Daily Reckoning: Musings on the Work of Harry Browne

April 27, 2012

By Eric Fry

04/26/12 Denver, Colorado – After a quick whistle-stop tour through Chicago and Atlanta, your California editor’s Pullman screeched to a halt in Denver, Colorado last night. Upon arrival, he stepped down from his Pullman, which bore an uncanny resemblance to a Boeing 757, hailed a porter, which bore an uncanny resemblance to a conveyor belt, climbed into his awaiting Packard Phaeton, which bore an uncanny resemblance to a Ford Fiesta rental car…and rolled down the motorway to his father’s house.

Your California editor’s father turns 88 years old in one week, so your editor took the occasion to stop in and wish Dad an early Happy Birthday! But let’s not let these modest festivities stand in the way of our daily reckonings…

A few weeks back, your team here at The Daily Reckoning highlighted the groundbreaking work of Harry Browne, creator of the Permanent Portfolio.

“A few decades ago,” we remarked, “a guy named Harry Browne devised an investment strategy he dubbed the ‘Permanent Portfolio.’ The idea was so simple it seemed almost moronic. And yet, with the passage of time we have discovered that his idea was pure genius.

“He suggested building an investment portfolio out of only four components: gold, bonds, stocks and cash.

The Permanent Portfolio

“The idea was that at any given time, two or three of these four components might underperform — but the other portfolio components would perform so strongly, you’d get an overall gain that would outpace any increase in the cost of living. Incredibly, this simple strategy has delivered some surprisingly strong investment results.”

After providing more detail about the history and underlying philosophy of the Permanent Portfolio, we invited our Dear Readers to ask themselves the following questions:

1) Is Harry Browne’s original allocation still ideal for today’s macro-economic environment?
2) If not, how would you revise his original allocation for the next 30 years?

We called this little exercise the Daily Reckoning Group Research Project and as usual, our Dear Readers responded with some fascinating suggestions.

Several readers struggled to comply with the rules of the Group Project. For example, some readers could not stop themselves from recommending specific companies; others argued that some of the very best Permanent Portfolio allocations do trade on a public exchange.

One such reader suggested buying grazing land as part of his Permanent Portfolio. Another recommended buying a house. And a third named potash as one of his allocations. We sympathize with these readers who “drew outside the lines.” The financial markets do not possess a monopoly on attractive investment opportunities. We also sympathize with those readers who could no longer stomach the idea of buying Treasury bonds as a “risk free” allocation.

“Mr. Browne’s formula was based on the idea of a functioning and fair government and not a criminal enterprise,” writes a reader named Kent. “I would bet he would eliminate most government bonds since today they really are nothing more than counterfeit and would substitute ammunition, food or fuel.”

A reader from Buenos Aires (not Joel) offers a similar observation. He points out that the Permanent Portfolio mutual fund (PRPFX) has held a large position in both US Treasuries and Swiss bonds. “[This allocation] has been great so far in this über bond bubble. But will it stand the test of time?… I looked at the permanent portfolio’s performance in this century, which yields an increase of about 130%… However, looking at its performance from 1996 to 2002 is quite disappointing. Moving around like a cork on the water’s surface, just bouncing around in the waves. It takes off in 2002, when Greenspan lit the fuse beneath the bond bubble. What will happen when the bond bubble ruptures?”

Not surprisingly, most of the folks who had no use for Treasuries had plenty of use for hard assets.

“Dear Harry (RIP). Things are different now while the dollar is dying,” writes a reader named Susan. “It’s all ‘risk on’ as the world hangs in the balance… You must have your own grocery store at home… I want to be able to put my hands on at least a few of the things I need. All the clouds out there storing my stuff for me make me very nervous and I hope to end up with more than vapor and fumes at the end of the day.”

“There might have been a time when the permanent portfolio idea may have worked,” writes a reader named Ken, “but I believe that time has passed, which is why we avoid most bonds and buy gold and silver.”

A reader named Carl concurs. “I do not believe in a ‘permanent’ portfolio,” he writes, “because things work in cycles as you surely know… We are in our sixties and plan to stay conservative and just continue to buy silver bullion each month (dollar cost average). We have had more than a few of our stocks go to zero but we know that gold and silver, especially today, will never even approach that point… Mundus vult decipi, ergo decipiatur. (‘The world wants to be deceived, so let it be deceived’)”

Hard assets were not the only crowd favorites, however. Many readers suggested investing in real estate investment trusts (REITs) and other types of high-dividend-paying stocks. Biotech stocks also seemed to be a favorite.

