Brent was presented with a consent form and told that if she refused to sign it she could be held for 35 days or indefinitely until a judge ordered the x-ray. Brent requested to speak to an attorney and to call home. Both requests were denied. The pelvic examination and x-ray revealed the complete absence of drugs.
After a ten-hour delay in her trip, she was returned to the airport. Brent filed suit against nine Customs employees alleging the commission of common law torts and constitutional violations. The court concluded that the decision to stop and search Brent was based on the fact that she shook her head in disapproval on seeing the way Customs officials were treating a black male copassenger. Brent argues that a simple expression of disapproval does not provide reasonable suspicion to justify a search and the court agreed.
The court ultimately held that because Brent had failed to demonstrate that the initial stop did not constitute more than a routine border search, the initial stop did not violate her Fourth Amendment rights. The court, therefore, went on to find the strip search of Brent was unconstitutional.
It is not likely many people would tolerate this kind of conduct and still want to spend money to fly. Although hopefully well intended, the conduct of these U. Customs agents, with hindsight, appears to be way out of proportion to the overall situation even in light of 11 September. Other critics have focused on racial profiling, computerized passenger registries, and cameras that search under clothing.
This group had focused on the fact there had been only two international terrorist acts committed on U. The massive attack of 11 September changed the perceptions of many travelers and reinforced the idea that the overwhelming number of American air travelers appear willing to submit to more technologically superior levels of security intrusion to keep the air travel environment safe from criminals or terrorists. This does not obviate the constitutional issues. Furthermore, since 11 September, former Attorney General Donald Ashcroft had announced, in conjunction with Congressional approval, intentions to empower law enforcement with even broader powers.
Of note, is that future threats may well emanate from within the United States. Post 11 September, dissemination of anthrax via the mail represents a prime example of the possibility of such an The Historical Hijacking Threat and Government Response 17 internal threat. Domestic terrorist groups are proliferating, and international terrorists will still seek to carry their cause to the United States.
It is a clear and present danger that sufficient threat still exists. Concurrently, travelers appear to support the continuation of appropriate security measures. International Perspectives International efforts to combat the problems related to air hijacking have been mixed. Some countries have matched or exceeded the efforts of the Unites States, most notably those in Europe and Israel.
Other countries may recognize the threat but be totally unable to finance any improvement measures. Still others totally disregard the need for adequate security measures and tend to make air travel to and from those countries potentially dangerous. Admittedly, the temptations offered by a specific airport environment to terrorists will fluctuate, and the approaches to counter the threat will vary as well. Additionally, efforts to enforce and adequately make use of existing international treaties will also only progress when the international community is forced to recognize the need.
Unfortunately, different commitment levels on the part of the signatories often limit the effectiveness of international treaties. Divergent interpretations of provisions, various attitudes toward the particular treaty, and the difficulty in appropriately enforcing them also affect the outcome of each effort to utilize the treaties. Overall, countries diverge in perception of the threat. Exposure to a particular threat also differs, and levels of international attention to fluctuating sets of circumstances often change.
Consequently, although well-intentioned, the treaties have often proved to be ineffective. He looked like any other businessman. Only 36 other passengers were on board that day, and the plane was, therefore, only partially filled. Just as the plane was taxiing for takeoff, Mr. Cooper handed a note to the flight attendant telling her to read it immediately. To bolster his demand, he let two of the flight attendants physically see what he claimed was a bomb. In Seattle, WA, the authorities decided to comply.
Cooper received the money and the parachutes, even though the chutes hastily were prepared at nearby McChord, Air Force Base. The hijacker permitted all the passengers and two of the flight attendants to deplane, but demanded the pilot fly on to Reno, NV, despite the fact he had earlier expressed a desire to proceed to Mexico.
When the crew landed at Reno, he was not on board. Miraculously, he allegedly survived after parachuting out over rough terrain. He has never been officially found, although stories abound about both his success and alternatively about his possible death on impact. The FBI reopened the case at the very end of , hoping that improvements in technology would help crack the case.
With the ensuing publicity the incident received, Cooper became a bit of a folk hero, and his legend grows somewhat each time the tale is told. Nonetheless, airport authorities did sit up and take notice of his success and began to take measures to prevent the event from recurring elsewhere. From a certain perspective, this was one of the first and only truly potentially successful hijackings.
Even more deadly threats were soon to be improved on and fine-tuned by international terrorists. Early Federal Aviation Regulations It is generally understood that Federal Aviation Regulations FARs designed to ensure the security of airports serving scheduled air carriers were required to have screening programs.
In other words, air carriers had the responsibility to prevent and deter carriage of weapons and explosives aboard aircraft by potential hijackers. Where applicable, air carriers issued and carried out written security programs, which accomplished percent screening of all passengers and searched all carry-on items FAR Part Conversely, airports serving applicable air carriers are responsible for preventing and deterring unauthorized access to the air operations area and for providing law enforcement support at passenger screening stations.
