06-Oct-08 
EWR Bulletin    Bulletin Index

Special Bulletin, #2

By Richard J. Maybury
Copyright © 2008 by Henry Madison Research, Inc.
www.richardmaybury.com
1-800-509-5400, Fax 602-943-2363

6 Oct 08

Dear Reader,

Close friends and family often ask me questions about the economy and similar matters, and the answers I give them are the answers I give you.

They are very worried, and wondering about the safety of their money, especially the Permanent Portfolio and Variable Portfolio. Here's what I have been telling them.

First, review the April 2008 EWR, which was designed to prepare you for the present situation. So far, it's right on target, I wouldn't change a word.

Regarding the Variable Portfolio, as I have said many times, it is for speculation, your gambling money. The Variable Portfolio isn't designed to weather storms, it's designed to earn big profits, and so it is necessarily very unstable.

As I said in the April EWR, if the Variable Portfolio has you worried, you've put too much in it, and should be thinking about selling most or all of it.

Regarding the Permanent Portfolio, it's designed for safety, to experience no more than a small annual loss no matter what happens - inflation, deflation, recession, depression, war, you name it.

However, economics is far from an exact science, which means no mix of investments can be perfectly balanced to give equal protection for both inflation and deflation. The mix must be biased in one direction or the other.

When Harry Browne invented the Permanent Portfolio strategy in the 1970s, he had to choose which bias he would use, and he chose inflation. I think that was a very wise choice, and I still agree with it completely. To me, the evidence is overwhelming that no matter what kind of deflationary conditions we experience, inflation remains the underlying long-term trend.

According to the government's own Consumer Price Index, during the 94 years the Federal Reserve has been in charge of protecting the value of the US dollar, the dollar's value has fallen to 5¢.

If it falls the other 5¢, it will be worthless. It won't buy anything.

We are presently in a crisis that is deflationary, which means the Permanent Portfolio has been falling. That's disconcerting, but I still don't know any other plan that would be as robust, considering the wide variety of dangers we face.

One of the most important dangers stems from the fact that the present panic smells more and more like that of 1929, which led to the Great Depression.

Economic folklore says that the reason the Great Depression happened was that the Federal Reserve did not inflate the money supply enough. This is what nearly all economists and Fed officials believe, and it's what Fed chairman Bernanke was alluding to when he said he was always ready to drop money from helicopters.

As the deflationary crisis worsens, Bernanke and the other Fed officials are certainly feeling great pressure to inflate even more than they already have, and - my key point - knowledgeable investors all over the world know it.

At least three trillion US dollars are held abroad, and each of the Fed's injections of new dollars makes the holders more nervous about hanging on to them.

All these dollar owners are certainly watching closely to see if the government of China or some other big holder lunges for the door.

If just a rumor of one of these big holders dumping dollars gets started, we could easily see a global panic to escape from the dollar. The value of the dollar could drop 50% or more overnight, as a runaway inflation is triggered by a rise in velocity.

Fed officials are certainly well aware of this, which means, who knows, they might decide to tighten and give us a genuine depression. In that case, you will be very thankful for the government bonds in your Permanent Portfolio.

If you haven't reviewed Harry Browne's little book FAIL-SAFE INVESTING, which explains the Permanent Portfolio and Variable Portfolio strategy, I suggest you do so.

The bottom line: I have not sold even one dime of my Permanent Portfolio, and I have been gradually dipping my toe in the water buying precious metals and precious metals stocks for my Variable Portfolio.

Also, if you haven't yet updated your emergency supplies, I suggest you do so immediately. If stores cannot roll over their loans, they can't buy more inventory. In my opinion, you should have a minimum of one month's supply of food, medicines and everything else you need to be comfortable. Three months would be better.

Perhaps the thing I'm most sure about is, this is only the beginning. Fasten your seatbelt, this might be the wildest ride of your life. But it won't last more than a few years, and there may be a new and amazingly better world on the other side. (More about this in the November Early Warning Report.) We at EWR will continue doing all we can to get you through this difficult time with as little discomfort, and as much profit, as possible.

--Richard Maybury

P.S. Between October 1 and October 15, LDP Camping Foods (www.ldcampingfoods.com) offers 25% off on their Mountain House products.

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