The Elephant in the room: How should we prepare for the collapse of the US?

General Discussion on the Permanent Portfolio Strategy

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StinkyToes
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The Elephant in the room: How should we prepare for the collapse of the US?

Post by StinkyToes » Sun Jul 05, 2020 6:05 am

I am a relatively new member of this Forum. I looked but could not find the rules on political posts.* I hope this post falls within the rules. If not, I hope a one-time exception can be made given the seriousness of the subject matter and because (I assume) many of us are asking ourselves this question.

It's becoming increasing obvious that the US faces existential challenges. You all know what I'm talking about. With each passing day, the mob's power grows. Where all this all ends I have no idea. But for those who value law, order, civility, harmony, and stability, the result will not be good. It seems increasingly likely that the US will not exist in its current form a few decades from now. Many other Western countries seem to face similar problems.

What effect, if any, should all of this have on one's investment portfolio? Is it reasonable to assume that time-tested strategies that have worked well over the last 50 years will continue to work going forward? Or is a new paradigm needed? Should we all be increasing our allocation to gold? Should we be diversifying our cash holdings into foreign currencies? Or bitcoin? Or perhaps the best investment at the moment is a second passport?

*The Forum rules page links to this: https://web.archive.org/web/20160324133 ... topic=45.0
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Hal
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Hal » Sun Jul 05, 2020 6:45 am

A few brief thoughts....

1. If you can afford one, a second passport is a good idea regardless of where you live.
2. The Permanent Portfolio was primarily designed for use with the reserve currency. How well would a Zimbabwe PP do :)

3. In the near term holding some international equities in the PP wouldn't hurt. Try modelling some allocations on Portfolio Charts.
4. Unless you live overseas, I wouldn't bother holding foreign currencies. Most reserve banks hold a large USD allocation. If the USD goes all major currencies will drop.

5. If things really look like they are getting out of hand consider a portfolio like Anthony Dedens. If fact, let someone like him manage your funds - you will probably be too busy avoiding pitchforks and burning torches to do it your self :)

You can always come down to Australia and say hello to Lord Humungous....

https://www.youtube.com/watch?v=i2gVXd7FzhQ
https://www.youtube.com/watch?v=y75h8_QyOlg

Edit: Whatever you decide, please teach your children/grandchildren. When I reach my use-by date, I want to know I did everything I could for the ones I loved.
Last edited by Hal on Sun Jul 05, 2020 10:25 am, edited 1 time in total.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by pp4me » Sun Jul 05, 2020 10:10 am

History seems to be repeating itself from 50 years ago. Maybe there is some kind of cycle to these things as I've heard some people claim.

We didn't have Covid back then but we had the very real threat of nuclear annihilation followed by the race riots and Vietnam war protests followed by a wild inflationary period. At times we thought the apocalypse was upon us. HB's book on the PP was heavily influenced by this period.

And if you look at the whole history of the USA there have been many bleak periods. For my parents, the period described above was preceded by the great depression and WWII.

Always prudent to prepare for a collapse though. That's why I use the PP.
Last edited by pp4me on Sun Jul 05, 2020 10:59 am, edited 2 times in total.
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blue_ruin17
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by blue_ruin17 » Sun Jul 05, 2020 10:36 am

Always maintain physical exposure to lead and brass.
"Like a confident pack, a confident portfolio provides both strength in fact, as well as — and this is the part I bet you’re missing right now and the focus of this note — strength in spirit."
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drumminj
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by drumminj » Sun Jul 05, 2020 10:50 am

blue_ruin17 wrote:
Sun Jul 05, 2020 10:36 am
Always maintain physical exposure to lead and brass.
The other two "precious" metals to include in your investment strategy!
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by StinkyToes » Sun Jul 05, 2020 2:02 pm

blue_ruin17 wrote:
Sun Jul 05, 2020 10:36 am
Always maintain physical exposure to lead and brass.
i've got this covered.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Smith1776 » Sun Jul 05, 2020 2:08 pm

This won't be a new insight on this forum at all, and it's really just preaching to the choir, but the biggest thing financially is to hold physical gold (with silver to taste I suppose). Some Bitcoin might not be a bad idea either.

Having a bug-out bag like Mike Ehrmantraut from Breaking Bad is also probably prudent. Having a reasonably planned destination to go to in the event of some kind of disaster is good too.
PP + VP + Bank Cash + Physical Bullion
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blue_ruin17
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by blue_ruin17 » Sun Jul 05, 2020 3:59 pm

StinkyToes wrote:
Sun Jul 05, 2020 2:02 pm
blue_ruin17 wrote:
Sun Jul 05, 2020 10:36 am
Always maintain physical exposure to lead and brass.
i've got this covered.
The problem I see with fiddling and fussing with the Permanent Portfolio in reaction to current events is that it puts you on the path of forever having to do so, which nullifies who whole reason for utilizing the Permanent Portfolio in the first place.

Imagine the captain of an icebreaker spotting a patch of ice, panicking, and massively steering the ship off-course . . . if you're worried about sociopolitical turmoil, well, you're already on the best investment "icebreaker" that I know of; this is an investment vehicle that was designed for just these kinds of rough waters.