Basically, FAR, Parts and , required airport operators and airlines to issue a security program incorporating the above procedures. Overall, the FARs set the general guidelines for all security assets and procedures at U. Originally, the amount of security required to effectively deter hijacking was thought to be directly proportional to the size of the aircraft.
This approach took into consideration the relationship between the amounts of publicity the hijacker could receive from the incident and the number of passengers on board; meaning the larger the aircraft the more hostages and the bigger media event.
Therefore, tighter security rules were originally developed for larger passenger aircraft. Commercial aircraft with over 60 seats had the most stringent requirements. Concurrently, Part required the adoption of a comprehensive security program for operations with 31 through 60 seats. Each operator was required to implement its full security program on notification of specific threats by the FAA.
For operators of smaller aircraft, 1 through 30 seats, no security program was required unless passengers had uncontrolled access to a sterile area. The Historical Hijacking Threat and Government Response 19 discharged into a sterile area, provisions had to be made to properly screen the passengers. Carriers controlled access to the sterile area through surveillance and escort procedures or through the screening procedures of another carrier.
This has become a particularly sensitive issue, especially since 11 September. Experts agree that it can be fairly easy to circumvent security procedures at a small feeder airport and later gain access to the sterile concourse at a larger airport. Unfortunately, as recently as March , one small airport in Minnesota had a brand new x-ray screening machine still visible in the terminal in its original box and still not deployed for regular use. Airport Security Programs Where security programs were required by the FARs, both the airlines and the airport were required to have security programs in writing signed by the operators and approved by the FAA.
Controversy has often developed between owners of aircraft that want aircraft secured and operators of a flight school that want easy access for students. On top of proprietary concerns, these smaller airports are far too accessible to the determined terrorist for a variety of reasons. Recent threats of potential biological attacks possibly by use of crop-dusting aircraft are a perfect example. The overall security situation at these facilities still poses a major loophole in a broader aviation security context.
Additionally, the status of the student pilots has become an issue. New Carrier Rules Part It required each certificate holder to adopt and implement a screening system that would detect weapons and explosives in carry-on baggage or on the person of passengers. The provisions of FAR Part Airport Security are related to the control of access to air operations areas by unauthorized persons and ground vehicles. In essence, FAR and FAR addresses issues of criminal violence and aircraft piracy, whereas Part is concerned with the segregation of the public from air operations as a function of operational safety.
Procedures were inconsistent between airlines, and the rush was on to comply with the new rules. How each of these requirements was implemented was varied, depending on the airline. The airlines subsequently had many comments to submit, as was their right under the Administrative Procedures Act.
Many useful suggestions were made based on airline experiences during this first trial and error period. Several other provisions were incorporated after receiving comments submitted as per the original notice of Proposed Rulemaking issued in September. The rules had also undergone considerable review in the year Admittedly, in , after President Nixon issued a presidential decree declaring a renewed emphasis on air security, rules were somewhat tumultuously put into place.
Consequently, the rules were revamped again to reflect the perceived pressure to immediately implement the screening requirements. The new deadline for carrier screening programs was moved up to 8 May Further refinements took place in when Part Part continued to pertain strictly to the airport operator. Due to pressure from the public and concerned government officials, the FAA originally had rushed to implement changes to the FARs. As stated, Part The rules, although not considered by the airlines and airport operators to be totally unnecessary, presented some huge obstacles.
The airlines and airport operators were deeply concerned over the ability to achieve them within the required time frame. Equipment was scarce, the costs were likely to be high, and the airlines were concerned about passenger reactions to the delays. The same situation permeated the industry in light of new rules mandating percent screening by new explosive detection equipment in The development of airport and airline security regulations actually evolved over many years and months.
Aviation bombings and hijackings were rare but represented a significant threat, especially if you are a passenger on board or involved on the ground. In an attempt to reduce the vulnerability of aircraft, implementation of the rules forced air carriers to bear the primary responsibility for applying security measures to passengers, flight and maintenance crews, carryon baggage, and cargo.
Furthermore, originally Section of the former Part specifically required each scheduled carrier to develop and implement a security program designed to prevent or deter the carriage aboard aircraft of sabotage devices or weapons and to prevent or deter unauthorized access to aircraft.
It also required passenger baggage to be checked and cleared in accordance with detailed security procedures, thereby resulting in the security checkpoints now so familiar at airports today. Part formally gave airport operators the responsibility for providing protection against unauthorized access to air operations areas. Furthermore, airports governed by State and local authorities were held responsible for assuming The Historical Hijacking Threat and Government Response 21 duties to maintain a secure ground environment, supported by official law enforcement personnel.
