Gyroscopic Investing

This provocative article certainly raisies questions about a couple of key components of the PP that I don't think Harry Browne, wary as he was of both Wall Street machinations and the government, could have anticipated:

http://www.paulcraigroberts.org/2012/06 ... e-at-hand/

Not sure what the safe haven is if this guy is right however.

Kevin K. wrote: This provocative article certainly raisies questions about a couple of key components of the PP that I don't think Harry Browne, wary as he was of both Wall Street machinations and the government, could have anticipated:

http://www.paulcraigroberts.org/2012/06 ... e-at-hand/

Not sure what the safe haven is if this guy is right however.

Most definitely gold and silver.  He's describing the collapse of the dollar.  I found this quote to be quite...what's the word I want to use...I don't know, but here's the quote:

A failed political system that allows unregulated banks to place uncovered bets 15 times larger than the US economy is a system that is headed for catastrophic failure.

This reminds me of a couple of other articles I read recently discussion gold and silver backwardation.

Here is one of the articles. I think it links to another article or two that provide a bit more background.  This article may help provide an explanation for the backwardation, although I haven't put it all together yet.

The PP's assets are tied to economic conditions, not "manipulation" of an asset class by mysterious powers.

I reject the whole "manipulation" narrative.  Assets go where they want to go over time due to much broader forces than some jackass at Goldman Sachs doing a keystroke circle jerk with his master of the universe cronies.

Any manipulation of an asset class will only tweak the long term trend.

Doom purveyors have had a field day in recent years, but the whole "dollar is toast", "treasuries are dead", "gold is in a bubble" narratives have simply turned out to be completely wrong.

As I have said before, to the mind of a speculator accustomed to travelling by herd, the PP can be unsettling and even vexing, but the fact that the big U.S. investment banks are populated by thieves, hustlers and thugs isn't anything new.  The people who run these institutions have always been crooks.

Who is Paul Craig Roberts?  Everything he has written about the U.S. has "collapse" in the title.  He has written these things in the midst of what can only be described as a golden age for the U.S.  The U.S. is number one in virtually any economic category you want to look at.  It won't always be this way, but it is right now.  Why not just enjoy living in such a prosperous and stable society instead of getting preoccupied chasing around "collapse" shadows that lead to little more than a bunch of wasted time and energy spent scaring yourself into the belief that this world of prosperity and abundance that surrounds us is somehow not real or is about to end. 

People like Paul Craig Roberts are entertainers...they're like grumpy clowns.  People fall under their spells of pessimism and pretty soon the whole world looks like it's about to end.  Over the years I have seen so many of these guys I have lost count.  I would listen to this sort of thing the way you watch CNBC--if you find it entertaining then go for it, but if you find yourself mistaking the show for reality it's probably best to turn it off. 

When thinking about one's diet of Chicken Little material, consider the words of Milton in "Paradise Lost":

The mind is its own place, and in itself can make a heaven of hell, a hell of heaven.

The PP is where you go when you get tired of the noises that people like Paul Craig Roberts make.  It's not a place you leave because of Paul Craig Roberts' latest report.

hoost wrote:

Kevin K. wrote: Not sure what the safe haven is if this guy is right however.

Most definitely gold and silver.  He's describing the collapse of the dollar.

I agree.  If such a "collapse" took hold, there'd be nothing in the world that could stop gold from taking off.

By the way, it's so funny to me when a dour, deadly serious article about economic collapse throws in all of these jokey little words like "presstitute".  Amusing, to be sure, but takes me right out of the "Mad Max" mood the piece is trying to establish. 

Lone Wolf wrote:

hoost wrote: I agree.  If such a "collapse" took hold, there'd be nothing in the world that could stop gold from taking off.

By the way, it's so funny to me when a dour, deadly serious article about economic collapse throws in all of these jokey little words like "presstitute".  Amusing, to be sure, but takes me right out of the "Mad Max" mood the piece is trying to establish. 

Ha, yeah.  I think the fun part about reading stuff like this is figuring out which PP asset would benefit.  It's like going through and saying: well, if this actually did happen, I'd sure be glad I had the gold in my PP. 

MediumTex wrote: The PP's assets are tied to economic conditions, not "manipulation" of an asset class by mysterious powers.

I reject the whole "manipulation" narrative.  Assets go where they want to go over time due to much broader forces than some jackass at Goldman Sachs doing a keystroke circle jerk with his master of the universe cronies.

Any manipulation of an asset class will only tweak the long term trend.

