Gyroscopic Investing

Monday, April 23, 2012   Seeking Alpha
http://seekingalpha.com/article/518181- ... y-or-risky

Over the last 10 years, the "permanent portfolio" strategy made popular by libertarian investor Harry Browne several decades ago has had quite a heyday, earning insane amounts more than any U.S. stock market index.
...

The onward link within the article to the Ron Paul's portfolio and William Bernstein's comment on it
”?This portfolio is a half-step away from a cellar-full of canned goods and nine-millimeter rounds”? made me smile.

gizmo_rat wrote: The onward link within the article to the Ron Paul's portfolio and William Bernstein's comment on it
”?This portfolio is a half-step away from a cellar-full of canned goods and nine-millimeter rounds”? made me smile.

Hey, I've had such banking and credit card problems today (potential identity theft attempt) that I'm beginning to think those canned goods are a wise idea. That and physical gold.

Interesting article, thanks for posting.

http://www.businessinsider.com/musings- ... wne-2012-4

It's not a very good article.  After calling Harry Browne a genius, the author goes on to detail numerous ways his readers came up with to "modify" (i.e. kill) the PP. In so doing he has simply demonstrated his ignorance of the entire concept.

[Edit: Typo]

“Mr. Browne’s formula was based on the idea of a functioning and fair government and not a criminal enterprise,”? writes a reader named Kent. “I would bet he would eliminate most government bonds since today they really are nothing more than counterfeit and would substitute ammunition, food or fuel.”?

Jeez... Quoting "readers" that make asinine comments... that's professional.  This is what I love about HB... it's somewhat commonplace now, but to realize in the early '80's what pundits and hot-heads are having trouble realizing today (that the US can't go bankrupt unless it tries to, and that there are demand drivers of money as well as supply).  I don't even really agree with him on politics and I see him as incredibly far ahead of his time in areas of investing and personal philosophy.

LewRockwell.com has a good one:

http://lewrockwell.com/wiggin/wiggin-addison16.1.html

It's headlined The Permanent Portfolio Revisited.

The author then asks his readers to suggest new formulations of the portfolio. That's like asking the mechanic to put General Motors parts in your Ferrari!

I can assure the commenters that Harry Browne, author of How to Profit from the Coming Devaluation, understood the risk of US treasuries perfectly well.

Craig, is there a radio show where he addresses the concerns about Treasuries being based on fiat money?  I know there are shows where he talked about people not wanting to buy them for performance reasons, the certificates of confiscation era, etc.  But any specifically on the point that they are "just paper"?

Snowman9000 wrote: Craig, is there a radio show where he addresses the concerns about Treasuries being based on fiat money?  I know there are shows where he talked about people not wanting to buy them for performance reasons, the certificates of confiscation era, etc.  But any specifically on the point that they are "just paper"?

Part of the reason that HB recommended US Treasury bonds was that they are based on a fiat currency.  It makes default highly unlikely.  This is not to say that the dollars you get back won't have lost some purchasing power, but that's what gold is for.

I think HB addresses this in the first or second show, where he explains how the PP works.  I know Craig explains it in his second podcast.

I find it incredibly interesting that he was so sure about US default, or the lack thereof.  I mean the apparent lack of diversification outside of the US treasury for 50% of the portfolio is really telling.  This indicates an incredible confidence that we won't default, and I am saying this as a compliment, because his drawing the line the way he did has proved incredibly wise, but to a layman (and even to some "experts") is terribly risky.

To have a staunch Austrian/Libertarian economist/investor/political figure press this point is more amazing to me now than ever, as we intensely debate the nature of the risks involved going forward.  I really, really wish he was still alive to day because 1) I'd love to hear what he continues to have to say about everything in the economy, and 2) I think seeing his portfolio survive a deflationary financial crisis the way it did would have been a great gift to a guy who probably had doubts whether his baby could handle a crisis like we had, where everything else was collapsing around it.

moda0306 wrote: I find it incredibly interesting that he was so sure about US default, or the lack thereof.  I mean the apparent lack of diversification outside of the US treasury for 50% of the portfolio is really telling.  This indicates an incredible confidence that we won't default, and I am saying this as a compliment, because his drawing the line the way he did has proved incredibly wise, but to a layman (and even to some "experts") is terribly risky.

To have a staunch Austrian/Libertarian economist/investor/political figure press this point is more amazing to me now than ever, as we intensely debate the nature of the risks involved going forward.  I really, really wish he was still alive to day because 1) I'd love to hear what he continues to have to say about everything in the economy, and 2) I think seeing his portfolio survive a deflationary financial crisis the way it did would have been a great gift to a guy who probably had doubts whether his baby could handle a crisis like we had, where everything else was collapsing around it.

It's too bad he's no longer with us.  For selfish reasons, I would love to hear him comment on the current economic state of the US and world.

clacy wrote: It's too bad he's no longer with us.  For selfish reasons, I would love to hear him comment on the current economic state of the US and world.

There's always transcommunication, if anyone's game. 

