Gyroscopic Investing

MachineGhost wrote: One thing I know is triple A corporate bonds held up very well during the Great Depression, so that is probably what we'll see when faith in the U.S. government erodes.

Reub wrote: I've been reading one blogger's opinion on an upcoming global depression involving massive sovereign debt default, the US bond bubble bursting, and the US dollar rising and then collapsing. The blogger also sees gold falling. In your opinion, how would the PP perform in this type of a scenario?

Stewardship wrote: Not sure I understand.  Are you asking how would the PP perform in a scenario in which all four of its asset classes crash?  Poorly, I surmise. 

MachineGhost wrote:

Stewardship wrote: Not sure I understand.  Are you asking how would the PP perform in a scenario in which all four of its asset classes crash?  Poorly, I surmise. 

I can't see it happening all at the same time though.  Where would capital go?  Moon rocks?  Bitcoins?  Adult diapers?

Maybe we ought to study Iceland in more detail as to the timing of things.

coinstar wrote:

MachineGhost wrote:

Stewardship wrote: Not sure I understand.  Are you asking how would the PP perform in a scenario in which all four of its asset classes crash?  Poorly, I surmise. 

I can't see it happening all at the same time though.  Where would capital go?  Moon rocks?  Bitcoins?  Adult diapers?

Maybe we ought to study Iceland in more detail as to the timing of things.

Great questions!! It's my understanding although it could be incorrect that in a massive depression, capital is destroyed. Sure, maybe the total number of dollars is the same, but if people aren't working, and stuff isn't being made, then those dollars aren't worth the same. And since all of those dollars are compounded leveraged debt in a fiat economic system, once people at the lowest level stop paying their interest on their short-term debt, then it leads to a string of defaults.

The home owner loses his job and stops paying his mortgage. The mortgage owner entity stops receiving mortgage payments and can't pay the debt he took out to buy the mortgages. And so on.

So I think money can be destroyed in a leveraged economy like we have now. As opposed to gold where there's a fixed amount of gold that paper money can be redeemed for. Now we just digitally make money out of nothing so it can also be digitally reduced to nothing.

As far as AAA Bonds, that's an interesting idea for part of the VP. Hand picking several companies that will likely do well in a global depression and buying individual bonds from them. Ideally ones that aren't callable and are 30 year duration. I think they'd need to not be callable to work for this purpose. I'm thinking companies like Disney will be very bad in a global depression whereas companies like Monsanto would be good. People need to eat! Energy companies would do bad because depression means less industrial stuff and less energy usage. Costco would do great because people would need to scrimp and save and buy in bulk when they can.

Maybe pick 5 to 10 companies that you expect to do good in a depression, find non-callable 20+ year bonds from them and invest in your VP.

glennds wrote: I'm not sure I understand how it would be possible that all the asset classes would collapse, including the dollar and gold simultaneously. Regardless, I would raise two questions in response:

1. What strategy would preserve capital better than the Permanent Portfolio under the circumstances you're describing?

2. If an across-the-board global catastrophe happens where basically all asset classes are demolished, then in effect nothing has happened because each investor's position relative to everyone else has stayed the same. This may sound abstract, but think about it. If we all go up or down together, then your position has stayed constant in relative terms. There may be an adjustment period if the change were radical but I would not bet that it would be very long.

Libertarian666 wrote: 2. If an across-the-board global catastrophe happens where basically all asset classes are demolished, then in effect nothing has happened because each investor's position relative to everyone else has stayed the same. This may sound abstract, but think about it. If we all go up or down together, then your position has stayed constant in relative terms. There may be an adjustment period if the change were radical but I would not bet that it would be very long.

Libertarian666 wrote:


2. Maybe, but it would obviously be better to gain massively in purchasing power than to stay even. As to how to do that, see answer to #1.

mukramesh wrote: If the US government defaults on it's debt, wouldn't that make the dollar worthless? I'd assume if the entity that can print it's own money defaults, corporate bonds would fair much worse. Besides, if the US government defaults, dollar goes down (hyperinflation), wouldn't gold (priced in dollars) save the day?

jason wrote: https://web.archive.org/web/20160324133 ... e-of-2008/

barrett wrote: Alas, that Iceland link doesn't seem to be working anymore. Too bad. That was a great stress test for the PP.

barrett wrote: The link gets me to the correct page but when I then click on 'Permanent Portfolio in Iceland', I get a notice that says "Blog has been removed."

D1984 wrote: Try this one: https://web.archive.org/web/20120415114 ... eland.html

barrett wrote: For those averse to paying taxes (almost everyone) that is a rare argument in favor of holding a significant amount of gold ETFs in tax-advantaged accounts, no?

glennds wrote:

Libertarian666 wrote:


2. Maybe, but it would obviously be better to gain massively in purchasing power than to stay even. As to how to do that, see answer to #1.

Gaining massively in purchasing power sounds really, really good. Capital preservation and risk reduction is very appealing (to me) also. What do you feel is the best strategy for doing both at the same time, and under unpredictable future conditions?

Libertarian666 wrote:
I'm weird, even here: I don't like stocks, T-bonds, or very much cash in the form of USD. So that leaves gold and sound foreign currencies (e.g., CHF).

glennds wrote:

Libertarian666 wrote:
I'm weird, even here: I don't like stocks, T-bonds, or very much cash in the form of USD. So that leaves gold and sound foreign currencies (e.g., CHF).

Libertarian666 - A few questions if you wouldn't mind sharing your thought process:

1. Have your feelings about CHF been affected or not by their decoupling from the EURO?
2. What other foreign currencies would you put on the sound list besides CHF?
3. In your view, why are any of these currencies more sound than USD, and/or what is it about them that makes you feel they would gain purchasing power in a depression situation?

I have been wondering what to read into the CHF decoupling from the EURO. I can't help but believe it's a sign of some kind, but I'm not quite sure what.
Thanks for sharing,