Gyroscopic Investing

Be careful if some of you are prejudice against Schiff. First, Schiff is a die hard Austrian guy (as Harry Browne was as well - HB whole economics background and thus one could argue the PP we have here, is based on Austrian economics as a building block). HB and Peter Schiff knew each other, apparently (saw this from a Ron Paul speech somewhere).  This doesn't mean we have to agree or follow w Austrian school or Keynes school or monetarian/Chicago (what we have now in the "developed" world is something that i think Keynes would not even recognize). Schiff is not far from what the HB PP is suggesting at all. The main difference is he is suggesting to allocate a big chunk of your assets outside of US$ denominated assets (if US is your main abode and you plan to consume dollars), but the rest is all there even if the proportions may not be exactly aligned like a HB PP - gold (he does suggest a relatively large portion in gold miners, which could be part of VP in HB PP), cash,equities, govt. bonds. Of course who would really know what Harry B would say today but in the 70's, 80's and 90's, the world looks alot different than it does now and we know he was very much a proponent of getting some of your assets outside your home country, i would have to think he would encourage more allocation of assets out of US$ denominated ones while still applying the basics of 4 x 25. Perhaps i'm in a different environment living, working outside of US for 25 yrs now, but the PP has worked very well for me using a mix of US$ denominated assets PP and duplicating the PP with other currency bases. buying US-based MNC stocks is not the same as buying stocks in non-US countries, in non-US$.

Austrian economics is right about a lot, especially on the micro level, but Harry Browne was a pragmatist. He saw that the structure of our monetary system made treasury bonds free of default risk so long as the system continues. Austrian economics says this is impossible and doomed to imminent failure, but reality says this is the way things have been working for decades, rightly or wrongly. Harry Browne preferred to observe reality than filter it through an ideological lens that contradicted it.

I mean, here's a libertarian who had half his money in government bonds. It's delicious. That seeming contradiction alone forces you to avoid labels and dig deeper.

China Bull wrote: Schiff is not far from what the HB PP is suggesting at all.

How did Schiff's strategy do in 2008-2009?

As a gadfly, Schiff is a lot of fun.  His beatdown of Art Laffer on Kudlow a few years ago was awesome.

The problem is that Schiff does not strike me as an especially deep or subtle thinker.  Anyone who relies on talking over others to make his points normally doesn't believe that his points are able to stand on their own without the force of his personality to drive them home.

Over the last few years, Schiff has been sort of like the proverbial stopped clock that is right twice a day, except stopped clocks don't normally make as much noise as Schiff.

China Bull wrote: Be careful if some of you are prejudice against Schiff. First, Schiff is a die hard Austrian guy (as Harry Browne was as well - HB whole economics background and thus one could argue the PP we have here, is based on Austrian economics as a building block)

I really think that the PP is more durable than Austrian economics and I don't think it needs to be entangled with that school of thought. Ironically, the most die hard Austrian libertarians on this forum usually have the hardest time following the PP because they don't see the value in long duration Treasuries.

I really also believe the PP can be disentangled from Mr. Browne on a practical level. I do not share his political beliefs and I (*gasp*) probably would not vote for him if he was still alive and running for office. However, the PP works. Something that simply works stands on its own and does need to come with any baggage! I think good inventions can stand separately from their inventors.

Good points by all and i enjoy the spirited debate by the frequent contributors to this site. I'm especially curious how Harry Browne would hypothetically look at the world today through libertarian and Austrian eyes  and how he may or may not have altered the PP to deal with today's reality. It is very obvious that HB came up with the PP but only after tweeks and modifications through the years. I think he would be astounded at the number and scope of ways to diversify ones assets that we hardly had available even 15 yrs ago. I wonder what he would think of keeping 50% of his assets and feeding a beast called govt. that is bankrupt at best, corrupt, unethical and immoral at worst ? what would he think of what happened with gold this past week where you have an absolute striking psychological disconnect growing between the buyers of physical gold and silver, and the financial community that trades precious metals through ETF’s and futures contracts ?

MediumTex wrote: As a gadfly, Schiff is a lot of fun.  His beatdown of Art Laffer on Kudlow a few years ago was awesome.

The problem is that Schiff does not strike me as an especially deep or subtle thinker.  Anyone who relies on talking over others to make his points normally doesn't believe that his points are able to stand on their own without the force of his personality to drive them home.

Over the last few years, Schiff has been sort of like the proverbial stopped clock that is right twice a day, except stopped clocks don't normally make as much noise as Schiff.

