Investing, economics, finance and random thoughts.
Terry Coxon Discusses the Possibility of High Inflation
Terry Coxon, co-creator of the Permanent Portfolio, discusses the possibility of high inflation as the US economy stagnates. Is it possible? Sure. The Fed is biased towards creating inflation because that’s what they were designed to do. Their worst fear is deflation because their tools are so limited. In my opinion, they will continue to try to inflate the dollar to force people to spend money. They’ll worry about the inflation it causes later.
Will it work? Hard to say. It didn’t work in Japan for the past 20 years and may not work here. Economics is just as much about psychology as anything else. If people don’t want to spend money and take on new debt it’s hard to force them to.
People often wonder why the Permanent Portfolio holds a 25% gold allocation at all times. After all, isn’t gold a zero real return asset? Well, this is the reason. If bad inflation comes the other components of the portfolio will do poorly, but the gold will react so strongly that it’s likely all the other losses will be overcome. But what about a deflationary situation and these predictions of inflation are wrong? Well, the portfolio holds 25% in Long Term Treasury bonds which will do very well under that scenario.
| Print article | This entry was posted by craigr on December 21, 2008 at 12:42 pm, and is filed under Economics, Investing. Follow any responses to this post through RSS 2.0. Both comments and pings are currently closed. |
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about 2 months ago - Comments Off
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about 4 months ago - Comments Off
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Comments are closed.
about 1 year ago
I’m glad you’re blogging about Harry Browne’s permanent portfolio. I can’t believe how little has been published about it. Cheers!
about 1 year ago
Thanks for visiting. I think so little has been published about it (outside of Browne’s books) because it’s just such a boring way to invest. It doesn’t get stratospheric returns and doesn’t get abysmal losses. It just plods along each year making a steady climb with steady returns.
It’s the perfect portfolio for people who don’t want lots of excitement (like a 50% loss) in their investments.
about 1 year ago
Great video. Thanks for posting it.
about 1 year ago
Gold has often been chided for not providing interest nor dividends. I saw an article today on light of the financial crisis that made me smile: “Gold doesn’t pay interest? Neither do money market funds.”
Kevin
about 1 year ago
@Kevin
Hi Kevin,
Residents of Iceland may have wished they held some gold before their currency recently tanked. Sometimes the most important thing in investing is return OF capital, not return ON capital.