I personally don't reject the manipulation narrative.  I do agree that in the long run it won't work; when the market decides to move, it will overwhelm the manipulators.  I believe it was Harry who described a similar situation back in the early 70's, or maybe late 60's, where the Swiss gold traders claimed gold couldn't go above $XX an ounce, because they controlled the price.  Well, it did.  That certainly didn't stop them from trying to manipulate the price, and at a certain time, they probably did influence the prices.

MediumTex wrote: Doom purveyors have had a field day in recent years, but the whole "dollar is toast", "treasuries are dead", "gold is in a bubble" narratives have simply turned out to be completely wrong.

As I have said before, to the mind of a speculator accustomed to travelling by herd, the PP can be unsettling and even vexing, but the fact that the big U.S. investment banks are populated by thieves, hustlers and thugs isn't anything new.  The people who run these institutions have always been crooks.

Who is Paul Craig Roberts?  Everything he has written about the U.S. has "collapse" in the title.  He has written these things in the midst of what can only be described as a golden age for the U.S.  The U.S. is number one in virtually any economic category you want to look at.  It won't always be this way, but it is right now.  Why not just enjoy living in such a prosperous and stable society instead of getting preoccupied chasing around "collapse" shadows that lead to little more than a bunch of wasted time and energy spent scaring yourself into the belief that this world of prosperity and abundance that surrounds us is somehow not real or is about to end. 

People like Paul Craig Roberts are entertainers...they're like grumpy clowns.  People fall under their spells of pessimism and pretty soon the whole world looks like it's about to end.  Over the years I have seen so many of these guys I have lost count.  I would listen to this sort of thing the way you watch CNBC--if you find it entertaining then go for it, but if you find yourself mistaking the show for reality it's probably best to turn it off. 

When thinking about one's diet of Chicken Little material, consider the words of Milton in "Paradise Lost":

The mind is its own place, and in itself can make a heaven of hell, a hell of heaven.

The PP is where you go when you get tired of the noises that people like Paul Craig Roberts make.  It's not a place you leave because of Paul Craig Roberts' latest report.

At the end of the day, we have no idea what will happen; accepting that means that we also accept that this guy's scenario is a possibility even if we don't think it's likely.  I don't think it's a bad thing to question whether or not the PP would perform as expected in various scenarios.  My thought is that gold will sustain you if something like this should come to pass; the attempts at manipulation would be overcome by the will of the market, just as they were in the 70's.

I wouldn't bet the other 75% of my portfolio on the assumption that the situation will come to pass, however; I'd just stay with the PP and breathe a sigh of relief that I own some gold, knowing it will get me through this sort of situation.

MT...in my view, your comments seem to compare to real estate salesmen from 10 years ago who said RE could only go up be no more land was being made

Thanks everyone, and especially MediumTex for what is even by your very high standards a tour-de-force (with just the right amount of tour-de-farce) post. I owe you and Craig R. a huge debt of gratitude.

If we have a theory on the table that there is a scenario where the PP would stop working due to the speculators rigging the market, I would want to see some evidence that this theory has actually played out in practice.

Thus far, gold and treasuries have been reacting as one would expect to the underlying economic conditions we are currently experiencing, despite whatever the speculators may have tried to do along the way.

Until gold and treasuries begin behaving in a way that diverges from underlying conditions due to the influence of the dastardly speculators I don't see anything to be concerned about with respect to the PP.

If the question is whether anything could ever go wrong with the PP strategy, I would say "of course."  However, if the question is whether the current bets in the derivatives market could cause the PP's theoretical framework to be invalidated, I would say "I don't know, show me the evidence."  To date, I just don't see any evidence that this is the case.  There were enormous levels of leverage and poorly conceived derivatives bets in place in 2008 and the PP did just fine.  We are unlikely to see another financial crisis like we did in 2008 any time soon.  It's typically just not possible to scare people that badly more than once in a generation.  Even the identical conditions occurring later on are met with a different reaction because people have a different frame of reference for such events and thus tend to react with less panic.  I think that is part of the reason that many events tend to only happen once a generation.

murphy_p_t wrote: MT...in my view, your comments seem to compare to real estate salesmen from 10 years ago who said RE could only go up be no more land was being made

I would say it's more like a real estate salesman who says that he won't be concerned about the sky falling on the properties he has listed until he has verified that the conditions of the earth's atmosphere have changed.

murphy_p_t wrote: MT...in my view, your comments seem to compare to real estate salesmen from 10 years ago who said RE could only go up be no more land was being made

If the PP suddenly stops working and gets crushed by an unforeseen economic condition, then what asset class or strategy will be performing well in that environment?  

clacy wrote:

murphy_p_t wrote: MT...in my view, your comments seem to compare to real estate salesmen from 10 years ago who said RE could only go up be no more land was being made

If the PP suddenly stops working and gets crushed by an unforeseen economic condition, then what asset class or strategy will be performing well in that environment?  