I'm glad you mentioned that, I had to youtube it.  It's really weird watching stuff like that, after the fact.

Kriegsspiel wrote:

MediumTex wrote: As a gadfly, Schiff is a lot of fun.  His beatdown of Art Laffer on Kudlow a few years ago was awesome.

The problem is that Schiff does not strike me as an especially deep or subtle thinker.  Anyone who relies on talking over others to make his points normally doesn't believe that his points are able to stand on their own without the force of his personality to drive them home.

Over the last few years, Schiff has been sort of like the proverbial stopped clock that is right twice a day, except stopped clocks don't normally make as much noise as Schiff.

I'm glad you mentioned that, I had to youtube it.  It's really weird watching stuff like that, after the fact.

For anyone who wants to watch, it never gets old.

Laffer is such an arrogant dope.  The story Schiff was telling back in 2006 also wasn't entirely coherent, but he got a lot of it right, while Laffer seemed completely lost.

http://youtu.be/LfascZSTU4o (8:15)

Eh, I found the debate to be very mild.  Laffer is right on some things, but so is Schiff.  The question is who was more flexible to change after being proven wrong?

China Bull wrote: Good points by all and i enjoy the spirited debate by the frequent contributors to this site. I'm especially curious how Harry Browne would hypothetically look at the world today through libertarian and Austrian eyes  and how he may or may not have altered the PP to deal with today's reality. It is very obvious that HB came up with the PP but only after tweeks and modifications through the years. I think he would be astounded at the number and scope of ways to diversify ones assets that we hardly had available even 15 yrs ago. I wonder what he would think of keeping 50% of his assets and feeding a beast called govt. that is bankrupt at best, corrupt, unethical and immoral at worst ? what would he think of what happened with gold this past week where you have an absolute striking psychological disconnect growing between the buyers of physical gold and silver, and the financial community that trades precious metals through ETF’s and futures contracts ?

I'm pretty sure he would say that the so-called "risk-free" characteristic of government bonds is no longer applicable. This isn't even controversial anymore; even the rating agencies, who are usually way behind the curve, have downgraded the US and most other sovereign borrowers.

I'm also pretty sure that he would have changed his mind on Swiss banking, which he thought (and said) would be the same indefinitely, in terms of safety and privacy. Obviously it isn't the same now as it was even a few years ago in either of those characteristics.

And I'm also pretty sure that he would have agreed that the US government has already "hit the iceberg", given their reliance on the Fed to monetize the debt outright in staggering quantities. We're just waiting for it to go under.

What do you think it will look like when we "go under"?

Libertarian666 wrote:

China Bull wrote: Good points by all and i enjoy the spirited debate by the frequent contributors to this site. I'm especially curious how Harry Browne would hypothetically look at the world today through libertarian and Austrian eyes  and how he may or may not have altered the PP to deal with today's reality. It is very obvious that HB came up with the PP but only after tweeks and modifications through the years. I think he would be astounded at the number and scope of ways to diversify ones assets that we hardly had available even 15 yrs ago. I wonder what he would think of keeping 50% of his assets and feeding a beast called govt. that is bankrupt at best, corrupt, unethical and immoral at worst ? what would he think of what happened with gold this past week where you have an absolute striking psychological disconnect growing between the buyers of physical gold and silver, and the financial community that trades precious metals through ETF’s and futures contracts ?

I'm pretty sure he would say that the so-called "risk-free" characteristic of government bonds is no longer applicable. This isn't even controversial anymore; even the rating agencies, who are usually way behind the curve, have downgraded the US and most other sovereign borrowers.

I'm also pretty sure that he would have changed his mind on Swiss banking, which he thought (and said) would be the same indefinitely, in terms of safety and privacy. Obviously it isn't the same now as it was even a few years ago in either of those characteristics.

And I'm also pretty sure that he would have agreed that the US government has already "hit the iceberg", given their reliance on the Fed to monetize the debt outright in staggering quantities. We're just waiting for it to go under.

The HBPP assumes that Treasury bonds are risk free in nominal terms. That is it. It has never assumed they were risk free in real terms.

Do you think Treasury bonds are not risk free in nominal terms?

Libertarian666 wrote:I'm pretty sure he would say that the so-called "risk-free" characteristic of government bonds is no longer applicable. This isn't even controversial anymore; even the rating agencies, who are usually way behind the curve, have downgraded the US and most other sovereign borrowers.