Part specifically applied to Airport Operators and Part pertained to the airline carrier. For example, an emergency order closed a glaring loophole in the law, which had originally excluded smaller aircraft from the screening procedures. After two hijackings of Pacific Southwest Airlines on 5 and 6 July , respectively, the need to expand the screening requirements became self-evident.
At the time, a California man received the unenviable distinction of being hijacked twice in a single trip. This order was to become effective 30 days after issuance, and all carry-on baggage was to be screened for this level of travel as well. Passengers themselves were simply required to show two forms of identification, and those that could not were required to be screened.
At the time, the smaller airlines claimed they were being discriminated against because at the time larger airlines still had not been forced to conduct percent screening of passengers and carry-on baggage. This set of circumstances, of course, would change in the very near future. Additional revisions to FAR Parts , , and , effective in November , filled in other loopholes in the initial rules. The rules increased the number of aircraft operators subject to the security program provisions.
They now included all individuals that enplaned or deplaned into a sterile area and even pertained to certain helicopter operators. The rules also expanded the training requirements for these same aircraft operator security personnel and required them to participate in airport-sponsored contingency exercises. It should be pointed out that general aviation aircraft were not intended to be covered by Part , but these aircraft as well as fixed based operators FBOs were covered as tenants under the rules contained in Part and Part The changes better defined the areas of an airport in which security interests are the most critical.
New Airport Operator Rules The air carriers were not the only entities compelled to quickly provide a safe environment for aviation. In another hurried but necessary move, the FAA gave airport operators only 90 days in which to prepare and submit to the FAA Administrator an entire security plan for the airport facility. Airport operators all over the nation scrambled to comply.
Again the quality of the procedures varied from airport to airport. Some local authorities believed their airport was low risk and did not emphasize the need for real quality programs. Others immediately grasped the need and reacted appropriately.
Unfortunately problems persisted. From the time period December through May , the inspector general of the FAA conducted approximately tests at eight U. In a somewhat shocking discovery, the investigators gained unauthorized entry to restricted areas on 22 Aviation and Airport Security: Terrorism and Safety Concerns occasions. The Inspector General gained access by following authorized employees into restricted areas, riding unguarded elevators, going through unlocked gates and doors, and walking through cargo areas.
Some of the problems that plagued airport operators in the past therefore endure today. The investigators concluded that airport operators and air carriers had not implemented effective access control procedures, that they engaged in improper training of employees, and that the FAA did not coordinate appropriate oversight programs Anderson, History often repeats itself.
Resistance Fades The airlines abandoned the last bit of resistance to percent mandatory screening ironically after two nonterrorist attempted hijackings in October In a twist of fate, the airlines were completely frustrated with the increasing numbers of fleeing felons seeking to escape by acquiring free airline transportation. In one particular case, an airline agent walked down a jetway to secure the aircraft door prior to taxiing and takeoff.
Before the agent was finished securing the door, four late passengers followed him into the jetway and shot him. They also shot at a ramp serviceman, who was motioning to the flight crew and simply caught the attention of the escaping felons. He was trying to advise the flight crew that they had started the engines while the plane was still being refueled. The hijackers turned out to be a bank robber and three murder suspects. They professed no political cause, just a desire for a quick getaway, and the plane appeared to them to be a handy tool to do so.
They controlled the aircraft for almost 30 hours and eventually shot and wounded the copilot. A demand for 10 million U. Of particular note, was that at one point the hijackers wanted the pilot to fly the aircraft into a nuclear facility. This comment alarmed a great many people, particularly the authorities at the Tennessee Valley Authority who were alerted to the threat Brennan, The incident did have a silver lining. Both federal authorities and airline security were unprepared for incidents of this type, and the incidents provided a wakeup call.
At this point, the public, law enforcement, and airline and airport security officials were forced to collaborate on more effective ways to successfully deal with hijackers. In another quickly implemented attempt to curb the tide of both terrorist and simple criminal attempts to commandeer aircraft, the FAA issued two emergency regulations on 5 December One gave carriers 30 days in which to institute a percent search of all passengers and carry-on items, and the other gave airport operators 60 days in which to station at least one law enforcement officer at each passenger checkpoint during boarding and preboarding.
The airlines and airport operators again immediately scrambled to comply. The costs were considered to be prohibitive by the airlines and those entities operating the airports: private, local, and state alike. Local law enforcement often insisted that they had neither the resources nor the desire to accept such responsibility. Many believed hijacking was a federal issue. Consequently, airline and operator response was instantaneous, vocal, and negative.
This was despite the fact they knew that something had to be done. It was the burden of cost that was the critically disputed factor. What entities should actually bear these costs continues as a controversial issue. Regardless of all opposition, the airlines and airport operators attempted to implement the procedures on 5 January Passengers proved to be more resilient and infinitely more patient than the airlines had anticipated.
