Investing For The Far Off Future

I agree. Everything looked "easy" for tech stocks in 1998, everything looked "easy" in San Diego real estate in 2006, etc ad finitum. I remember tons of books and stories of people bragging how brilliant they were because they had made tons of easy money, they had leveraged every cent into 8 houses in San Diego, and felt sorry for all of the stupid people who weren't as smart as they to do the same thing.

Its just really easy deep into a bull market to believe "this time its different".

 

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With respect, I think that this is far too general a statement. Most gave in to their desires to own something they could not afford, and far extended their financial reach. It is popular to demonize banks, but most of the action falls on people's own responsibility, but yet people no longer seem to want to accept that responsibility.IMO.

 

Of course. Implicit in my statement was that it was the parents and grandparents decision to do this. They were not forced. The system wants people in debt. Hence the creation of the 30 year loan, tax incentives for taking said loan, 2nd mortgages operated as revolving credit, credit cards, 60 month auto loans, you name it. In comparison there are no rewards, like there once used to be, for people to save. The money gets eroded away by monetary inflation and taxes. The law even punishes you if you access the money more than 6X/month.

At the macro level, it's exactly opposite how one would want an economy to operate unless you are a banker.

 

Nothing lasts forever, including this PM bull market, but as I've stated before this has everything to do with interest rates and money supply. Those are the factors that have propelled it this far, and they will continue to do so in the same environment which has been committed to by zero % interest rates for the next 2 years at least. As I stated gold inversely tracks the dollar, that is gold's primary function, and this environment is inflationary which is bullish for both precious metals and equities. Both markets will benefit due to these policies at the expense of currency debasement. There is nothing speculative about that determination. It is based on proven cause and effect.

 

I think that is oversimplification. Gold has historically done well and poorly when interest rates and the dollar were both high and low. Fundamentals count, but so does fashion, and in the case of commodities, price in relation to cost of production. I've probably read as much as the next CoinTalk member about the PM market, and I have no idea when or how the present bull market will end. From watching other bull markets, I'm pretty sure the price will start to fall before the fundamentalsfor gold turn negative. I just hope I can figure it out in time to keep most of my gains. There are new buyers arriving here every week without quite realizing that they are coming very late to a very good party. They need to know that.

 

Do you have any reason for thinking that the hour is late in this party other than that there have been substantial gains? Bonds are in a 30 year bull market, precious metals are barely over a decade. Maybe we've already seen the top, but maybe it will go on for another 20 years. This is why I prefer to look at the underlying reasons for change instead of most anything else. Time and price are not relevant to what moves will happen in the future. Valuation certainly may, but that isn't the same as price as you have pointed out elsewhere. Additionally, this is really not a PM bull market, it is a currency bear market and PM's react accordingly. Until currency is not being debased PM's and stocks will continue to rise as buying power decreases, but debasement has been committed to for 2 more years so I find it hard to think the bull market will end before that unless we get a new currency altogether.

 

Gold has only been legal as an investment by Americans since 1971 and because the USD was pegged internationally to the $ at $35/ounce prior to that, its role was limited elsewhere. So this means that in terms of gold as an investment as it is being used today, this market has only existed 41 years. In this 41 year period there have been two bull markets for gold. The first started in the 1970s when gold was first legal to own again and the artificial peg was removed. It shot up quickly as people looked to escape Nixon's horrendous wage & price controls, two oil shocks, & inflation. That bubble was popped when the Federal Reserve, very responsibly popped that bubble by raising interest rates ultimately to 20%.

The 2nd, and only other gold bull market, is the one we are in now. I don't think the reasons for this market have anything to do with the first as it has to be obvious the economy of today is much different than that of the 70s. Namely we moved from a production economy (wealth creation) to a consumption economy (wealth destruction). So there is no precedent from the past that is a reflection of what we are seeing now. This means that the ONLY way for anyone to say when this bull market might end, is to fully understand why it exists now. The past is no guide. Conclusion. IMO, there is absolutely no reason to believe it might last another decade or longer because the conditions that created it are still with us and getting worse.

 

Gold is already substantially higher than the total cost of production, and that would indicate to me that it has probably caught up to the inflation that occurred while it languished in a 20 year bear market. It's a different creature than a bond. I think bonds are very overvalued. While there is no reason why gold can't continue to rise for 20 more years, the odds are heavily against that sort of bet. There are always good reasons for a bull market. The reasons for its end are rarely apparent until well after it ends. Don't get me wrong. I like gold, own it, and believe that the probability of substantial gain ahead outweighs the probability of loss [otherwise I wouldn't own it]. This might occur in the form of a blow-off top similar to NASDAQ in 1999. But when people come in here and say things like "Is this the time to buy gold? I'm planning on loading up and holding for retirement in a few decades," it is irresponsible to encourage those folks. They need to understand the downside, and there is substantial downside risk for a long term investor. I suppose it is possible that the US will have a currency crisis, but I also believe that most people way underestimate the Federal Reserve and US Treasury ability to manage the currency -- so it seems to be a very low probability bet to me.

