Voluntary Life Podcast Interview

[craigr]

Jake on The Voluntary Life interviewed me about the Permanent Portfolio and our new book. We cover:

• Being an individual investor vs. entrusting your money to others.
• Why I think it's important to eat your own dog food in terms of investing advice.
• The importance of diversification vs. strategies that concentrate your wealth (and your risks).
• Passive investing vs. market timing.
• Best way to own gold bullion for the portfolio.
• Growth and superiority of passive investing strategies.

You can hear the full podcast here:

http://thevoluntarylife.blogspot.co.uk/ ... rview.html

Thanks for doing this interview with me, Jake!

[Jake]

I really enjoyed the book and our discussion. I highly recommend the book for every level- from novice to highly experienced implementers of the PP.

[murphy_p_t]

Craig,

Regarding your comments on holding gold internationally, I would like to ask how you would respond to these counter-points to your recommendations:

1. regarding depositing gold w/ a bank...how is this different than depositing cash w/ a bank? (considering the reasons the PP uses treasury-only funds rather than bank deposits). Specifically, I'm referring to the fact that if you *deposit* the metal with a bank, you don't own it...same with the funds in a bank savings account. The evidence is that the bank can loan out the funds...or loan out the gold, right? This is different than with a service like goldmoney, if their published agreement is to be trusted...they are just the custodian, not the owner. They are not lending out the gold based on fractional-reserve lending principles.

2. Your argument about having someone large to sue if something goes wrong being a strength of using ETF...how does the way MF Global litigation has progressed impact your view on this suggestion? The idea that you will have a successful recourse suing JPMorgan (GLD), in a timely manner, does not seem at all reasonable. (JPM, like Corzine, are much more "connected" than any typical retail investor listening to your podcast.)

3. Suggesting that the ETFs are comparable or superior to services like goldmoney seems curious applying the reasoning of limiting the number of pieces of paper between you and your metal. Particularly considering that you do not own the metal using the popular GLD...a broker owns a share of a fund, on your behalf.

4. This idea that a sovereign like Western Australia will tell Uncle Sam to get lost when push comes to shove...have you considered the recent action in Switzerland regards accounts held by US persons?  (The Swiss rolled over, not defending their customers.) Why do you think WA would be stronger than the Swiss who had hundreds of years of reputation in banking privacy?

[craigr]

Craig,

Regarding your comments on holding gold internationally, I would like to ask how you would respond to these counter-points to your recommendations:

1. regarding depositing gold w/ a bank...how is this different than depositing cash w/ a bank? (considering the reasons the PP uses treasury-only funds rather than bank deposits). Specifically, I'm referring to the fact that if you *deposit* the metal with a bank, you don't own it...same with the funds in a bank savings account. The evidence is that the bank can loan out the funds...or loan out the gold, right? This is different than with a service like goldmoney, if their published agreement is to be trusted...they are just the custodian, not the owner. They are not lending out the gold based on fractional-reserve lending principles.

Most custody accounts the gold is not an asset of the bank and is being held for the customer. When you deposit cash, etc. it is an asset the bank can use for their own purposes. So in this way a custody agreement is safer in the sense that the asset is less likely to be dragged into risky transactions. Now of course the custodian can do dishonest things. This is a risk with any asset, but the custody agreement is the best way to have the gold held.

And yes, with a custody agreement you are the legal owner. It's not an asset of the financial institution. They are simply holding it for you for your behalf for a storage fee. A bank with a custody agreement should not be loaning out the gold, etc.

2. Your argument about having someone large to sue if something goes wrong being a strength of using ETF...how does the way MF Global litigation has progressed impact your view on this suggestion? The idea that you will have a successful recourse suing JPMorgan (GLD), in a timely manner, does not seem at all reasonable. (JPM, like Corzine, are much more "connected" than any typical retail investor listening to your podcast.)

Again if the custodian is acting illegally there isn't anything any agreement will do. I view things like Gold Money and ETFs on the same level basically. So the risks to me are present in each. These services are for convenience above safety. I agree a lawsuit singularly would be hard, but a class action suit would surely come about. But again I would say if you have a custodian agreement and the assets go missing then that is outright theft and when the assets are sorted out you'd likely be first in line to get yours back when liquidation happens.