If the situation were to really spiral out-of-control, then you're investment portfolio won't save you anyways. This is why you should have other preparations in place if you're truly concerned, such as a passport, physical cash, firearms, beans 'n' rice, etc. But these measures have nothing to do with "investing" or "asset allocation" any more than stockpiling batteries and bottled water in preparation for a hurricane does. Prudent measures, yes; but they don't have anything to do with your investment portfolio.
"Like a confident pack, a confident portfolio provides both strength in fact, as well as — and this is the part I bet you’re missing right now and the focus of this note — strength in spirit."
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by bitcoininthevp » Wed Jul 08, 2020 10:28 am

I think that guns, passport, bitcoin, increased physical gold allocation, increasing your digital privacy, land, upping self sufficiency skills (gardening, etc) and overall vigilance are good "variable portfolio" ideas here.

I think trying to invest international or changing %s of the PP is a really bad idea. The PP is made for the different conditions a (single) economy could be in. If you start investing in other countries, you could be exposed to their potentially differing economic conditions for part of the portfolio and exposed domestically for others. Could be double right or double wrong. Or in PP land, quadruple wrong since there are 4 assets.

Side note: I remember Harry saying to do the PP in your home currency. I do NOT remember anything about only/primarily investing in the world reserve currency. Please send any sources of that.
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Hal
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Hal » Wed Jul 08, 2020 11:31 am

bitcoininthevp wrote:
Wed Jul 08, 2020 10:28 am
I think that guns, passport, bitcoin, increased physical gold allocation, increasing your digital privacy, land, upping self sufficiency skills (gardening, etc) and overall vigilance are good "variable portfolio" ideas here.

I think trying to invest international or changing %s of the PP is a really bad idea. The PP is made for the different conditions a (single) economy could be in. If you start investing in other countries, you could be exposed to their potentially differing economic conditions for part of the portfolio and exposed domestically for others. Could be double right or double wrong. Or in PP land, quadruple wrong since there are 4 assets.

Side note: I remember Harry saying to do the PP in your home currency. I do NOT remember anything about only/primarily investing in the world reserve currency. Please send any sources of that.
Hi Bitcoininthevp,

With regards to the reserve currency, he alluded to that in his radio show.

He stated that gold was the most popular "money" after the USD, and if people lost faith in the USD, the funds would flow into gold.
The resultant increase in gold price would cover any losses in the rest of the PP.

Marc DeMessel(?) covered what happened to the PP in Iceland during the GFC. Gold did not increase in value to cover the losses in the rest of the PP.

Have a look at the SmithPP for further discussion on this :D

PS: Hope my memory is correct on what I quoted, been a while since I looked/listened to those references

PPS: Your other points are spot on in my opinion. Would also suggest having a couple of weeks worth of army ration packs. These really came in handy when bushfires prevented food deliveries!
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by sophie » Wed Jul 08, 2020 11:46 am

I think we will have plenty of warning if a wealth tax that could capture middle to upper middle class US citizens becomes a real danger. They'll start with ultra-high wealth individuals, then they will gradually ratchet down the threshold, just as happened with the AMT. I imagine that a low threshold e.g. $2M would be exceedingly difficult to get passed, so they won't start there. A number like $10M is about the minimum I'd expect.

I also don't think the U.S. will "collapse". If you define "collapse" you'll likely come up with a hyperinflation or severe deflation/depression scenario. The PP can handle both of those well enough - and certainly better than your standard stock/bond portfolio.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by blue_ruin17 » Wed Jul 08, 2020 12:43 pm

Hal wrote:
Wed Jul 08, 2020 11:31 am
Marc DeMessel(?) covered what happened to the PP in Iceland during the GFC. Gold did not increase in value to cover the losses in the rest of the PP.
Image

From the article "Permanent Portfolio Rescues Iceland From Total Collapse"
The Permanent Portfolio also got a serious beating. Expressed in euros, 50% of your purchasing power is lost. Also painful, but you still have 146 krona instead of 110 krona like the saver, meaning you have 30% more purchasing power than a savings account. You have 146 krona instead of 72,5 krona for a traditional ‘defensive’ portfolio investor, meaning you now have more than double his purchasing power.

You quadrupled your purchasing power versus a neutral investor with 50% stocks and 50% bonds and fifteen folded your purchasing power versus a traditional aggressive investor with 100% stocks.

The experience in Iceland shows that the Permanent Portfolio is unable to perform miracles. It remains a fact that an Icelander, even with the Permanent Portfolio, can buy a lot less imported goods. However, its relative purchasing power compared to other savers and investors went up considerably.
I guess my question would be, what was the alternative for the Icelander who desired a conservative, defensive investment portfolio? Considering the economic collapse that occurred, I think the Permanent Portfolio preformed quite well. In particular, its ability to preserve domestic purchasing power is highly significant because -- at least for me -- that is the most important factor. You can always do without foreign imports as long as you can still afford food, supplies, and can pay the rent.

Could or should the Icelander have simply invested in a Euro PP? Maybe, but then they'd have to deal with the constant problem of unpredictable foreign exchange fluctuations. Since most people spend most of their money in their home country, this introduces a volatility factor that doesn't actually enhance portfolio performance or enhance risk adjust performance.
"Like a confident pack, a confident portfolio provides both strength in fact, as well as — and this is the part I bet you’re missing right now and the focus of this note — strength in spirit."
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