Gyroscopic Investing

i have a idea for a possible fifth economic condition, i don't think i have fully worked it out in my head yet, so consider this a hypothesis or work in progress, not a conclusion or deeply held belief.  i am sticking this in the VP section for a few reasons, one it is an outlier or black swan, two it is already partially (possibly sufficiently) covered by the PP, and thirdly i have no well thought out arguments for how much of the asset that covers this condition needs to be held, or whether or not it should "cut into" the pp, but my gut instinct says "no" leave the PP pure.

The fifth economic condition
"silver is money" 
i can see a couple possible variations of a "silver is money" situation happening so i will try to organize the explanation as best i can and see where it goes..
-keep in mind if we hit a "silver is money" economic condition, "gold is money" as well and should be helping to protect you, and preventing huge losses and possibly making some gains for your overall investment.

"silver is money" short term, in a monetary/economic collapse, silver (having been money historically) will become money again because of the need for an easily tradable, easily recognizable, form of money to barter and exchange with during the period of chaos and recovery, this has been discussed in some of the survivalist, prepper threads, the short term "silver is money" situation is covered by having enough sacks of junk silver and one oz silver bullion coin to get you through the tough times, or until the new dollars take over/the old ones are restored, in this scenario it make some sense to have a bit of silver to survive on and to prevent the need to dig into the gold portion of your pp as deeply, also to have smaller denomination money to carry around when carrying the one OZ gold coins that make up the gold portion of many PP's is just to dangerous.


"silver is money" long term this situation would likely begin the same as the short term scenario above, but either through the people rebelling against fiat/fractional reserve currency and refusing to accept it, or the government issuing silver backed (or partially silver backed) money silver becomes the new cash component. in either of these  situations i see some potential big upsides to being there already, the cash component of the pp would likely take a big hit or become valueless and the price of silver would be jumping, in this situation making the transition from cash to "silver cash" is likely to happen at a loss (the gold portion will help counteract this loss), of course if silver is money then once the transition is made you would be back to a 4x25 PP. 

the question i have about this scenario..
-how likely is it? i see its a outlier/black swan situation, but is it so far out that its not worth thinking about? if so then i would say gold will cover it well enough, and not worry about it.
-if it is in the realm of reasonable possibility, then how will silver's value react? and how much would it make sense to hold? in keeping with the perm port philosophy, the position should be a defensive "preserve my money" one, not speculative, also the fact that gold does cover this in some ways needs to be taken into account when coming up with an amount or percentage..   

this economic condition might better be described as "silver becomes/becoming money"  vs "silver is money" but the latter is catchier and easier to type

Hugo Salinas Price (Mexican billionaire) has been promoting this...on KingWorldNews

I have thought about adding silver, especially if we move to a "cashless" society.  But then I have to wonder how useful silver would be during a crisis.  Are they any examples of where silver was used as a new currency once SHTF?

I would think silver would only be useful if there was a large amount of silver coins among the general public -- although I have no idea how anyone would value a piece of metal if SHTF.

I do hold 2.5% silver in the form of CEF...mainly because I didn't want to sell it (cap gains) when I converted to the PP.

I see gold/silver as only being useful once we restore some sort of society/economy again...convert the gold back into a 4x25% PP.

Gosso wrote: I have thought about adding silver, especially if we move to a "cashless" society.  But then I have to wonder how useful silver would be during a crisis.  Are they any examples of where silver was used as a new currency once SHTF?

I would think silver would only be useful if there was a large amount of silver coins among the general public -- although I have no idea how anyone would value a piece of metal if SHTF.

I do hold 2.5% silver in the form of CEF...mainly because I didn't want to sell it (cap gains) when I converted to the PP.

I see gold/silver as only being useful once we restore some sort of society/economy again...convert the gold back into a 4x25% PP.

i think silver coin and small gold (chains and jewelry) are both recommended by survivalists and have real world historic usefulness in an economic collapse, (Argentina comes to mind)

the fact that murphy_p_t has come up with a different source than the one that got me wondering about this silver becoming money idea, combined with its historical use as money, makes me think that it may not be quite as far from the realm of reasonable possibility as i have been thinking..

I feel extremely confident is stating that it won't happen willingly under the tenure of Obama/Bernanke

i concur, not going to happen willingly under a GOP republican either  .....    its more of a post economic collapse condition if it happens at all

murphy_p_t wrote: I feel extremely confident in stating that it won't happen willingly under the tenure of Obama/Bernanke

Can we call that "murphy's law"?

l82start wrote:

Gosso wrote: I have thought about adding silver, especially if we move to a "cashless" society.  But then I have to wonder how useful silver would be during a crisis.  Are they any examples of where silver was used as a new currency once SHTF?

I would think silver would only be useful if there was a large amount of silver coins among the general public -- although I have no idea how anyone would value a piece of metal if SHTF.

