The Permanent Portfolio, Investing, Finance and Random Thoughts.
Posts tagged deflation
Permanent Portfolio 25% Bond Allocation FAQ
3 years ago
The Permanent Portfolio allocation is 25% stocks, 25% bonds, 25% gold and 25% cash. In this series of posts we’re going to talk about how to implement each one of these components to take advantage of the economic cycles of Prosperity, Inflation, Recession and Deflation.
This FAQ is divided into two sections: Short Answers and Long Expanded Answers. If you don’t want to know the details then just read the Short section and skip the Long Expanded section. This page will be updated from time to time as more common questions and answers are needed.
In this series we talk about the 25% bond allocation and how it protects you from deflation and helps during prosperity.
Podcast: Play in new window | Download
Permanent Portfolio Results 2008 – A Disaster Averted
3 years ago
UPDATED: This posting now lists (mostly) finalized 2008 total returns information (interest and dividends included) from the listed stock indices. The final numbers won’t change much.
“The best kept secret in the investing world: Almost nothing turns out as expected.”
– Harry Browne
Investors won’t be forgetting 2008 any time soon. Yet as bad as it was, the Permanent Portfolio survived intact with a profit for the year of about two percent.
The year included oil and other commodities going to record highs. Real estate prices fell at a rate not seen since the Great Depression. Century old banks that were leveraged to their eyeballs blew up and vanished. Iceland, a first-world country, went broke. Bernard Madoff, one of the founders of NASDAQ, admitted his hedge fund was a $50 Billion Ponzi Scheme. The Treasury Secretary and Fed Chairman openly talked about The End of The World As We Know It if we don’t “do something”. That “something” of course meant big bailouts for banks, irresponsible home buyers and automakers (and maybe more — to be continued).
By the time 2008 was over, the markets were down by one of the largest single year amounts since 1931.
Time to Rebalance?
3 years ago
Economist Robert Higgs comments in the following piece about the prospect of inflation in 2009 and beyond:
The Fed versus the Banks: Who Will Blink First?
I have never been inclined toward touting doomsday financial scenarios. I raise the possibility now only because, as I consider the situation portrayed in the graph of excess reserves linked above, I am unable to foresee how the Fed and the Treasury can navigate through these treacherous waters – waters that their own previous actions have whipped to a foam – without creating terrible financial and economic harm. If the dollar survives the ministrations of Bernanke, Paulson, Bush, and the Obama gang, its survival will be something of a miracle.
Earlier in 2008 inflation fears were the bogeyman. Oil was at $150 a barrel (it’s now $40). Gold hit $1000 an ounce (it’s now in the $800′s). And the Dollar was at record lows against the Euro and other world currencies (it recovered greatly). The markets were sure that inflation was coming on strong.
Ahhh, but Fall 2008 came and so did the popping of the Real Estate bubble. This caused a massive destruction of paper wealth that rippled through the financial markets taking out many large banks. By December, Long Term bonds (a powerful deflation shield) swapped places with gold, commodities and other inflation hedges for being the winning asset of the year. The US Dollar shot up in value at a rate never seen against the Euro. Deflation was on everyone’s mind and Long Term bonds proved their mettle as they powered ahead with 30-40% gains. This boost erased almost all market losses in the Permanent Portfolio strategy during the October/November stock crash.
Who would have thought that we’d start 2008 with the prospect of inflation only to end the year with our illustrious central bankers scrambling to prevent an all out deflation? The markets are like that though. Moody. Random. Unpredictable.
But what should we do now?