So without further ado, here is a sampling of the Permanent Portfolios you submitted in response to the latest Daily Reckoning Group Research Project…

Eric Fry
for The Daily Reckoning



CNBC – Jim Rogers: Don’t Sell Gold

November 29, 2011

Jim Rogers is very bullish on gold for the next decade or two. He is one of the premier investors in the commodities markets including Gold & Silver. Watch the interview below and think about adding to your current holdings in a Tangible Asset Portfolio.

CNBC: Gold Slips to One-Week Low on Contagion Fears

November 17, 2011
Published: Thursday, 17 Nov 2011 | 10:42 AM ET
By: Reuters

Gold fell to a one week low on Thursday as fears that the euro zone debt crisis could spread from peripheral to core economies kept investors nervous and prompted some to liquidate profitable positions to cover losses in other asset classes.

The cost of insuring Spanish and French five-year government debtagainst default rose to record highs and the spread between French 10-year government bonds and their German equivalents jumped to a fresh euro-era high on fears the debt crisis was deepening and spreading to the larger euro zone economies.

A spat between France and Germany on Wednesday over whether the European Central Bankshould intervene more forcefully to halt the euro zone’s accelerating debt crisis raised doubts about the euro leaders’ capability to find a solution.

“There is a bit of general risk-off across the markets as we wait for further developments of the euro zone crisis, a bit of currency influence and a bit of opportunity as certain people try to crystallize their gains,” said Nick Moore, an analyst at RBS Global Banking & Markets.

“We know one or two big funds have been exiting, having had very good profits … The gold market itself is in very good form, though; there is nothing wrong with fundamentals,” Moore said.

Spot gold [XAU=  1742.09    -20.20  (-1.15%)   ] edged down 1.04 percent to $1,743.89 an ounce. Gold futures [GCCV1  1743.60    -30.70  (-1.73%)   ], meanwhile, slipped 1.56 percent to $1,746.70 an ounce.

Weighing on gold, the dollar rose against a basket of currencies.

A stronger U.S. currency makes dollar-priced commodities, such as precious metals, costlier for holders of other currencies.

Gold has confounded market watchers by refusing to behave like a safe haven and instead has tracked equities over the past few weeks, but the escalating European debt crisis could see bullion ditch its risk-asset mantle and return to record highs.

Analysts said that the long-term outlook remains solid for gold, as physical demand is increasing with investors and banks looking to stock up on secure assets.

Bullish Data

Demand for gold rose by 6 percent to a 1 1/4 year high in the third quarter of 2011, driven by central bank purchases and European demand for bullion against the backdrop of the escalating euro crisis, according to a report by the World Gold Council (WGC).

After a 20 percent slump in the third quarter from the previous, gold imports to India, the world’s biggest consumer of bullion, are likely to recover in the last quarter of 2011 as demand emerges from traders who destocked in the third quarter of the current year, the World Gold Council’s India head said.

“Crucially, in today’s report, the WGC note that additional purchases were made by a number of countries’ central banks, which cannot currently be identified due to confidentiality restrictions,” UBS said in a research note.

“The gap between the known purchases and the confidential ones is very significant … This information is very bullish. And no doubt the market will be busy speculating on the identity of such buyers,” the company wrote.

Even a move by hedge-fundmanager and long-time gold bull John Paulson to slash ETF bullion holdings by a third does not appear to be a sign that he is abandoning his upbeat view of the metal, industry sources and analysts said.

“Paulson may be moving to gold equities or physical gold. After all, even with ETFs there is counter-party risk,” Bhar said. “He may be switching holdings from one gold vehicle to a safer gold vehicle.”

Holdings of the largest gold-backed exchange-traded-fund (ETF) , New York’s SPDR Gold Trust [GLD  169.45    -2.06  (-1.2%)   ] climbed 0.72 percent from Tuesday to Wednesday, while that of the largest silver-backed ETF, New York’s iShares Silver Trust [SLV  31.8826    -0.9374  (-2.86%)   ]  remained unchanged for the same period.