I do hold 2.5% silver in the form of CEF...mainly because I didn't want to sell it (cap gains) when I converted to the PP.

I see gold/silver as only being useful once we restore some sort of society/economy again...convert the gold back into a 4x25% PP.

i think silver coin and small gold (chains and jewelry) are both recommended by survivalists and have real world historic usefulness in an economic collapse, (Argentina comes to mind)

the fact that murphy_p_t has come up with a different source than the one that got me wondering about this silver becoming money idea, combined with its historical use as money, makes me think that it may not be quite as far from the realm of reasonable possibility as i have been thinking..

IMO silver coins can only become money in a somewhat civilized society.  If there is chaos all around then silver has no value.  Normally I hate the comment that you cannot eat gold/silver, but in a SHTF scenario this does apply. 

But I do think there is room in the VP for a little silver.

Any worthy 5th element would need to be totally uncorrelated to the other four. Silver is just too correlated to Gold, inflation, and prosperity to be useful.

If I HAD to have a 5th holding, I'd look into things that are subject to random non-economic events, e.g.:
- individual single-product drug development stocks
- futures contracts on grains / soft commodities e.g. Orange Juice

I have not back-tested these but that's where I would start my investigation.

what economic condition do - individual single-product drug development stocks - futures contracts on grains / soft commodities e.g. Orange Juice cover? that the pp doesn't?

admittedly a transition to silver money may not qualify as a full blown economic condition, it is after all transitional, and gold is the PP asset that correlates with dollar collapse (and to some extent with silver)

i have a bit of survival silver in my VP for the short term scenario, to me it makes enough sense to do this, and i think the total full blown chaos in all locations at all times that gosso is picturing is unlikely, people will continue to need things and those that have them will barter and trade for them, and silver (and small gold) will fit that need... i would recommend the book The Modern Survival Manual: Surviving the Economic Collapse http://www.amazon.com/The-Modern-Surviv ... 645&sr=1-1 written by a guy that lived through one in Argentina..

the more interesting question to me is the second one (long term) and whether it is worth having additional coverage beyond gold for that possibility, so far i am far from convinced that it is worth it, since gold covers a cash to new cash and survival silver helps the transition through collapse, i expect i am well enough covered for a cash to new cash situation, but would a cash to silver cash be different? the value of your cash would collapse in either, but the value of silver would (i think) jump up in ways that new cash wouldn't, making the replacing of your cash portion more costly. having an amount of silver (i am not savvy enough to calculate) ahead of time would ease that transition.

l82start wrote: what economic condition do - individual single-product drug development stocks - futures contracts on grains / soft commodities e.g. Orange Juice cover? that the pp doesn't?

They cover two non-economic conditions - in the first case, the correctness of the particular scientific theory behind a new drug, and in the latter, bad weather leading to shortages and higher prices.

I don't disagree with you on the merits of Silver under economic collapse, but I think it's a redundant holding if you already have Gold. Hedging economic collapse is the purpose of the 25% gold holdings.  The OP is looking to expand the PP by adding a 5th element and IMHO that should NOT be focused on economic collapse because you already have at least 1 other holding covering that same scenario.

Another interesting option which I heard about a few years ago, but I have not seen any retail investable products, would be the purchase of life insurance policies.

Honestly, if you want to prepare for an economic collapse, what you need is food, water, fuel, guns, ammunition, solar panels, a small farm, a house with thick bulletproof earthen walls, and close-by family and neighbors you trust. I'm not sure how useful I'd see silver being. I think that in a total SHTF collapse people will eventually use as currency something that's actually intrinsically useful, but also portable, durable, and not messy to handle or trade. the things that come to mind most are ammunition and magazines! You hear it here first, folks.

Then again, I don't really see SHTF happening anytime soon, if ever, at least not as we like to romantically imagine it

HB recommended physical banknotes and junk silver coins (pre-1965) kept on hand or with a non-bank company (Why the Best Laid Investment Plans Usually Go Wrong, pp. 350-351).  He suggested one month's expenses in cash and $100-200 face value of silver coins (they sell for a lot more than that now).  Might be good for peace of mind.

A source I found says $1 face value contains 0.715 troy ounces of silver.

hoost wrote: HB recommended physical banknotes and junk silver coins (pre-1965) kept on hand or with a non-bank company (Why the Best Laid Investment Plans Usually Go Wrong, pp. 350-351).  He suggested one month's expenses in cash and $100-200 face value of silver coins (they sell for a lot more than that now).  Might be good for peace of mind.

A source I found says $1 face value contains 0.715 troy ounces of silver.

If you like pre-65 junk silver, I recommend half dollars.  They are very attractive and tend to have been passed through fewer pockets and thus are in better shape than quarters and dimes.