Gyroscopic Investing

I think I figured  it out, the Permanent Portfolio can not work outside of the United States. Any local economic turmoil in a any other economy other than the super power wouldn't effect the gold. Europe stock markets peaked the 27th of April of 2016, far ahead of the US stock markets. However we didn't see any upswing in gold until the US-market followed suit in January. Local bonds and local stocks should of course work as predicted and react to the local economy.

Gold(green) Vs. Stocks(blue), 2015-04-27 to 2016-02-12
[img width=500]http://i.imgur.com/c4I3Fwb.png[/img]


So what does this mean for a Permanent Portfolio investor outside of the United States. Well it means that the outcome is unpredictable and not at all steadily climbing like a US portfolio does. These two charts from a Swedish and Japanese portfolio falsifies the Permanent Portfolio theory outside of the United States.


Swedish Permanent Portfolio(OMXS30 stocks / Gold / 3 month bills / 2-10 years bonds):
[img width=500]http://i.imgur.com/g0C3ujk.png[/img]

Japanese Permanent Portfolio:
[img width=500]http://4.bp.blogspot.com/-jLZBJlSnvMI/U ... _Japan.png[/img]

No

EUPP is doing great

compare it with USPP


regards

Interesting contrast of opinions.
Maybe it will work long term in Europe but perhaps Sweden is, for the time being, beyond help?

HB was emphasizing world crisis likes USD. USD crisis likes gold. Chinese, Russian, Australian, Canadian, South American, etc. currencies were all going down last year, and gold was just staying the same wrt USD. Any of these guys holding gold might have instead held USD and have the same effect in their PPs. However, last month even slight talk about crisis of USD, gold started shooting up. Exactly as per HB.

So, if you are holding a non-US PP, you should realize that the economy or currency of your PP might be going down, while US economy/currency is doing very well and money is running to USD rather than gold. In fact, you might be in a situation that your economy is tanking and that USD is doing so well that gold is also tanking. Don't underestimate US economy and the role of USD as the world reserve currency despite all the stories how the situation is supposedly changing (HB pointed out that this is a story that's being repeated last 30 years).

Japan has been in deflation for more than 20 years and even so the price of gold in yen has skyrocketed since 2004, which makes no sense whatsoever.

http://goldprice.org/gold-price-japan.html

Lang wrote: Japan has been in deflation for more than 20 years and even so the price of gold in yen has skyrocketed since 2004, which makes no sense whatsoever.

http://goldprice.org/gold-price-japan.html

Thank you for the hyperlink, did some research on the price charts and noticed price in GBP shows the same price pattern as can be seen in SEK and EUR.

So I got a hypothesis:
Gold is priced in USD worldwide. Your local currency exchange rate is then added on top of that. Because currency exchange rates are affected by a lot of other factors other than inflation. Gold doesn't show the same behavior outside of the United States.

I don't think a complete picture is painted when we talk about gold going up during inflation. Gold is more of a "crazy shit is happening" hedge, and high inflation is just one of many conditions that would fall under that umbrella. Sustained deflation and negative interest rates might be another one, since, yeah, if your deposits and cash are losing money, you might as well buy gold, which at least just sits there. And right now gold is soaring because people are afraid of the stock market blowing up. The big question is how often you see these kinds of events happening and how much they worry you. The more they dominate your thoughts, the more gold you'll intrinsically feel comfortable having.

1990, the Japanese economy is experiencing Ragnarok. Stocks markets are in free fall and a whole country of japanese people are panicking but no reaction in gold.

Nikkei 225, 1975 - 2015
[img width=500]http://sdw.ecb.europa.eu/servlet/quickv ... PDOWA.HSTA[/img]

Gold price in JPY, 1975 - 2015
[img width=500]http://i.imgur.com/7fDQpr4.png[/img]

I remember someone (Browne?) writing that gold can take some time, years even, to do its thing. Whether one thinks of it as an inflation hedge, a fear index or whatever, it will not necessarily respond quickly to events, let alone day-to-day happenings and perceptions of those happenings.

dualstow wrote: I remember someone (Browne?) writing that gold can take some time, years even, to do its thing. Whether one thinks of it as an inflation hedge, a fear index or whatever, it will not necessarily respond quickly to events, let alone day-to-day happenings and perceptions of those happenings.