The big issue though is they can print money to make good. Also, there can be an inflection point that forces spending back under control. This has happened in the past in various degrees. Very bad inflation can hold politician's feet to the fire. Plus on this, the U.S. economy is still gargantuan. The kind of productive capacity the country is capable of can withstand very brutal shocks. We aren't Greece. Our economy is much larger and in fact major American cities have larger GDP than the entire country of Greece.

I'm also pretty sure that he would have changed his mind on Swiss banking, which he thought (and said) would be the same indefinitely, in terms of safety and privacy. Obviously it isn't the same now as it was even a few years ago in either of those characteristics.

This I agree with. We discussed this in the book and did not put a heavy emphasis on Switzerland. If I had to add anything to the book at this point, it would be to include Singapore. It's just that neither Mike or I had any experience in the country to offer a comment. If the book gets updated I'm pretty sure Singapore would be on the list of geographic diversification now. Switzerland is not very welcoming to Americans any longer, but may loosen up in the future if some tax disclosure agreements are reached. So in the end, Switzerland may regain the crown. They are hugely dependent on banking and will work out something.

And I'm also pretty sure that he would have agreed that the US government has already "hit the iceberg", given their reliance on the Fed to monetize the debt outright in staggering quantities. We're just waiting for it to go under.

He wrote a book called The Economic Time Bomb that made similar arguments about the debt, etc. That was in 1989. It predicted similar problems by the mid 1990s if I recall (haven't read it in a while).

So it's not that he isn't going to be right eventually, it's just that it can take a long time for something to happen. Even then, I doubt it will happen even in the way everyone predicts. It's not the problems everyone is looking out for that usually bite you. It's the ones nobody expected and prepared for that are the doozies.

Pointedstick wrote: What do you think it look like when we "go under"?

The present set of circumstances only works because the rest of the world still has confidence in the US and the dollar.  If the US continues to increase spending at current rates, do you really think there is no point at which this changes?

Of course the fact the Europe has done the same thing for longer and is worse helps us. 

TennPaGa wrote:

Benko wrote:

Pointedstick wrote: What do you think it look like when we "go under"?

The present set of circumstances only works because the rest of the world still has confidence in the US and the dollar.  If the US continues to increase spending at current rates, do you really think there is no point at which this changes?

Of course the fact the Europe has done the same thing for longer and is worse helps us.

What do you think it will look like when we "go under"?

Yeah its really important for us to understand the exact play by play of how it shakes out. I have never seen a story that is coherent, but I am always open to new ideas.

Benko wrote:
The present set of circumstances only works because the rest of the world still has confidence in the US and the dollar.  If the US continues to increase spending at current rates, do you really think there is no point at which this changes?

Of course the fact the Europe has done the same thing for longer and is worse helps us. 

Who else is left?  If the USA, Europe, and Japan are sending their currencies down the toilet, and no one believes China's stats, what other currency is big enough to take on the world?  (Other than gold, of course.)

I started to mention the other BRICS countries until I caught myself doing a LOL.

Either I am wrong, and it doesn't matter to the US if the rest of the world uses dollars as it's default currency, or there are consequences.  Say we keep spending, US is downgraded (irrelevant for this discussion if that is appropriate or not) and e.g. China stops buying US debt and our creditors (and trade partners) insist that we make all payments in whatever currency is decided to be more stable than the dollar.  Pick one.

I don't know enough to project beyond this point, but I presume this has consequences?

EDIT: posted before I read the last post.  All I can add is that people really think the above can't happen because you can't concieve of what currency that might replace the dollar with?

craigr wrote: So it's not that he isn't going to be right eventually, it's just that it can take a long time for something to happen. Even then, I doubt it will happen even in the way everyone predicts. It's not the problems everyone is looking out for that usually bite you. It's the ones nobody expected and prepared for that are the doozies.

I looked into my crystal ball and foresaw the Treasury doing a forced swap of T-Bills for T-Bonds.  No one would expect that.  It would be Outrageous!  Unprecedented!  UnAmerican!  But it would happen and the world really would have no choice but to go along because our doom is their doom.

Benko, there's nothing bad about government spending per se so long as the productivity of the economy is monetized by it.  It's when there is an excess government spending beyond productivity capacity (among several other factors), that you have a serious problem.  All of the doom-porners don't realize we've already been in the exact situation they fear so much back in the 1970's and we survived it just fine.  They are just ignorant of history or are muppets.

smurff wrote:

Benko wrote:
The present set of circumstances only works because the rest of the world still has confidence in the US and the dollar.  If the US continues to increase spending at current rates, do you really think there is no point at which this changes?

