investing help

I hope it wasn't me that you quoted because I've tried to convey that commodities have a time and place, but it isn't always the right time to own them. Maybe the quote was relating to commodity futures investments over the long run, which have not done well for the vast majority of investors. One thing to consider by looking at history is that unsustainably high and growing debt levels are frequently resolved through deflation and not inflation. That is why I've been saying that there is a 50/50 chance of inflation or deflation. The outcome depends on a policy decision that hasn't been made yet. It seems just as likely to me that the government and Fed will find a clever way to default on the debt without making it look like a default, and cash will be king in such an environment. Hyperinflation is one outcome, but not the only possibly outcome or even the most likely one. In the future, gold might do well, real estate might do well, stocks might do well, bonds might do well [but this seems less likely] or cash might turn out to be the best holding. The oldtimers used to say buy stocks when there is blood in the streets. We are pretty close to that scenario right now.

 

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Wow! I'd love to see a photo of that! Depending on how things work out, you might also be able to sell the movie rights.

 

Looks like a fit graph to me. I posted earlier how I did a study proving the price of avacados drove the price of US stocks. Without identifying a relationship anyone can force two trends on a graph, by changing slope, start points, etc, to appear to track each other.

 

Even this isn't good advice anymore. Anyone who has done this would be at a net loss now over the past 15 years when the opportunity cost of the money is also subtracted. In the past 11 years, it is a flat out loss. 15 years is considered 1/2 of a lifetime working career in regards to 401K investing. (admittedly the 30 year career isn't realistic for many now.)

Until the stock market is returned to something that resembles industrial output then even the major stock indexes are a very risky venture now. Before the Federal Reserve started the QE nonsense in 2009 but after the credit bubble had popped, the S&P 500 had dropped to ~650. This would be my bench for it's true value. Now that we have had QE1, QE2, and endless other paper scams being put forth to save the banks, it's hanging around 1200+. This is a 100% change in just 2 years in an economy that is otherwise failing. How can anyone justify a 100% run-up of this index while millions of middle class have been made unemployed, there are record numbers of people on food stamps, the real economy is failing to employ the willing worker, and inflation (real inflation) is rising.

In other words the equities markets are being driven by the attempts to create a perpetual motion machine by the finance industry and this is nothing that anyone should consider letting run on autopilot. There is no longer anyway to judge it based on traditional metrics as the federal government and federal reserve have made it impossible to judge risk. It's the ultimate failure of centrally planned economics.

People invest in gold as a hedge against this mess. People will have to decide for themselves if this makes sense for them or not given their own set of life cycle situations. However it should be clear enough the advice that "stocks have always done well", and that because stocks did well in the vast unsustainable credit run-up, they will do it again in the future is nonsense. IMO, there is everything to suggest that once these experiments in QE and other voodoo economics have exhausted themselves, it won't look pretty for equities.

 

We will differ of course on our outlook on equities, but the overarching point I would wish to make is that if you are an average investor you really do need to diversify. Thanks to buying loads of silver at $4 I have not really needed to add to my PM percentage of my portfolio. However, I view some exposure to PM or commodities to be valuable in a portfolio, just as I believe some exposure to equities is also needed.

I know its a PM board here, but I would simply caution that maybe the PM bulls are right, but are people really willing to risk their retirement on that one bet? I am not, and neither am I willing to risk it in equities. I am diversified in PM, Real Estate, equities, and some bonds, My comments on PM are "at the margin", meaning not risking retirement by buying or selling, just fiddling with unallocated money. I truly hope many or most here are the same. No matter how passionately you feel about something in Finance, there is always unforeseen items that come up that can make your "slam dunk win" turn into a loss.

Chris

 

No it wasn't you who I quoted. I was responding to numerous posts so I could have been more clear. As to whether we have inflation or deflation I agree that is mostly in the hands of the Fed and whether they decide to continue money creation or not. They have been increasing the M2 supply since August so my guess is that they are opting for inflation whether or not it's labelled QE or anything at all.