Somehow everyone survived, and in time, regular routines were established. The process became more orderly and the flow of passengers smoother. The Historical Hijacking Threat and Government Response 23 How to Implement the New Rules Regardless of general acceptance of the threat, not everyone agreed on how to meet the challenges the threat created. They contended that hijacking was a chronic national problem and not an emergency.
In response, they sought to overturn implementation of the new rules on an administrative technicality. They reasoned that the FAA, by not allowing time for comment before issuing the orders, was acting in violation of the Federal Administrative Procedures Act. A federal judge agreed, based purely on the procedural error argument and issued a ten-day restraining order.
Many people believe that the real issue was whether the required law enforcement was to be federal or local and who should pay for the increased security. At the time, the Department of Transportation DOT clearly advocated that law enforcement responsibility remained with local authorities. Although his comments sound like they hold a great deal of common sense, the comparison of a train station, bus depot, and airport is not quite valid, considering the complexity of the airport environment.
Airports differ significantly from other transportation hubs such as bus terminals or train depots. First, airports require considerably more land, and they are generally located quite a distance from the cities they serve. The controversy raged on, but on 12 February , the judge vacated the restraining order, which had earlier been issued purely on an administrative technicality. The court correctly decided that the safety of the traveling public was in jeopardy by failure to implement the regulations Aviation Daily, 13 February Court of Appeals.
At that level, the court ruled that the FAA could continue to carry out the new rules, but penalties were not to be imposed without a hearing if the airport operator cited was making a reasonable effort to comply with the requirement Aviation Daily, 10 February A good faith effort was required in light of the need, and minor infractions could be overlooked for the time being.
Basically, airport operators evidencing the proper efforts to comply were not to be fined. At the time, airline carriers were not only confronted with the gigantic issues of who should pay and who exactly should be in charge of law enforcement, but with other procedural specifics as well. Topics relating to the legality of searches and seizures plagued early compliance attempts. Some airlines had even forbidden employees from performing personal searches of passengers, fearing lawsuits.
Right from the beginning, the airlines perceived the dilemma of having to deny permission to board the aircraft to those passengers that could not be cleared by the available magnetometers, thereby returning their fares, losing their business, and reducing company profits. The airlines were also legitimately concerned over potential lawsuits from intrusive searches from passengers who were not just insulted by the searches, but believed they invaded their personal privacy.
The airlines were correct, and over the years untold numbers of lawsuits would be filed, settled, and litigated at great cost. Jurisdictional issues also continued to arise. Back in , Civil Aeronautics Board Chairman Secor Browne had criticized the program, arguing that airport security should be the purview of federal rather than local responsibility and that the federal government should allocate funds to cover the costs Aviation Daily, 14 January In a cooperative effort, however, the FAA continued to station federal law enforcement agents at airports as part of a regulated FAA security program and the Sky Marshal Program.
As mentioned, consistency was another problem, and early in , the Air Transportation Association sought to work out a single standard security program. In , all but a few of the carriers accepted the program, and today it is mandatory. Public Law 93— By , it became obvious that U. On 5 August , Public Law 93— was signed into law.
The law literally implemented the provisions of the Hague Convention for the Suppression of Unlawful Seizure of Aircraft agreed to by the international community. To give some teeth to the new law, the international aspects of the legislation gave the President some broad statutory authority to regulate international air operations.
In an additional broadening provision, the President also could suspend foreign air commerce between the United States and any foreign carrier that continued air service between itself and a nation harboring terrorists. This broad regulatory power sounds good, but like many things is more complicated and more difficult to enforce than it appears on the surface.
Dissemination of Threat Warnings After 30 years of implementation, some issues, such as the dissemination of threat warnings have still to be completely resolved. The bomb, which detonated in the belly of Pan American Flight over Lockerbie, Scotland, forced authorities to rethink the threat warning issue see Figure 2.
On one hand, the airlines do not want to alarm passengers unnecessarily. However, many passengers believe that they have the right to know when a credible threat is levied against a specific aircraft or airline. In addition, it was later determined that some people within the system knew of the specific threat.
Consequently, the real issue revolves around the idea of whether the right people get the right information when they need it to provide first-rate security. In October , a similar Toshiba radio cassette player-type bomb was found in the possession of the Popular Front for the Liberation of Palestine. A second bomb was discovered inside a Toshiba Boom beat Model in the automobile of a member of another terrorist group.
It contained the same barometric triggering device used in the Pan American bombing. However, at least one important Pan American airline official did not see the bulletin because he had been on vacation. The warning had gone out to all U. Procedures now require carriers to provide written confirmation of receipt of the threat information. How they handle the dissemination of the information is still under debate. The committee, of course, concluded that the United States should pursue a more vigorous counterterrorism policy, which was not a particularly controversial recommendation to make.
