy into stories about where the economy was going, what investments would prosper, and the like.  Over time I realized most of the stories didn't work out at all.  That's when I knew I could not make anything by trying to pick stocks.

My advice (free, and worth it!) is don't try to come up with the perfect plan.  I feel confident that the HBPP is a good plan.  Good enough, to conserve your wealth and grow moderately and safely.

Most of the people I know who have comfortably retired are the beneficiaries of defined benefit pensions.  They didn't have to do any planning.  I think the failure rate among all the self-planners is going to be pretty high.  And that will give the government an excuse to take over peoples' plans. 

Murray Rothbard said, "The government is a gang of thieves, writ large."  As you have discovered, that insight will serve you well in making your plans.

[Rien]

Good thread, echoes some of the sentiment I just posted in my first post here. Thanks for the insights.

[notsheigetz]

I submit that no lifelong investor goes through life with one unchanging plan.  It just doesn't happen.  I am in my mid 50s, retired, and have had several major investment plans or themes during my life.  And I'm not referring to changes due to my situations.  The themes I can recall are:

Congratulations on retiring in your mid-50's. My first theme, lasting until about my mid-40's was "Plan? What plan? I don't need no stinkin' plan". And that was probably the best one I came up with until I got into the PP a few years ago.

[I Shrugged]

If all you do is plan to save a good amount of money every year, you'll do just fine.  Better than 90% of your fellow citizens.  When you get right down to it, the key to being well-off is to do better than most everyone else.  That sounds horrible, but if you look at it logically, that's how it works. 

[vnatale]

I suspect I have the most unusual portfolio here. My allocation is roughly as follows:

gold: 70%
silver: 10%
Swiss francs: 20%
dollars: -10%
real estate: 10%

The real estate is my primary residence.
The negative dollars are due to a non-recourse mortgage on my primary residence.

I did have a significant stock allocation (Fidelity International) while I was working at a place that didn't have very many options for their 401K, but moved that into gold and Swiss francs as soon as I left there and could get it into another retirement plan with better options.
I have been very gold-heavy for much longer than that.
I don't rebalance periodically, but when I have new money to add, I do it pretty much according to these proportions.

First time I've seen any detail on your non-Permanent Portfolio portfolio.

Nearly 7 years later it is?

Vinny

[vnatale]

I submit that no lifelong investor goes through life with one unchanging plan.  It just doesn't happen.  I am in my mid 50s, retired, and have had several major investment plans or themes during my life.  And I'm not referring to changes due to my situations.  The themes I can recall are:

-Invest in Forbes all-star, or whatever they were called, mutual funds.  They had great 10 year track records so I wasn't just chasing performance, right?    Well they worked out okay, but then so did the market overall.

-Invest in Vanguard funds and reap the benefits of low expenses.  Not necessarily index funds though, because some VG active funds had great track records!

-The above, but start opportunistic buying of sectors that have been trashed.  Example, if emerging markets were down 50%, load up the truck and be patient for a couple of years.  That worked very well btw!  Those were the days of sector rotation in the market, I think.  I also tried to buy some quality stocks.

-I read Bill Berstein.  Realized I was a sorry stock and fund picker, and was paying WAY more taxes than I should have been.  My money is almost all taxable.  Switched into tax efficient index funds, and didn't churn them.  Boy howdy did that make a difference.  I started moving towards my version of the HBPP, then the meltdown hit.  I lost something like 15%, and learned real quick what tax loss harvesting was.

-Switched to a much purer version of the PP during the tax lost harvesting.

Over those cycles I developed a feel for what worked and what my capabilities and limitations were.  Each theme led to the next as I saw what failed and what worked.  I think the PP works.  I will not declare it to be my final theme.  If I don't think it works, I'll go from there.

7 years later.....have you stayed? Or, have you gone from there?

Vinny

[Libertarian666]

I suspect I have the most unusual portfolio here. My allocation is roughly as follows:

gold: 70%
silver: 10%
Swiss francs: 20%
dollars: -10%
real estate: 10%

The real estate is my primary residence.
The negative dollars are due to a non-recourse mortgage on my primary residence.

I did have a significant stock allocation (Fidelity International) while I was working at a place that didn't have very many options for their 401K, but moved that into gold and Swiss francs as soon as I left there and could get it into another retirement plan with better options.
I have been very gold-heavy for much longer than that.
I don't rebalance periodically, but when I have new money to add, I do it pretty much according to these proportions.

First time I've seen any detail on your non-Permanent Portfolio portfolio.

Nearly 7 years later it is?

Vinny

Very roughly:

70% gold
15% Swiss francs
15% dollars
(House is paid off but I don’t count that as part of my portfolio)

[I Shrugged]

I submit that no lifelong investor goes through life with one unchanging plan.  It just doesn't happen.  I am in my mid 50s, retired, and have had several major investment plans or themes during my life.  And I'm not referring to changes due to my situations.  The themes I can recall are:

-Invest in Forbes all-star, or whatever they were called, mutual funds.  They had great 10 year track records so I wasn't just chasing performance, right?    Well they worked out okay, but then so did the market overall.

-Invest in Vanguard funds and reap the benefits of low expenses.  Not necessarily index funds though, because some VG active funds had great track records!

-The above, but start opportunistic buying of sectors that have been trashed.  Example, if emerging markets were down 50%, load up the truck and be patient for a couple of years.  That worked very well btw!  Those were the days of sector rotation in the market, I think.  I also tried to buy some quality stocks.

-I read Bill Berstein.  Realized I was a sorry stock and fund picker, and was paying WAY more taxes than I should have been.  My money is almost all taxable.  Switched into tax efficient index funds, and didn't churn them.  Boy howdy did that make a difference.  I started moving towards my version of the HBPP, then the meltdown hit.  I lost something like 15%, and learned real quick what tax loss harvesting was.

-Switched to a much purer version of the PP during the tax lost harvesting.

Over those cycles I developed a feel for what worked and what my capabilities and limitations were.  Each theme led to the next as I saw what failed and what worked.  I think the PP works.  I will not declare it to be my final theme.  If I don't think it works, I'll go from there.

7 years later.....have you stayed? Or, have you gone from there?

Vinny

I have stayed. Although the post was 7 years ago, the PP conversion itself was 10+ years ago. I tax loss harvested my way into it at the absolute depth of the crash. So I have a lot of built in gains now, that I feel like I can't ever afford to sell my way out of, lol. Even in gold, which amazes a lot of more recent PP converts here. I think my average cost on gold is $640 or so. My 10 year IRR on the whole package is about 5.7%. I feel pretty good about that. I bet the average investor made quite a bit less because of market timing.

The biggest help from the above was the Berstein "Taxable Ted" scenario in his Pillars book. And the PP has been the icing on top of that.