I think cash is a good short term play until the European situation comes to roost here in the US. The Fed has already been sending US tax payer dollars to the IMF to bail out Europe so things aren't looking good over there, and US banks own a lot of that debt. If defaults start occurring then it will either be money printing or hiking the debt ceiling, or both to keep the TBTF banks on the up and up (and they're already on downgrade watch by Fitch) which are both good for gold as well as potentially for stocks. I am looking for blood in the streets as well but would consider that more like DOW @ 8000 than what we're seeing lately with the indecisive seesaw action. Anything above 10,500 is bullish for the DOW since that was the previous recent low.

As long as both axises are equidistant for both items being graphed then a directly proportional relationship is intact, which is the case here. I would agree with you if say one item had an axis that went 5, 10, 20, 40 with all the same space between those numbers, where the other item went 5, 10, 15, 20 along the same axis, but this graph is keeping even pace for both items.

Ignoring the graph and just plotting the numbers, we get the points of (Gold, Debt) of (300, 6000), (600, 8000), (900, 10000), (1200, 12000), which is an increase of 300 in gold for every 2000 of the debt celing, for a static relationship of +$3 in gold for every +$20 of the debt ceiling over the last 10 years.

 

Well, one they start at different starting points, a trick used to accentuate the impact of the graph. Secondly, what about my points concerning gold being an international commodity? Why would ONLY US debt be correlated?

I am just saying lots of numbers seem to track together over time. You could also correlate many other things in an inflationary environment to a rising Federal debt. The real question is, WHY do you believe they would correlate? Throwing out a graph showing a relationship may or may not mean a darn thing. That was my main point sir.

Chris

Edit: Go back to the 80's and you would have a negative correlation. Why would that be versus today's positive correlation? Those are the types of questions I would ask before I accepted that the graph meant anything at all.

 

Indeed interest rates are supposed to be the gauge for risk, and it is impossible to gauge it now with them being held at artificially low levels. Even if that weren't the case, it would still be impossible with high frequency algorithms dominating 90% of all transactions unless you somehow knew how each one behaves, and that's not possible either because they compete against each other by having new ones exploit the behavior of the old ones.

 

I'm a numbers guy, not an economist, so I don't have the expertise to answer your question. The trend is what it is over the term it is showing, that doesn't mean it held before then, and that doesn't mean it will hold in the future. That is a matter of speculation. In the 80's there were huge interest rates, unlike the negative real interest rates we have today. So I wouldn't use that as a comparison personally. Obviously the situation is much more complicated than 2 data points, but it does provide some perspective.

 

Contrary to what might seem to be conventional wisdom I am not a fan of Mad Max, and if it were all just for a movie I would certainly find that preferable to the actual reasons. I have never set out to have a particular point of view other than the search for truth. That doesn't mean I always get it right, but in all honestly I would rather be wrong, get corrected, and look like an idiot than go on believing something that is untrue. If it turns out that I am way off base and wasted a bunch of money and end up working until I'm 75 because I'm poor, I'd still be the first in line to throw a party when the economy recovers. I am just reacting to the world as I see it and making what I feel are the best decisions I know how. None of that means I'm right, but I can say that I don't have any trouble sleeping at night.

 

Holy cow, after reading all this I must be screwed. As for pm investing, I just buy a handful of silver now and then or maybe a gold eagle or saint. Why? Because I like owning them, and if I ever need money they can be sold.

Stock picking? Isn't that what my 401k mutual fund managers are for?

 

vehicles are great! but you might want to invest in some gas for them... unless they are just for storage cause the shed out back is full...

I think it's great to be stocked up on food and water for emergencies...earthquake, tornadoes hurricanes...other natural disaster... but in all reality the world isn't going to end...no max shtf...and even if it did by chance...do you really want to be mad max? I get the whole survival thing gotta live, gotta live, GOTTA LIVE!!! but live for what? if the world ends and such... why bother trying to survive alone?