The report did document some other suggested changes including the following: The Historical Hijacking Threat and Government Response 25 Figure 2. Two Libyan intelligence agents were eventually tried in a Scottish court in the Netherlands for this terrorist act. Only one was convicted. He was sentenced to 20 years imprisonment. The federal government, not local government, should manage security at domestic airports through federal security managers, obviating any issues of jurisdiction between law enforcement agencies.
The State Department should pursue further negotiations with foreign governments to permit U. The FAA should launch a priority research program to improve technological means to prevent terrorism, placing the costs of research and development on the federal government. Public notification of threats to civil aviation should be made where appropriate. Victims should qualify for special financial compensation.
The State Department must take major steps to ensure that the families of victims receive prompt, humane, and courteous treatment and service from airlines. Some of these ideas sound worthy on paper but would not necessarily be easy to effectuate.
For example, the United States cannot demand that overseas airports comply with U. The art of diplomacy is needed in persuading them of the needs involved. Some are more easily convinced than others. Additionally, public notification is riddled with problems. Who determines if the threat is real and who decides what action to take are really thorny issues that remain unresolved.
Furthermore, the issue of jurisdiction between law enforcement agencies came back to haunt the nation in September Once again the concept of federal managers was openly discussed and now implemented over a decade later. Congress moved swiftly. The act contributed to the successful implementation of many new and innovative security procedures. In the aftermath of the Lockerbie disaster, the White House was eager to show the public that the government was responding to a perceived need.
First, the legislation established a number of new offices and positions. Within the FAA and the DOT, it created a Director of Intelligence and Security as well as numerous federal security manager positions authorized to implement security programs throughout the United States. App By doing so, it also created an assistant administrator of Civil Aviation Security.
This individual became responsible for the day-to-day management of the FAA field security resources. The duties included, but were not limited to, the enforcement of security-related requirements, identification of research and development requirements of security-related activities, and assessment of threats to civil aviation, as well as the inspection of security systems.
You just divide your money into four equal investments in precious metals, stocks, government bonds and Treasury bills. Right away, you can see the relevance of the permanent portfolio to the current debate about whether the global economic growth is increasing or slackening and whether the stock markets are on the cusp of a run higher or a big pullback.
Let's start with the precious metals allocation, which for most investors will mean gold. If global economic growth surges ahead at some point, gold is an ideal hedge against inflation. If the economy falters and we get deflation - that is, falling prices - then government bonds should do well. The Treasury bills are insulation against the kind of all-encompassing financial market disaster we saw in , while the stocks are there to give you a piece of the action when all's well in the markets.
The permanent portfolio is designed to thrive in all conditions, but it's certainly not for all investors. At times like now when interest rates are low, it's a weak producer of income. And while past results indicate that it particularly shines in troubled times, bull markets may not be an ideal environment for this approach. One way to track the returns of the portfolio is to look at a U. But results have been dramatically better both in the past decade, and in the past three years of market upheaval.
As of June 30, the Permanent Portfolio Fund check the latest portfolio report here at bit. Treasury Bill Index. The three-year gain is 6. Those titles came from a man who ran for president in and for the Libertarian Party. If his politics seem a bit out there, Mr.
Browne's views on investing were way ahead of their time. In the s, he wrote a book called Why the Best-Laid Investment Plans Usually Go Wrong that attempted to discredit the idea of a perfectly reliable system, strategy or indicator for successful investing.
The permanent portfolio seems to have been an attempt to impose order on a random financial world, which is probably why it continues to resonate with investors and bloggers. There's an active discussion on the permanent portfolio on the Bogleheads investing forum check it out at bit.
The conceptual simplicity of the permanent portfolio gives way to many interpretations when you try to put it into use. On the HarryBrowne. Treasury bond, American Eagle one-ounce gold coins and one-year U.
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While Harry Browne was an optimist in general — he said that human nature was on the side of liberty — he perhaps underestimated the powerful arguments to be made against central banking. He did not think that talking about the Federal Reserve to non-libertarians was a good way to persuade them towards a more libertarian position. Ron Paul showed otherwise in when his opposition to the Fed was one of his main positions that he emphasized probably second to foreign policy.
The second half of the book may not be timely, but it is still an interesting read. The first 70 pages are just as relevant today as they were then. It is a great explanation of money. If only these 70 pages were read by high school students. Browne went on to write several investment books, as well as a couple of libertarian books, and a self-help book. In terms of investment books, I would still start with Fail-Safe Investing. They are simple but important rules, and it describes the permanent portfolio that I believe is so important for wealth preservation.
I do not actually buy U. They are through funds either ETFs or mutual funds. As I have stated before, it does not do a perfect job of imitating the portfolio, but it is close enough for the convenience. Jeffrey says:. Tight money or recession: A period during which the growth of the supply of money in circulation slows down. This leaves people with less cash than they expected to have, and usually leads to a recession - a period of poor economic conditions.
