Permanent Portfolio Blinders

[MediumTex]

I always picture a Keynesian work camp with work teams performing tasks like digging holes and filling them up.

If it stopped here it would just be some good-natured government-run Keynesian tomfoolery.

The problems start, however, when the entrepreneur notices the work teams getting hungry around lunch time and opens up a restaurant near the camp entrance...with borrowed money of course.  Then a cleaners opens up near the camp to keep the work teams' uniforms clean, and so on.

When the economy recovers, the government closes up the Keynesian work camp, which then causes all of the businesses in the area to go under...which tends to weaken the economy.

I think that the economy is already so full of the functional equivalent of Keynesian work camps that the current budget impasse is likely to result in the scenario I describe above for many communities.  This is not the intended effect, of course, but it will be the practical effect simply because there are so many pointless Keynesian-like government functions already being performed.  One of my favorite is building these precision satellite-guided bombs and missiles to drop on people on the other side of the world in places like Yemen and Pakistan.  If we stop dropping these bombs, think of all the jobs that will be lost at the bomb component manufacturers.  Think of all the businesses that provide services to these facilities.

Would it be better to extend this charade even further, or would it be better to close down many of these work camps so that the entrepreneurs can figure out where the REAL demand in the economy actually is?

I don't know the answer, but I do know that it would suck to be the owner of "Keynesian Kleaners" (or maybe the "Kaboom Kleaners") when I was informed that the camp/bomb component assembly plant was going to be shut down due to an improving economy/victory in the "war on terror".  I would be like: "Wait a second, I read 1984, I thought we would always be at war with Eastasia!"

[MediumTex]

This thread  has travelled through so many tangents that I don't know what the "main idea" here is anymore.

Doing my daily read through the financial websites I came across this guy making a decent argument for the gold standard vs. the "phd standard"

He looks like Bill Nye the Science guy and he wears a bow tie like my investment hero Jim Rogers so both of those should lend creedence to his ideas.  Worth a listen:

http://www.bloomberg.com/video/72621750/

You do know who Jim Grant is, don't you?

If you don't you should.  He's always thoughtful and interesting to listen to.

[doodle]

Moda,

I admit, my portfolio would have been pretty ugly in 2008. I would have been hard pressed to hang on during the downturn.

Now, if one were to extend the time period to 10 years (unfortunately, to a time when my money wasn't invested this way  :)) , 2008 would look like a blip in a huge bull market.

So I guess what I am trying to do is tilt towards what I think the long term scenario looks like. I am making a bet that the currency debasement and commodity bull market isn't over yet. I know that I could be dead wrong on this and I am going to have to lick my wounds if it turns out the other way.  

One of the primary issues I have always had since I started with the PP is the heavy US currency exposure. My first postings on this forum were regarding this. I know that the PP is supposed to be constructed within a single economy, however I cannot be at ease with so many US dollars. I started with the idea of integrating 20% Intl into the portfolio but I ran into issues with the long term bond portion.

What I have constructed is quite similar to PRPFX with lower expense ratio and the ability to have control over rebalancing etc.

I hope my little ship that I have built with "new materials" stays afloat!

[doodle]

Never heard of him, MT. But like I said, I like Bill Nye...and he looks like him.

I agree with what he says too.

[moda0306]

If interest rates rise, the fed (through a back door method, of course), can simply pay it.  I guess it gets back to MMT, but if rates rise I really see no problem other than some possible inflation as a result of bond recipients having more disposable income.

But MT really did describe the Keynesian situation well... what I have a problem with, is not the assumption that we're in some kind of propped up situation... I have doubts about how to back out of that or deal with it through devaluation or what-have you, but I agree that's one legitimate way to see it... and his description is great... except after WWII a LOT of "ditch diggers" (soldiers, bomb-makers, clerks, etc) were fired and the Cleaners didn't close... in fact they had decades of prosperity under (gasp) extremely high tax rates.

What I really have a problem with, is when the conservatives claim to all the Cleaners out there, and moreso to the employees of the Cleaners, that if we cut spending drastically and give tax cuts to the Cleaners, that they'll expand their business and hire you.  Prosperity, they say, will be the immediate result of this new-found business confidence.

That's where this all started... in response to doodle's claim that if business just had more "confidence" they'd hire again and this would all be over.

[MediumTex]

Offshoring jobs, and the incentive structure that makes it profitable, is a real problem.

Until this is addressed one way or another, I don't see anything but more structural unemployment in this country.

[pershing83]

Perhaps Wall St can devise a way to short the country.

OTOH.....

So, for the lazier investor, might 30% gold and commodities including REITs, 60% VWINX and 10% cash do the job?

Easy to put together and not terribly expensive.  you could probably do this within your 401K which at the moment makes the classic pp a little difficult for the average investor. He would still need a little guidance. But, no one offers PRPFX, not that I have heard of???.

[smurff]

We all agree with you that it's a possibility. That's not the question here. You can't have a crack-up boom with the world's reserve currency and just expect it to "simply be a change". ETFs will fail. Banks will fail. ATMs will run out of cash. It's illogical to place a bet on something if you can't claim your winnings. So, how do you claim your winnings if your crack-up boom prediction comes true?

Plus, the US dollar is the national currency of not a few nations, and in addition, many more use it as the preferred currency because their own national currency has weaknesses.  I found out last week, for example, that the nation that loves the US dollar coins the most is Ecuador, where people use them for daily activities:  Paying for taxi rides, restaurant tabs, food at the market, etc.  (BTW, the US Mint finally put an end to the (legal) scam where people could order the dollar coins, pay for them with their credit cards thus earning frequent flyer miles, and turn around and use the frequent flyer miles for free trips to Fiji and Bermuda.  No more buying dollar coins with Mastercard and Visa!)

If there is a crack-up of the dollar, it will negatively affect more than us in the states.  I hate being excessively superlative about the negatives but the whole world will be a mess.

[doodle]

In CNBC this article discusses the difficult of investing in this environment.

http://www.cnbc.com/id/43932320

I was struck by this quote at the bottom:

“The more economic headwinds that we face, the more the Fed will be inclined to increase accommodation and liquidity,”? said Jim Iuorio of TJM Institutional Services. “The obvious problem here is that we are in the same ‘bubble-bust-repeat’ cycle that began in the early 1990s, so the trick, in investing, becomes identifying where the bubbles exist.”?

This bubble-bust-repeat cycle seems to be one of the strongest arguments to reevaluating central control of monetary policy where repairing one bubble seems to lead to others.

[MediumTex]

This bubble-bust-repeat cycle seems to be one of the strongest arguments to reevaluating central control of monetary policy where repairing one bubble seems to lead to others.

OR, you could just treat this as more market noise and snuggle up with the PP to stay warm at night.