 

In my opinion, it's guaranteed.

Printing money = weaker dollar = higher gold.

 

Whatever you do DO NOT invest 100% in the stock market. Quick way to lose alot of money. I can understand dabbling a bit here and there in bond/realestate, but right now you have the right idea- get silver while its still relatively cheap. It will never be at $32 an ounce agian. Take advantage.

 

So those who said Bank of America was a real mistake, going under, worthless in December ( about $5.00 on Dec 20) were the right ones to follow and it was a bad case ? Go back and look in the old threads to see who said that ( many are posting the same crud in this thread about stocks ). Now BAC is 7.45, a gain of almost 50% and probably a gain exit point. Making Gold look the best it can , lets use the low of 1524 on 12/29 and see it today at 1762. Respectful indeed , but a gain of 15.6%.

If you are investing to increase your financial situation, you need to use many different instruments and not fall in love with any of them. Buy when appropriate, but sell when you reach the gain exit point or the loss exit point. Do not fall in love with stocks, nor with gold. If you are in love with the glitter rather than your account balance, follow your lust and ignore better choices. As in life, you will probably be disappointed in the end. Best wishes.

Jim

 

Thanks Jim. I doubled my admittedly fairly small BAC position at $5.11 I think. I told no one to listen to me, as it was possibly a riskier investment.

No one knows where the next increase will be, I have done fairly well with my stocks the last month, well more than 15%, and collecting dividends on top of that, all the while reading endless posts on how only PM is worthy of my investment.

Chris

 

Not necessarily. Remember that printing money [supply] will only make the value of the dollar drop if it is greater than the demand for money. And with all of the debt in the economy, both public and private [plus derivatives], the demand for money is enormous. Keep in mind that debt is deflationary, not inflationary because more and more money is needed just to service the debt. I'm not saying this is good, or normal, or a proper way to run things. But we might not see the weaker dollar and higher gold prices that people expect with linear reasoning because the entities and people in debt need ever greater amounts of cash to service it, and that is what is soaking up the new supply.

 

I must say , I didn't as I had picked up more NLY, as now that interest rates do not appear to be increasing any time soon, that their dividend as a REIT is fairly solid ( now 13.5% since the price of the stock has increased). Much better than money in a saving account You did well with your pick. Do you think the basis for holding the BAC still are valid?

Jim

 

Long term its "decent". Actually I was trying to move away from financials and into a couple of other areas, but I still think BAC, C, and AIG are long term buys. I simply do not think the pressures reported are as bad as being reported, and believe their BS are strong enough to grow out of it. By the time most wake up to this, they will be higher than today. Basically, these stocks don't need good news to move them up, they simply need less bad news. I like stocks in that position.

Just my opinion, and please no one follow it.

 

I believe you mean for no one to follow without similar research of their own before they follow it. BAC has gone up enough that I would be worried a little I do think there will be a rather strong correction of both the stock market and commodities before June ( likewise, IMO ).

 

It proves what I said about this bank and stock investing in general. There is absolutely no way to evaluate risk or judge a stock based on its reporting. Any stock that changes value, especially a bank stock by 50% in 1 month, should be worrying. In December, not one person here was willing to call something like this because they had absolutely no idea. The Fed has announced QE2.5 and that money is going to prop up the banks.

I also said previously that the US Treasury & Federal Reserve absolutely wont let BAC fail right now. This is because the DNC will be holding it's convention right at the base of BAC's HQ skyscraper in Charlotte. (literally) Obama plans to give his speech in none other than Bank of America Stadium (you think they might have given this more thought). They will pull out all the stops to keep this bank going.

I was proved right. My advice is that if someone wants to gamble in this sort of environment, have at it. I don't think this includes most bullion buyers.

 

The constantly repeated story about gold is that it bought a toga in ancient Rome, and it buys a nice suit today. I don't see any issue with holding gold for decades if your goal is wealth preservation. If the goal is to have your money work for you, then there are probably other better performing, but riskier options. I still think both gold and silver are less risky than any IOU assets.

I am ultra bullish on silver in most any scenario imagineable though. It cannot be replaced in the vast majority of its applications which are essential for our current way of life without quality degredation, and is decreasing in abundance both above ground and below ground. I have almost no gold because I like the silver story so much better. I anticipate silver to require substantial gains in the coming years in order to maintain demand requirements.

 

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Cloud, I don't see it that way. Banks can't give away mortgages at 3.8% and corporations are flush with cash and just sitting on it. No one wants to take risks. Trading volume is at 12-year lows. QE3 is gaining momentum because they think it will get cash moving in the housing market.