3. Suggesting that the ETFs are comparable or superior to services like goldmoney seems curious applying the reasoning of limiting the number of pieces of paper between you and your metal. Particularly considering that you do not own the metal using the popular GLD...a broker owns a share of a fund, on your behalf.

All these service share this problem. The chances of someone landing in Zurich to pick up their share of Gold Money gold from the VIA MAT vaults there is basically zero. That gold there is held for Gold Money in a large block in all likelihood. They keep the books on who owns what. VIA MAT will only know that Gold Money has X kilos of gold. They won't know that some random person has a 10 ounce claim to it.

Now perhaps this is changed and I'm just not aware of it. But I suspect the bookkeeping costs of allocating at the vault what each person owns would be onerous and too expensive. So likely they are just owning big blocks and keeping records themselves of who owns what. In terms of ETFs, I think that I'd trust GLD/IAU the least out of all of them. I'd compare Gold Money more to GTU in Canada in terms of safety concerns.

But again, all of these services are for convenience and not safety!

4. This idea that a sovereign like Western Australia will tell Uncle Sam to get lost when push comes to shove...have you considered the recent action in Switzerland regards accounts held by US persons?  (The Swiss rolled over, not defending their customers.) Why do you think WA would be stronger than the Swiss who had hundreds of years of reputation in banking privacy?

Yes I have. And the Swiss did not turn over account assets. The account information was turned over (at least some?). But if you hold gold overseas you should be declaring all your assets so this is not a risk.

But the idea that a government is going to contact a custodian for instance and say: "Yeah we need all the assets for our citizens returned." is not so cut and dry. Consider:

1) You could challenge the act in the U.S. courts.
2) You could challenge the act in their local courts.
3) The custodian, sensing a serious blow to their credibility and business, may also challenge the act in their own courts.
4) You could move the assets elsewhere during the uproar.
5) The people at the overseas custodian (whoever that is), very likely are watching the news and will see what is going on. If they deem it to be questionable what is being requested they could very well put up their own fight or drag their feet.  

But then you get someone like GoldMoney and the U.S. Government comes in and freezes their assets in the US. Perhaps does the same in Europe. Do they have any government to stand behind? No, they are in the Jersey Islands. Do they have the bankroll to fight it? Probably not. Do they have special interests behind them to save the business like Perth or Swiss banks? No.

These are just some things I think about when I consider serious geopolitical events. It's not so much to prevent any re-patriation of assets as that could be impossible. It's about stalling for as long as possible so you have time to react. Even if the protection broke within a month, that's at least a month you had to do something that people inside the country wouldn't have had. That could mean all the difference during a currency crisis or other serious problem.

Again this is all hypothetical stuff. I'm just laying out what I see. I simply think these gold services are on par with Gold ETFs. Use them for convenience, but if you want more safety you have to go to custody accounts overseas with preferably little or no assets inside the US that could be used to pressure them. And, I'd want them to be backed with well-connected special interests who have an interest in seeing them defended if possible. Two can play at this game, right?

[Jake]

The interview with Craig about the new PP book is now on youtube too

http://www.youtube.com/watch?v=0uWJyyBIMPg

[murphy_p_t]

Craig,

Regards Item 3 above, please see http://www.goldmoney.com/100-gram-1-kilo-gold-bars.html

No need to fly to Geneva and knock on the vault door.

Do any of the ETFs offer delivery for retail customers?

[craigr]

Do any of the ETFs offer delivery for retail customers?

Some claim they do, but the ETFs will be held in street name. So again you have this problem of proving direct ownership. The broker knows who owns the shares, but not the custodian in all likelihood.

The custodial account alternatives we list in the book also offer physical delivery on demand as well.

[Jake]

Btw, I've had a lot of really positive feedback from listeners about the interview and 2 of the people who emailed me explicitly said that they had already bought the book after hearing it.

[craigr]

Btw, I've had a lot of really positive feedback from listeners about the interview and 2 of the people who emailed me explicitly said that they had already bought the book after hearing it.

Great to hear. Tex is definitely more diplomatic than I am (and better looking) in case you couldn't tell in the interview. I'm the Bad Cop and he's the Good Cop. Glad people liked the interview. You have a great voice for podcasting, BTW.