I always assume it would be canned goods, leather chaps, and ammunition in popular calibers.

What I hate about these doom/gloomers (or most of them anyway) is the lack of humility, accountability, and time perspective that they have.  I mean with HB, he could have been wrong about the solvency of bonds, but we've had discussions trying to imagine the PP failing and we have to get pretty creative to even imagine it happening.  Even if the US did default, we're probably holding 25% in the single best-performing asset if that were to happen.  What he didn't do was become rash and arrogant about his political beliefs and let them drive his individual analysis.

However, Schiff types scream disaster from the mountain tops, then suggest you move into one of about 3 or 4 assets that are all-to-likely to correlate with each other and fail you for years or even decades before the supposed event, if it ever happens.  Meanwhile, the asset they told you to avoid even holding one iota of is performing extremely well for people, but, of course, that's written off to "market manipulation" that will soon see its end.  They actually skew their own failings to predict the future as proof of the evils they've been screaming about all along (the fed manipulating interest rates).

Howdy,

Here is my take on this and similar articles because I've seen a ton of them:

Now, I enjoy listening to Paul Craig Roberts from time to time, but please understand that he has said these things for many years. It's not that he couldn't be right eventually, but we just don't know if or when. So how do you position yourself against these calamities when you don't know when they will happen, don't know if they will happen, and it is unclear that your own preparations against them will even work? Hmmm...

I can't address every point in his piece, but let me hit the main ones:

1) China dumping US Treasuries and crashing the dollar. - Could happen. But in the 1980s people said the same thing about Japan and looked what happened to them! And before that I'm sure it was someone else. The thing is though is why would China implement a policy like this when we are one of their largest trading partners and there certainly would be severe economic consequences for them? What do they gain by deliberately wrecking their own economy through this action?

2) China, Russia, Brazil, India and South Africa teaming up to form a bank. - Who cares? I've been to Brazil and it's corrupt head to toe. They have blown their currency up numerous times. I don't know why people worry about them. Sure they can do agriculture and raw material exports, but other than that they are not a threat and if these other countries want to trust them as a major partner in a bank then God bless them and good luck because they'll need it. The other countries have their own severe corruption problems. I wouldn't believe any economic numbers coming from the Chinese govt. for instance. South Africa is quickly devolving into Zimbabwe under their incompetent government. Prosperity and corruption don't mix.

4) Is gold being manipulated? Unlikely. But even if it were that can only go on so long until the jig is up and markets take over. I agree the Fed is creating a situation of negative real interest rates and it won't go on forever. There are four ways it could play out:

- Real deflation kicks in and they stop the policy and we turn into Japan.
- Real inflation kicks in and they can kick up interest rates to prune it back.
- The economy stabilizes with no major event and things just kind of continue on.
- Something completely unexpected happens that nobody predicted and the markets go crazy in some other way!

I don't know which one is the best bet!

5) High Frequency Trading - Again, who cares? Those guys are trading against each other and just pushing money around the table. Short term institutional traders have been the major player on the markets for, literally, decades. What these guys do day to day matters not a single bit to a buy and hold investor that is not trading.

6) Derivatives - This is very complicated and can sound scary but derivatives have many legitimate uses and I can't comment on them all because it's a blanket word really. For instance a mortgage is a derivative. Should we cancel all mortgages? Without specifics there is no way to know if a derivative is being used in a good or bad way.

7) What will work better? Meaning he goes on about all these potential threats, but what is his solution? All gold? Oh that's being manipulated so we can't own that! Brazilian bonds because they are the new rising superpower? No on that because the Brazilian govt. treats foreign investors poorly (they recently put an extra tax on all foreign bond holders for instance!) and they love inflation so eventually you'll get burned in their bonds. How about investing it all in China? Why should I think the corrupt Chinese government that censors the Internet and persecutes political dissenters is any better than the U.S.? Etc. So his article offers no better solution!

I honestly don't know what will happen and these are scary times. But because I don't know what will happen I feel safest owning assets at all four corners like the Permanent Portfolio. But certainly if Paul Craig Roberts or anyone else has any ideas I'd love to hear them and take a look!

MediumTex wrote:

clacy wrote: If the PP suddenly stops working and gets crushed by an unforeseen economic condition, then what asset class or strategy will be performing well in that environment?  

I always assume it would be canned goods, leather chaps, and ammunition in popular calibers.

This sounds like what my entire recreational budget goes toward.