MG

moda0306 wrote: I find it incredibly interesting that he was so sure about US default, or the lack thereof.  I mean the apparent lack of diversification outside of the US treasury for 50% of the portfolio is really telling.  This indicates an incredible confidence that we won't default, and I am saying this as a compliment, because his drawing the line the way he did has proved incredibly wise, but to a layman (and even to some "experts") is terribly risky.

To have a staunch Austrian/Libertarian economist/investor/political figure press this point is more amazing to me now than ever, as we intensely debate the nature of the risks involved going forward.  I really, really wish he was still alive to day because 1) I'd love to hear what he continues to have to say about everything in the economy, and 2) I think seeing his portfolio survive a deflationary financial crisis the way it did would have been a great gift to a guy who probably had doubts whether his baby could handle a crisis like we had, where everything else was collapsing around it.

I think it's because he was a staunch Libertarian and Austrian economist that he was able to understand how the monetary system works and that default is virtually impossible.  I also think that because he understood the system and how it works he didn't think it was a good system.

I just found an excerpt from the description for his book "99% of All You Need to Know About Money" (http://www.trendsaction.com/product.php ... 1225403235):  "It all has to do with the simple little word money. Everything flows from the way the money system is handled. It is the cause of inflation, of depressions, of any sudden changes in the economy."

I guess I'll be reading this book.

I tend to disagree with the general line of "inflation is always and everywhere a monetary event," but I don't discount the huge importance the management of the monetary system has on an economy.

For instance, Zimbabwe had hyperinflation, but if you look at all the awful things the country was doing to manage their economy (if "manage" is even the correct term), it's no wonder you'd achieve hyperinflation.  Huge production disincentives and horribly corrupt government plus papering over problems equals hyperinflation in most instances, I'd presume.

I don't think the other inputs to hyperinflation should be ignored, as we really don't want to be purposefully making ourselves worse at predicting things in the US.

Snowman9000 wrote: Craig, is there a radio show where he addresses the concerns about Treasuries being based on fiat money?  I know there are shows where he talked about people not wanting to buy them for performance reasons, the certificates of confiscation era, etc.  But any specifically on the point that they are "just paper"?

You know it was touched on simply by people who didn't want to own bonds in the late 1970s and early 1980s due to the inevitable inflation that would kill them. But nothing in particular.

All I know is that people write me with the same exact questions and I pretty much always tell them the same things:

1) I don't know what the bond market will do.
2) If it does blow up the gold is likely going to be what people want and you own a bunch of it.
3) Sometimes bonds can be the only asset in a portfolio that are profitable so you need to own them at all times.

These fiat money arguments are well and good and may be right eventually. But it could be tomorrow or in 50 years. We simply don't know. Harry Browne reflected these comments as well. So the only option is to use a strategy that accepts all these risks (good or bad) and hedges against them with a solid diversification of assets.

aka. Permanent Portfolio

All I know is that I've been hearing about the inevitable death of Treasury bonds for over a decade (and read books back into the 1970s saying it) and they have all been dead wrong. They may be right eventually, but so far their advice has been very unprofitable. Also, a lot of people do not look at the fiat money issue completely. Inflation is only a problem if the "printed" money goes into circulation and is spent at a rate to drive up prices of goods. But just because banks have lots of money to loan out does not mean it will make it into the pockets of consumers and used.

Not sure if this might have been put up in an older post but I stumbled on it today.  Josh Kaufman on a website promoting his book gives a strong endorsement for the PP and references Craig's stats on the historic returns.  It's actually a pretty good 1 page break down of the PP and it why it works so well.

http://personalmba.com/permanent-portfolio/

[Edit: Typo]

Is It Time For A Permanent Strategy?

While the worst may be behind us, there is still plenty of uncertainty facing the markets these days. Slowing growth in China, conflict with Iran and the continuing European debt saga are just some of the major headwinds facing the global economy. Add this to continued housing and jobs issues currently affecting the United States, and it's no wonder why investors are getting nervous. There is certainly a lot to be worried about, and this fear has many investors looking for the best portfolio mix to steadily grow their assets while protecting against various shocks. To that end, an old method of portfolio construction could be the key to a restful night's sleep and long-term consistent returns.

A Strategy for All Seasons
Investors who worry about the market's continued volatility may want to consider Harry Browne's Permanent Portfolio for their asset allocation mix. At its simplest, Browne's portfolio gave exposure to four distinct asset classes with the idea that the mix was safe and profitable in almost any economic cycle. Historically, the equally weighted group of growth stocks, precious metals, cash and government bonds, have low correlations to each other and they rarely move in tandem. His original concept was that at any given time, a few of these components might underperform, but the other pieces of the puzzle would perform so strongly, that the portfolio would see an overall gain that outpaced any increase in inflation. The idea wasn't to have outrageous returns, but consistently steady ones.

Read the rest here.
http://www.investopedia.com/stock-analy ... z1ug40uIFL

Thursday, 21 June, 2012

ETF Prophet wrote:The recent performance of the Permanent Portfolio seems to have stoked some interest in the strategy crafted by Harry Browne. I’ve been noticing more references to the strategy making their way into my daily reading of favorite blogs. Looks like there is even a new book coming out about it, the authors of which have an informative blog I just discovered.

Browne's Permanent Portfolio
http://www.forexpros.com/analysis/brown ... lio-127185