Gyroscopic Investing

Hi, Guys:

I've really enjoyed reading your contributions, this past week.  Although I do feel like a kid, sitting at the adult table.  lol.

I bought John T. Reed's book on Hyperinflation and Depression, but I don't have enough background/education/context to really tell if his arguments make sense-- and if they do, how it might relate to the PP?

http://www.johntreed.com/golddisadvantages2.html

I'd appreciate hearing some of your input.

Thanks,
Adam.
http://www.dogproblems.com
http://www.lasvegasdogtraining.com

I bought the book months ago. I didn't finish it in all honesty.

He rehashes many scenarios that have been laid out in other books a long time back (and didn't come true). I don't know what gold is going to do and neither does anyone else. If what he is saying comes true the 25% gold will be powerful protection. You may not come out unscathed, but probably better than most. But if what he is saying doesn't come true then being so concentrated in inflation tilted investments as he suggests could be disaster.

I was kind of disappointed in the book.  It seemed to skip around a lot.  Lots of undeveloped ideas, as if he wrote an outline for several different books, and instead of fully explaining each outline point, he just string the outlines together and call it a day.

I'll take my chances with the Permanent Portfolio. It may not be the right answer for every possible disaster scenario, but I don't think betting on extreme events is a high probability play. You can get badly burned by betting on one particular future and having it not come true. Best to spread the money around in case the worst doesn't come to pass.

I agree with ya.

I had trouble understanding what his ultimate suggestion was?  Some variation of the alpha strategy (buy everything you're ever going to need for the rest of your life) ... plus some silver coins????

Yeah it read like the Alpha Strategy of the part I got through. I can't imagine many people are going to want to stock up on toilet paper and soup for the rest of their natural lives.

Coffee wrote:
I bought John T. Reed's book on Hyperinflation and Depression, but I don't have enough background/education/context to really tell if his arguments make sense-- and if they do, how it might relate to the PP?

Most of the examples he gives as problems with gold are not because of gold, but because of unfavorable federal government actions related to gold.  And the government can do what it wants, including treat unfavorably whatever asset he proposes as a substitute for gold. 

And some of his other examples for why gold is not a good inflation hedge are simply rants that make no sense.  (Goldbugs?  Really?  How can the presence of "kooks" be a disadvantage of holding gold?  Hasn't he heard of mavens, bears, kings, czars, geeks, gurus, and other names for the "kooks" who focus their affection on their favorite asset class?  Goldbugs are not alone in this.)

Even his soup example is not well thought out.  While he complains about the counterparty risk to having institutions hold gold for retirement accounts, and goes on to complain about all the middlemen who put their hands on your gold before you do, he seems to forget that Campbell's canned soup (which he incorrectly calls a commodity--another problem with his analysis) can have even more middlemen between the soup cannery and your cupboard, than those middlemen encountered as you try to put a gold coin in your safe.  Depending on where you get it, the can of soup may have passed through three or more different wholesalers, shipping contractors, jobbers, and all their warehousemen before it reaches the retail establishment where it is purchased.  That's just the nature of retail capitalism in America, whether it involves a 1/4 ounce gold American Eagle or a can of minestrone.

When it comes to real estate investing, he writes useful books.  Probably the same about coaching sports.  But his views on gold as a problem in an investor's portfolio need a dose of clarity.

smurff wrote: Depending on where you get it, the can of soup may have passed through three or more different wholesalers, shipping contractors, jobbers, and all their warehousemen before it reaches the retail establishment where it is purchased.

Exactly.  You could scrutinize any investment at that level of detail and write up a scary page like that.  I could make a convincing argument that stock investing is crazy based on bear markets, paper promises, bankruptcy, hyperinflation, bid/ask spreads, Enron, greenmail, communist revolutions, corporate taxation, health care, pension liabilities, perma-bull stock bugs, the flash crash, Jim Cramer, and the crash of 1929.  These are all problems, yes, but if you diversify, take some common sense precautions, and deal with reputable firms, you can successfully invest in stocks.  I think the same is true of any other investment including gold.

The future is uncertain, so any kind of investment involves some degree of risk.  Even paper cash and cans of soup carry risks.  At some point you just have to pick something and move on.

Reading that, I see a lot of negativity about what other people are doing, but no positive statement about what someone should do instead.  Does Reed have a suggestion for what would be better?