 

lies!!! ALL LIES!!!!

 

Yes. And they send you a "report card" with their performance every quarter with your 401k statement. There is no dowside to using mutual funds for your stock investments. But what you should do is compare how they perform compared to the markets. Like everything else in life, some are good and others not as good.

What I am cautioning against are the folks who believe the stock market is a scam and that anybody who invests in stocks will lose their money. This is uninformed nonsense.

 

For those out there interested in facts, not opinions, I'd just like to point out the following about the above claims. If you take a simple index investment like SPY, it is currently at 122. 11 years ago on this date it was 113, so buying at 113 and earning a 2.5% dividend on the starting value that grows most years produced a profit, not a loss. 15 years ago on this date it was 55, so buying at 55 and earning a 2.5% dividend on the starting value that grows over time also produced a pretty good profit even though you held through the crashes of 2000 and 2008.

This isn't to prove that investing in an index fund is the best strategy [no investment is always best], but it does point out that you are going to read a lot of misinformation on Cointalk about the merits or lack of merits of stock market investing. Watch out for weasle words like "opportunity cost" and the like that are used by the writers to blow smoke in your face and allow them to wiggle out when their feet are held to the fire. It's all there to mislead you.

 

If you invest in one of the major indexes, then by definition, it's simply picked by computer. Anything else, you better do your homework. What happens if the manager screws up and they lose 50% of your investment? Do they give you a guarantee? The system as it is designed now sucks money away from the common person. Do some reading on zerohedge is you want more details.

 

Hindsight is 20/20 and only the naive pick stock based on what happened 11 years ago. This is the same for gold and for stocks. You don't seem to get this as you constantly repeat what happened decades ago as a reason to keep up the same strategy. As explained above, this isn't your father's stock market. It doesn't matter how many times you repeat this mantra, it simply no one should ever used past performance as an indication of the future.

The market has to be judged on current conditions and what happened 11 years ago is irrelevant. These are the facts that should matter to anyone who is getting ready to hand over their hard earned cash to someone else to make money for them.

 

What I am cautioning against are the folks who believe the stock market is a scam and that anybody who invests in stocks will lose their money. This is uninformed nonsense.[/QUOTE]

You are correct, not everyone who invests in the stock market loses money.
But can you tell us what percentage are winners and what percentage are losers?
I am willing to bet that most are losers except for a few who win with an unfair advantage.
We had a stock up here in Canada, Nortel Networks, that went from $124.00 per share to $.39 before being delisted from the TSX. The former CEO did ok, he walked away with $135 million before the company went bankrupt. Needless to say, a lot of simple investors lost huge sums of money.

No, the stock market is not a scam but a legal way of a company taking your money then doing what ever they want with it, usually paying themselves big salaries and bonuses at the investors expense.

 

If you study a bit about markets, you will learn that the best times to invest are when current conditions look bad and stocks are selling for bargain prices. It is you who judge stocks based on what happened 11 years ago. You've decided stocks are a bad investment based on the performance of the past decade. Telling people "this isn't your father's stock market" is a very childish approach to analysis that might sound profound to some but is really meaningless. The investing principles espoused by people like Ben Graham and Warren Buffett will be valid now and 100 years from now. People who buy shares in a sound, growing, profitable business at bargain prices have a very high probability of success over time. This will not change.

 

It is always easy to find a loser to talk about like Nortel. It's just as easy to talk about the big winners like the great Canadian company Imperial Oil. The last decade hasn't been that great, but anybody who stayed in a broadly diversifed portfolio in the US or Canada is probably no worse than even. Look back farther in time and the performance will no doubt improve. Not everyone has the nerves to stay invested in stocks, but anyone at CoinTalk who is comfortable staying in exceptionally speculative investments like gold and silver should be able to handle it.

The point I would like people to think about is this. Is it better to invest in an asset class like stocks that has underperformed the underlying growth in earnings for a decade, or invest in an asset class like PMs that is many multiples higher in price than it was a decade ago?