Inflation, The Hidden Tax - Interview Marc De Mesel

The Voluntary Life did another interesting audio interview with me about true inflation. How much is it? Why do I still estimate true inflation to be at 5% per year in the Eurozone, US and UK? How do you succeed in having 5% per year on your investments so that your capital doesn't shrink in purchasing power? You find the page with the interview here (click there on Podcast Episode).

Investing In Europe: An Interview With Marc De Mesel

The Voluntary Life just did an interview with me. We talk for an hour about investing, the pp, the crisis in Europe, why I also speculate, the real rate of inflation, my criticism on goldbugs, ... .

To listen  click here

Permanent Portfolio Rescues Icelanders From Total Collapse

Icelanders with a traditional 'defensive' portfolio, consisting of only stocks and bonds, destroyed their capital in 2008. Icelanders that had everything on a savings account can buy 3 times less. The Icelander with a permanent portfolio however was relatively well protected and can now buy 40% more real estate.

The permanent portfolio consists of 25% stocks, 25% bonds, 25% cash and 25% physical gold. The Icelandic government was on the verge of bankruptcy, giving government bonds a serious blow. Stocks and corporate bonds completely imploded while inflation exploded due to the currency collapsing in value. No better scenario imaginable to test if the permanent portfolio protects you even in such disastrous economic climates. We will study how the 4 assets in the permanent portfolio performed.

The returns for Icelandic stocks for 2008 speak for themselves:

American or European Permanent Portfolio?

Since 1999, the American permanent portfolio did not have one negative year and averaged 6.9% per year, while the European permanent portfolio had 3 negative years and averaged only 5.4% per year. However, for a European, the European permanent portfolio did give more stable as well as higher returns than the American permanent portfolio.

The results of the American permanent portfolio in U.S. dollars are excellent. While there has been a dotcom and credit crisis passing by, the portfolio did not return one negative year and gave a 10 year total return of 95%, averaging 6.9% per year (Table 1). An American, with an American permanent portfolio, had very stable and respectable yields and can be satisfied.

Table 1: American Permanent Portfolio Returns 1999-2008

Source: Craig's Crawlingroad.com

But suppose that you invested in an American permanent portfolio as a European from a Eurozone country, how were your results then? Well, obviously you do your conversion to euros to see what your true return was from your American permanent portfolio.