In the case of the Japanese economy, 15 years? This is not a satisfactory explanation.

lordmetroid wrote:

dualstow wrote: I remember someone (Browne?) writing that gold can take some time, years even, to do its thing. Whether one thinks of it as an inflation hedge, a fear index or whatever, it will not necessarily respond quickly to events, let alone day-to-day happenings and perceptions of those happenings.

In the case of the Japanese economy, 15 years? This is not a satisfactory explanation.

I agree. 15 years is a long time. This suggests that gold might not reliably be counted on as a cure for stock markets in a free fall and panicking people. Don't get me wrong, it's still an important- an essential part of the pp. But neither gold nor the pp should be thought of as a cure-all for everything, even in the U.S. Rather, it's just the best thing out there so far, and an experiment in progress.

Hello,

so, outside of USA what is the alternative to PP?

Thank you.

frugal wrote: Hello,

so, outside of USA what is the alternative to PP?

Thank you.

[img width=500]http://truthaboutguns-zippykid.netdna-s ... -stash.jpg[/img]

frugal wrote: Hello,

so, outside of USA what is the alternative to PP?

Thank you.

At the moment I have no good answer, I am trying to figure out what to do now.

Any of the passive portfolios will most likely do just fine over the long term (including EU-PP). So just stick with what you have decided on and use these discussions only to further your understanding and confidence in whatever portfolio you have chosen.

If gold doesn't always work because it reacts primarily to the worlds reserve currency, maybe own some other assets in ye world reserve currency?

Don't know what's available where, and haven't back tested, but have you considered something like:

20% Euro Stock
10% S&P 500
20% Local Bonds
10% US LTT
25% local cash
15% Gold

So, 20% in the world reserve currency; slit depending on how US markets are doing.

And still a significant chunk of gold for when things get interesting.

Maybe try Swiss Francs instead of gold? I'm skeptical, but it might work well.

No need to hold CHF. One can get sufficient exposure to various currencies and market conditions by holding total world ETF for their equity part.

I was thinking a bit more what I would do if I were living in one of the developed EU countries with heavy welfare:

1) calculate built in welfare support available in case of emergency/retirement as part of my fixed income
2) decide on a portfolio (e.g., 40% fixed income, 10% gold, 50% total world ETF)
3) while (1) > 40% fixed income, put all the money in total world ETF

People in countries with heavy social security safety net, and relatively little left to invest after tax should take a bit more risk IMO than what PP gives you. Of course, if you're self employed heavy earner without social safety and you have to fund your own retirement then by all means go with pure PP.

To solve the issue of gold relative to your local currency, you can run 50% local PP and 50% US PP.

I don't really understand the fuss... Those charts make it look like the Japanese and Swedish PP are GREAT investments!

Mmmm, you are probably right. I don't have any better idea anyway so I am going to stick with the Permanent Portfolio.
Can't wait to see my stock purchase drop 90% as we get another great depression. 

I think HB's best book was Best Laid Plans...if I recall correctly he said gold is an anti-USD asset as it relates to perceived safety. If the world is seeking safety and thinks the USD sucks, gold will do well. If seeking safety and the USD is perceived safe, it is going with the USD (cuz you get interest).

Seems to be a perfect explanation of what's been happening the past couple of years. Obviously if you are in a foreign country you are going to have to factor in how your currency is doing against both. Not that Harry said this, but if you are in a foreign country and the USD is doing better than gold (and your currency) then it would follow that the USD would be better for you than gold.

And definitely it is all about perception...key point.

Lang wrote: Japan has been in deflation for more than 20 years and even so the price of gold in yen has skyrocketed since 2004, which makes no sense whatsoever.

http://goldprice.org/gold-price-japan.html

It only makes "no sense whatsoever" if you assume gold must drop in deflation. Empirically this theory doesn't seem to hold up.

Hello,

does it makes sense for one non-US (european) person to have some CASH in USD?

Less Gold and some USD cash?

Thank you.

frugal wrote: does it makes sense for one non-US (european) person to have some CASH in USD?

It does if you live in Russia.  But you're in Portugal, right?
I don't know much about Portugal.

dualstow wrote:

frugal wrote: does it makes sense for one non-US (european) person to have some CASH in USD?

It does if you live in Russia.  But you're in Portugal, right?
I don't know much about Portugal.

Yes, in the EUROZONE.



But here as this is an US FORUM you put fear on us...