Deflation: The opposite of inflation. Consumer prices decline and the purchasing power value of money grows. In the past, deflation has sometimes triggered a depression - a prolonged period of very bad economic conditions, as in the s.
Investment prices can be affected by what happens outside the financial system - wars, changes in government policies, new tax rules, civil turmoil, and other matters. But these events have a lasting effect on investments only if they push the economy from one to another of the four environments I've just described.
The four economic categories are all-inclusive. At any time, one of them will predominate. So if you're protected in these four situations, you're protected in all situations. They tend to do poorly during periods of inflation, deflation, and tight money, but over time those periods don't undo the gains that stocks achieve during periods of prosperity. BONDS also take advantage of prosperity.
In addition, they profit when interest rates collapse during a deflation. You should expect bonds to do poorly during times of inflation and tight money. GOLD not only does well during times of intense inflation, it does very well. Gold generally does poorly during times of prosperity, tight money, and deflation.
CASH is most profitable during a period of tight money. Not only is it a liquid asset that can give you purchasing power when your income and investments might be ailing, but the rise in interest rates increases the return on your dollars. Cash also becomes more valuable during a deflation as prices fall. Cash is essentially neutral during a time of prosperity, and it is a loser during times of inflation.
Any attempt to be clever in assigning portions to the investments probably will do more harm than good. The only maintenance required is to check the portfolio's makeup once a year. During the year, if you happen to notice that there's been a big change in investment prices, you may want to check the values of the investments.
The test of a Permanent Portfolio is whether it provides peace of mind. A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity. No actual or threatened event should trouble you, because you'll know that your portfolio is protected against it.
You'll know that your Permanent Portfolio will take care of you - even if next year turns out to be revisited. The deflation that could devastate stocks would push interest rates downward and bring big profits for your bonds. You'll know that the gain in your Permanent Portfolio's gold would far outweigh any losses on the bonds.
When someone announces that a new debt crisis is on the way, or that a bull market is about to begin in stocks, bonds, or gold, you won't feel pressured to decide whether he's right. You'll know that the Permanent Portfolio will respond favorably to any eventuality. I can't list every potential event. So if you become concerned by any possibility, reread this chapter and you should be reassured that there's an investment in your Permanent Portfolio that will cover you if the worst should occur.
Whatever the potential crisis or opportunity, your Permanent Portfolio should already be taking care of you. The portfolio can't guarantee a profit every year; no portfolio can. It won't outperform the hotshot advisor in his best year. And it won't outperform the best investment of the year. But it can give you the confidence that no crisis will destroy you, the assurance that your savings are secure and growing in all circumstances, and the knowledge that you're no longer vulnerable to the mistakes in judgment that you or the best advisor could so easily make.
If you keep some assets in a different country, you'll be less vulnerable, and you'll feel less vulnerable. You won't have to worry so much about what your government might do next. Keeping some investments abroad provides safe and easy protection against surprises that might happen anywhere - confiscation of gold holdings by the government, exchange controls, civil disorder, even war.
No one knows how the people elected in the coming years might choose to solve the economic problems the country will face. It might strike them that the quick and easy solution is to take your property - as has happened so often already. Your assets will be safe even if war, civil disorder, a weakening of law enforcement, or a physical catastrophe should disrupt record-keeping in your own country.
Your entire estate will no longer be vulnerable to economic, political, or legal setbacks in your own country. Geographic diversification is a necessary part of making sure the Permanent Portfolio can handle whatever hazard materializes. With tax deferral, the money you don't pay in taxes today can work to produce more earnings every year until you finally have to pay the tax.
Are other investments in your portfolio likely to take up the slack by gaining in those same circumstances? Under what circumstances could my entire investment be lost? Would I have any residual liability - that is, can I lose even more than the cash I invested? Interest rates generally reflect an investment's risk. A higher interest rate means there's a greater possibility the capital can be lost - through default or inflation.
Under what circumstances, if any, is the investment likely to appreciate? Under what circumstances, if any, is the investment likely to depreciate? In good circumstances for the investment, will the overall return - yield plus capital appreciation - help your portfolio overcome losses in other investments? If the investment is a mutual fund, you want the fund with the lowest yield - other things being equal.
Any dividend paid by a mutual fund simply reduces the price of your shares "Is this company a potential takeover candidate? By going against the crowd, you buy when an investment is out of favor and cheap; if it does succeed, there's a long way for it to go up. So the most important factor in speculating is whether you expect something that most people don't expect.
For example, the time to consider buying inflation hedges speculatively is when most people believe inflation is under control. The time to consider buying a particular company is when everyone knows what a dog it is - not when everyone talks about its great promise. Unpopularity doesn't guarantee profits, but you'll never make a killing with a popular investment.
Without a plan, you will be tossed and turned by all the conflicting ideas you read and hear- - and you'll never ask the right questions. With a plan, you'll have a basis for evaluating whatever you hear. You'll know to ask the questions that help you determine whether an investment furthers your plan.