Spot silver [XAG=  32.80    -0.88  (-2.61%)   ] last fell 2.43 percent to $32.86, platinum [XPT=  1601.74    -10.91  (-0.68%)   ] was down 0.46 percent to $1,605.24 an ounce and palladium [XPD=  625.97    -18.75  (-2.91%)   ] fell 2.56 percent to $628.22 an ounce.

CNBC – Gold Will Hit $2,400 Bubble: Jim Rogers

November 9, 2011

Jim Rogers co-founder of the Quantum Fund with George Soros and creator of the Rogers International Commodities Index (RICI).

Published: Wednesday, 9 Nov 2011 | 6:38 AM ET
By: Shai Ahmed
CNBC Associate Editor

Gold has many years left on its bull run, but the precious metal will eventually reach a bubble, famed investor Jim Rogers told CNBC Wednesday.

“It will easily go to $2,000 but it will reach $2,400 over the course of the bull run, which has years to run,” said Rogers, the CEO and chairman of Rogers Holdings.

“It will end in a bubble when this is over. The way bull markets work is they go up and up and then by the end they turn into a bubble and that will happen to gold.

He said, however, that such a bubble is still years from happening.

“That could be five years, 18 years or six years,” he said.

“I hope I am smart enough to sell but when that happens it will probably double.” He said that currently he would buy silver instead of gold because it’s cheaper on a historic basis.

“I own both, I’m not selling either but if I had to buy one today I would buy silver,” he said.

Rogers said he was short stocks because he is not very optimistic about the fundamentals.

“You’re better off in real assets than in stocks, at least I hope,” he added.

Not everyone agrees with Rogers.

Ken Kamen, president of Mercadien Asset Management told CNBC that gold should not be used as an insurance product.

“I’m not a metal head. All this talk about gold suggests if you have it you have some sort of insurance policy.

Any asset class that fluctuates hundreds of points in a week is not a safe haven. Gold is not a silver bullet,” Kamen said.

Diversify into Physical Gold

September 20, 2011

There have been a number of experts talking up gold int he last month as gold has reached highs above the $1,900 mark. Most of these are calls to own gold stock. The bottom line—if you don’t own any gold, use this opportunity to start building a position in the precious metal that is at least more than 10 percent of your portfolio. Consider the sell-off to be a gift that you shouldn’t be getting given all that’s wrong in the world now, Jim Cramer of Mad Money said on CNBC.

We believe this is the right call for your stock portfolio. But it is not the entire picture. The entire picture is your entire net worth.  Stocks, bonds, house, IRA’s anything that makes up your net worth. Take that number and figure you should have insurance against a collapse of your net worth. We believe holding physical gold, silver & rare coins is the insurance solution for your finances.

A Tangible Asset Portfolio at a conservative 10% to aggressive 20% of your net worth will secure your financial future against any failures of stocks, bonds, real estate, IRA’s & other investments. This portfolio should be diversified in gold, silver & rare coins not relying on one segment alone but using each to balance the whole. Look at your financial position today and make sure you have a fully funded TAP  to insure against financial disaster.

Silver Still Very Affordable at Over $41

September 1, 2011

Silver has been the stable little brother to Gold over the last month.  While still maintaining a 44 to 1 ratio against Gold it has not seen the wild swings of late as Gold has. Yet, on the year it has out performed Gold going up 35% vs 29% for the yellow metal.

Both Gold & Silver realized these substantial  gains in the face of multiple margin increases to encourage real investors, not speculators. This is especially good for Silver since May endured a 16% retraction. Silver is expected to continue a steady climb for the remainder of the year. Where it will end is still questionable but we expect another 5% to 10% gain from today’s levels.

This makes Silver an affordable alternative to Gold, and a valuable asset in your own Tangible Asset Portfolio. Each TAP  should consist of 25% to 30% Silver related coins & bullion.  Remember Silver in your investments it is still positioned for gains at a price about anyone can afford.

Gold Retracts In Early Trading

August 29, 2011

In a light trading day due to Hurricane Irene & a National Bank Holiday in London the Dow opened strong pushing Gold down over 2%. Gold is resilient & returning to over $1,800 before noon.

The rumor mill is churning out hopes of a QE3 in the coming weeks, this brings a smile to a flooded Wall-Street. Should another round of stimulus hit in the next month the smart buy will be in Gold & Silver. Until definitive proof emerges from Wall-Street of more jobs & a hold on inflation Gold should remain the favored safe-haven for the near and long terms.