Gyroscopic Investing

After spending some holiday time reading through pragcap.com and watching a variety of videos on youtube by the sites creator Cullen Roche, I think I have finally been born again to the permanent portfolio.

If we equate the money and banking system / economy to a nuclear power plant....the analogy I would draw is that the collective people in charge of this system (politicians all the way to members of the Federal Reserve) are the equivalent of a Homer Simpson in the control room randomly pulling levers and pressing buttons with little idea as to the outcome of their actions.

Because our economic system is being driven by a collective madman whose flailing actions in the control room have the ability to wrench the economy in and out of different economic states, and because his flailing actions are entirely unpredictable...the PP is the only investment strategy that protects you no matter what random button the incompetent plant operator pushes next.  

The future is unknowable for many reasons but the fact that the basics of our money and banking system are so poorly understand by many of those who are in charge of running it, coupled with political shenanigans has caused me to reach the conclusion (through much strain, stress, and effort) that intelligently allocating my assets (outside of the Permanent Portfolio)  without entering into the world of speculation is completely and utterly impossible.

Discovering, digesting and implementing the Permanent Portfolio is usually a long journey that tests one's own faith and personal reality. I'm not only impressed, but thrilled that you persevered and found a level of freedom that very few people enjoy.

Congrats, Doodle!

Regarding all our discussions regarding the appropriateness of LT bonds and the PP in general...

We did it for doodle.

Love the analogy.

Honestly, when I hear most politicians talk they make me want to hug my 30-year Treasuries and gold at the same time. I think America could easily have decades of prosperity with some correct button pushing. However, congressmen get no training about our economic system when they get elected and their total incompetence could easily spiral us into a depression.

Congratulations.

Gumby's comment about one's personal reality is appropriate.  We all live in slightly different worlds of our own construction, and from an objective perspective some of these worlds work better than others.  Being able to fine tune one's own personal reality in a way that actually gets satisfactory results is harder to do than it looks.

The analogy I like is that the PP turns you from one more gambler wandering around the casino into the owner of your own small casino with your own predictable house advantage. 

Great post and analogy.  I also like Medium Tex's analogy.

doodle,

Does this means you're no longer "worried" about deficits, and eventual rising rates?  Or at least not to the degree you once were?

I think what you went through was basically what a lot of us have at one point, and not just with the PP, but macroeconomics and currency/debt in general.  I'm willing to bet 99% of us here at one time in HS or college said to ourselves or people we knew, "we have to pay down this ridiculous debt," thinking of our national debt the same way we look at our personal finances.  Whether we thought taxes or spending were the tool of choice was probably pretty diverse, but we all thought that the debt was one day going to lead us to some awful conclusion.

Yeah, we maybe knew the gov't is a little different from a household, but we didn't really absorb how much... we didn't really realize how important the "macro" in macroeconomics was, or the "sovereign fiat" in sovereign fiat currency was... we still thought there was something we could gain by collectively "taking one for the team" (our kids) and getting the debt paid down.

This is why I don't blame anyone for not quite picking up on MMT or macroeconomics.  Until I fully absorbed what financial assets/liabilities really were (and I'm still working on this), I didn't really properly understand what the implications were of our private and public sector debt.  All these financial assets/liabilities are is a tool to pull more production and wealth out of our people than could be otherwise done without some form of debt.  Before modern money, even gold, these promises were to deliver future value for the delivery of current value, vastly increasing our economy's potential, and, therefore, the potential of every individual to put their education/skills to work as opposed to sitting on his/her hands.

Enter a fiat money system (yes, skipping over gold), and you simply have a promise to repay confetti that the government makes valuable through legislative fiat.  This is all to pull more real value out of the economy than could otherwise be realized, as people would likely otherwise be sitting, waiting for others to be confident enough to purchase widgets, or savvy enough to bartar with the widget maker, as opposed to using common currency or debt.

To you and me, this can put a strain on our future... aka, debt we take on now can limit our ability to enjoy our lives in the future, as we have to somehow pull money from somewhere else in the economy to pay it back... as long as the gov't maintains this legislative fiat.  To the gov't, it doesn't, because the "+" value to bond-holders and the "-" value to bond-owers is not some natural function, but one that is decided by gov't, the very entity that we were just worrying about.  Right now, due to us exporting the "+" value side of financial assets/liabilities, we are starving for them in the US, and have to many "-" value financial obligations... obligations we can't control the value of, as individuals.

The wonderful, wonderful, wonderful, wonderful, wonderful Wizard of Oz! 

http://en.wikipedia.org/wiki/Political_ ... zard_of_Oz

MG

doodle wrote: After spending some holiday time reading through pragcap.com and watching a variety of videos on youtube by the sites creator Cullen Roche, I think I have finally been born again to the permanent portfolio.

If we equate the money and banking system / economy to a nuclear power plant....the analogy I would draw is that the collective people in charge of this system (politicians all the way to members of the Federal Reserve) are the equivalent of a Homer Simpson in the control room randomly pulling levers and pressing buttons with little idea as to the outcome of their actions.

Because our economic system is being driven by a collective madman whose flailing actions in the control room have the ability to wrench the economy in and out of different economic states, and because his flailing actions are entirely unpredictable...the PP is the only investment strategy that protects you no matter what random button the incompetent plant operator pushes next.  

The future is unknowable for many reasons but the fact that the basics of our money and banking system are so poorly understand by many of those who are in charge of running it, coupled with political shenanigans has caused me to reach the conclusion (through much strain, stress, and effort) that intelligently allocating my assets (outside of the Permanent Portfolio)  without entering into the world of speculation is completely and utterly impossible.

wonderful,