If you stay within that amount, you can feel free to blow the money on cars, trips, anything you want - without worry, because you'll know you aren't blowing your future. People rarely go broke playing it safe. But many go broke taking great risks or making investments they know too little about.
If you're hesitating, it's because you don't yet know enough about the investment or the problem to make a confident decision. That means you shouldn't take the plunge until you know more and you're sure you understand all the ramifications. The premise for speculation is that you're more astute than most other investors - that you understand the market better, that you have information not available to other investors, that you can make better decisions, or that your interpretation of available information is especially perceptive.
The elements of speculation are timing, forecasting, trading systems, and selection. Any time you use any of these tactics you're speculating. Investment forecasts can be exciting. But in other areas of our lives, we think of fortune-tellers as entertainers. Forecasts are not entirely useless. Someone's predictions can help you recognize that your own expectations for the future aren't the only possible outcome. This can help keep you humble and prudent. If you come to feel a given event is quite possible but most people disagree with you, the market probably will provide a big payoff if you bet on that event and prove to be right.
So if you like to watch the investment markets closely and you see a potential future that most people are ignoring, you may want to make a small speculation with money you can afford to lose. A sure way to lose what you've accumulated is to risk the funds that are precious to you on the idea that some event is inevitable. You can protect yourself against the possibility of institutional crisis by using more than one institution.
You can protect yourself against the failings of individuals by relying only on yourself. And you can protect yourself against investment roller coasters by diversifying across investment markets. For the bond portion, you don't want to have to monitor credit risk, so buy only U.
Treasury bonds. So long as the U.
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The Permanent Portfolio: Author Interview With Craig RowlandBETBOO 513 SPORTS LIVE BETTING BET
I was lucky enough to meet him in person before he left us. He was very influential for me in both political libertarian philosophy and investment philosophy. While the best part of his book Fail-Safe Investing is the description of the permanent portfolio, I would like to emphasize that there are other key basic points in this book that should not be overlooked.
Some of them are seemingly obvious, yet it is surprising how many people violate these simple things. He breaks the book into 2 parts. Here are just a few of the rules, although they are all important in some way. This is where he describes the permanent portfolio and the importance of diversification to protect your investments in any economic environment. He is recognizing that economics is based on human action.
Human action will determine which investments go up and down. It is the decisions of millions of people every day that drive the markets. While he said that he basically got lucky in this prediction, I think he did have a good understanding of central banking and the financial markets, and his prediction was nothing more than a good prediction of human action — in this case, that politicians would continue to spend money and run up deficits.
There was no way the U. While Harry Browne was an optimist in general — he said that human nature was on the side of liberty — he perhaps underestimated the powerful arguments to be made against central banking. He did not think that talking about the Federal Reserve to non-libertarians was a good way to persuade them towards a more libertarian position. And they fit into four general categories: 1. Prosperity: A period during which living standards are rising, the economy is growing, business is thriving, interest rates usually are falling, and unemployment is declining.
Inflation: A period when consumer prices generally are rising. Tight money or recession: A period during which the growth of the supply of money in circulation slows down. This leaves people with less cash than they expected to have, and usually leads to a recession - a period of poor economic conditions. Deflation: The opposite of inflation. Consumer prices decline and the purchasing power value of money grows.
In the past, deflation has sometimes triggered a depression - a prolonged period of very bad economic conditions, as in the s. Investment prices can be affected by what happens outside the financial system - wars, changes in government policies, new tax rules, civil turmoil, and other matters.
But these events have a lasting effect on investments only if they push the economy from one to another of the four environments I've just described. The four economic categories are all-inclusive. At any time, one of them will predominate. So if you're protected in these four situations, you're protected in all situations. They tend to do poorly during periods of inflation, deflation, and tight money, but over time those periods don't undo the gains that stocks achieve during periods of prosperity.
BONDS also take advantage of prosperity. In addition, they profit when interest rates collapse during a deflation. You should expect bonds to do poorly during times of inflation and tight money. GOLD not only does well during times of intense inflation, it does very well. Gold generally does poorly during times of prosperity, tight money, and deflation. CASH is most profitable during a period of tight money. Not only is it a liquid asset that can give you purchasing power when your income and investments might be ailing, but the rise in interest rates increases the return on your dollars.
Cash also becomes more valuable during a deflation as prices fall. Cash is essentially neutral during a time of prosperity, and it is a loser during times of inflation. Any attempt to be clever in assigning portions to the investments probably will do more harm than good.
The only maintenance required is to check the portfolio's makeup once a year. During the year, if you happen to notice that there's been a big change in investment prices, you may want to check the values of the investments. The test of a Permanent Portfolio is whether it provides peace of mind. A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity.