Of course the fact the Europe has done the same thing for longer and is worse helps us. 

Who else is left?  If the USA, Europe, and Japan are sending their currencies down the toilet, and no one believes China's stats, what other currency is big enough to take on the world?  (Other than gold, of course.)

I started to mention the other BRICS countries until I caught myself doing a LOL.

One possibility is that China will go on the gold standard, that is, make their currency redeemable on demand for a fixed amount of gold. That would displace the dollar as the reserve currency.

Another possibility is that all the fiat currencies fall at roughly the same rate against gold until there is a general flight from fiat into physical assets, i.e., a "crack-up boom". Of course, gold would gain dramatically in purchasing power in such a case, as it would be the only acceptable money.

What I don't see is any way that the current situation can be resolved without a return to gold-backed money.

Libertarian666 wrote: What I don't see is any way that the current situation can be resolved without a return to gold-backed money.

We aren't returning to gold-backed money and if China does it for purposes of achieving global hegemony (I wouldn't put it past them), it won't last given their billions of poor peasants needing money.  Gold solves no useful purpose other than to turn hoarders into rich elitists.  Gold standards don't constrain government spending, otherwise we'd be in nirvana long ago.  A law or amendment would be far more effective.

MachineGhost wrote:

Libertarian666 wrote: What I don't see is any way that the current situation can be resolved without a return to gold-backed money.

We aren't returning to gold-backed money and if China does it for purposes of achieving global hegemony (I wouldn't put it past them), it won't last given their billions of poor peasants needing money.  Gold solves no useful purpose other than to turn hoarders into rich elitists.  Gold standards don't constrain government spending, otherwise we'd be in nirvana long ago.  A law or amendment would be far more effective.

So we either are or aren't going to return to a gold standard, but it won't last if we do? Well, that is a bold prediction! Obviously fiat paper currencies last much better than gold...

Gold standards do indeed constrain government spending when people refuse to take unbacked fiat currencies. I think we will see that again.

But of course the track record of legislative solutions to over-spending is so impressive! Why didn't I think of that?

Libertarian666 wrote: Gold standards do indeed constrain government spending when people refuse to take unbacked fiat currencies. I think we will see that again.

They do?  I can't find any examples in history where they did.  Wouldn't we still be on a gold standard if they were so successful at that task?  So no, we don't need gold, what we need is THE LAW.  There needs to be some skin in the game and the threat of hawkish prosecution will do far more than a lumpy shiny piece of metal.

If you think that is naive, then that's exactly why gold standards have never worked for long.

MachineGhost wrote:

Libertarian666 wrote: Gold standards do indeed constrain government spending when people refuse to take unbacked fiat currencies. I think we will see that again.

They do?  I can't find any examples in history where they did.  Wouldn't we still be on a gold standard if they were so successful at that task?

That's always the question I never get a satisfactory answer to.

Seems to me that governments just suspended their gold standards when they got in the way (usually of war spending) until they finally did away with the charade entirely.

Pointedstick wrote:
That's always the question I never get a satisfactory answer to.

Seems to me that governments just suspended their gold standards when they got in the way (usually of war spending) until they finally did away with the charade entirely.

Yeah and from a practical perspective as a self-interested investor, I would hate going back to the gold standard. It would put shackles back on gold, giving us few tools to protect ourselves from inflation. From the 1940s until 1970s investors had a wide open flank, there were few practical tools to hedge against unexpected inflation. Other inflation hedges are much more cumbersome than gold. Gold is so easy to hoard while the other commodities have serious storage costs.

Why would anyone who likes the PP want shackles placed back on the price of gold? I like that gold is currently free to wildly express its manic moods.

Pointedstick wrote:

MachineGhost wrote:

Libertarian666 wrote: Gold standards do indeed constrain government spending when people refuse to take unbacked fiat currencies. I think we will see that again.

They do?  I can't find any examples in history where they did.  Wouldn't we still be on a gold standard if they were so successful at that task?

That's always the question I never get a satisfactory answer to.

Seems to me that governments just suspended their gold standards when they got in the way (usually of war spending) until they finally did away with the charade entirely.

The gold solidus was issued with the same weight and fineness for about 800 years by the Byzantine empire:
http://en.wikipedia.org/wiki/Byzantine_coinage

That's a pretty good track record compared to any fiat currency I know of. What's the longest record for the existence of a fiat currency without losing 90% or more of its value, 30 years or so?