No actual or threatened event should trouble you, because you'll know that your portfolio is protected against it. You'll know that your Permanent Portfolio will take care of you - even if next year turns out to be revisited. The deflation that could devastate stocks would push interest rates downward and bring big profits for your bonds. You'll know that the gain in your Permanent Portfolio's gold would far outweigh any losses on the bonds. When someone announces that a new debt crisis is on the way, or that a bull market is about to begin in stocks, bonds, or gold, you won't feel pressured to decide whether he's right.
You'll know that the Permanent Portfolio will respond favorably to any eventuality. I can't list every potential event. So if you become concerned by any possibility, reread this chapter and you should be reassured that there's an investment in your Permanent Portfolio that will cover you if the worst should occur.
Whatever the potential crisis or opportunity, your Permanent Portfolio should already be taking care of you. The portfolio can't guarantee a profit every year; no portfolio can. It won't outperform the hotshot advisor in his best year. And it won't outperform the best investment of the year. But it can give you the confidence that no crisis will destroy you, the assurance that your savings are secure and growing in all circumstances, and the knowledge that you're no longer vulnerable to the mistakes in judgment that you or the best advisor could so easily make.
If you keep some assets in a different country, you'll be less vulnerable, and you'll feel less vulnerable. You won't have to worry so much about what your government might do next. Keeping some investments abroad provides safe and easy protection against surprises that might happen anywhere - confiscation of gold holdings by the government, exchange controls, civil disorder, even war.
No one knows how the people elected in the coming years might choose to solve the economic problems the country will face. It might strike them that the quick and easy solution is to take your property - as has happened so often already. Your assets will be safe even if war, civil disorder, a weakening of law enforcement, or a physical catastrophe should disrupt record-keeping in your own country. Your entire estate will no longer be vulnerable to economic, political, or legal setbacks in your own country.
Geographic diversification is a necessary part of making sure the Permanent Portfolio can handle whatever hazard materializes. With tax deferral, the money you don't pay in taxes today can work to produce more earnings every year until you finally have to pay the tax. Are other investments in your portfolio likely to take up the slack by gaining in those same circumstances?
Under what circumstances could my entire investment be lost? Would I have any residual liability - that is, can I lose even more than the cash I invested? Interest rates generally reflect an investment's risk. A higher interest rate means there's a greater possibility the capital can be lost - through default or inflation. Under what circumstances, if any, is the investment likely to appreciate? Under what circumstances, if any, is the investment likely to depreciate?
In good circumstances for the investment, will the overall return - yield plus capital appreciation - help your portfolio overcome losses in other investments? If the investment is a mutual fund, you want the fund with the lowest yield - other things being equal.
Any dividend paid by a mutual fund simply reduces the price of your shares "Is this company a potential takeover candidate? By going against the crowd, you buy when an investment is out of favor and cheap; if it does succeed, there's a long way for it to go up. So the most important factor in speculating is whether you expect something that most people don't expect.
For example, the time to consider buying inflation hedges speculatively is when most people believe inflation is under control. The time to consider buying a particular company is when everyone knows what a dog it is - not when everyone talks about its great promise.
Unpopularity doesn't guarantee profits, but you'll never make a killing with a popular investment. Without a plan, you will be tossed and turned by all the conflicting ideas you read and hear- - and you'll never ask the right questions. With a plan, you'll have a basis for evaluating whatever you hear.
You'll know to ask the questions that help you determine whether an investment furthers your plan. If you stay within that amount, you can feel free to blow the money on cars, trips, anything you want - without worry, because you'll know you aren't blowing your future. People rarely go broke playing it safe. But many go broke taking great risks or making investments they know too little about. If you're hesitating, it's because you don't yet know enough about the investment or the problem to make a confident decision.
That means you shouldn't take the plunge until you know more and you're sure you understand all the ramifications. The premise for speculation is that you're more astute than most other investors - that you understand the market better, that you have information not available to other investors, that you can make better decisions, or that your interpretation of available information is especially perceptive.
The elements of speculation are timing, forecasting, trading systems, and selection. Any time you use any of these tactics you're speculating. Investment forecasts can be exciting. But in other areas of our lives, we think of fortune-tellers as entertainers. Forecasts are not entirely useless. Someone's predictions can help you recognize that your own expectations for the future aren't the only possible outcome.
This can help keep you humble and prudent. If you come to feel a given event is quite possible but most people disagree with you, the market probably will provide a big payoff if you bet on that event and prove to be right. So if you like to watch the investment markets closely and you see a potential future that most people are ignoring, you may want to make a small speculation with money you can afford to lose.
A sure way to lose what you've accumulated is to risk the funds that are precious to you on the idea that some event is inevitable. You can protect yourself against the possibility of institutional crisis by using more than one institution. You can protect yourself against the failings of individuals by relying only on yourself. And you can protect yourself against investment roller coasters by diversifying across investment markets.
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