My Wife’s Jewelry Is Getting Really Expensive!

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tomfoolery
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My Wife’s Jewelry Is Getting Really Expensive!

Post by tomfoolery » Sat Jul 25, 2020 4:48 am

Post title is homage to Bogleheads forum.

Looking at charts of Sp500 in terms of gold over time, there’s a few short periods where the sp500 has actual gains in terms of gold, specifically the post ww2 era, the dot com crash, and the post GFR recovery. Yet, after each of those three blips in time, the market, in terms of gold, goes back down and essentially makes zero money compared to gold.

This is surprising to me because I grew up reading Bogleheads and only learned of PP from CraigR’s famous post there spanning hundreds of pages of people who only like gold in their wife’s jewelry and saying gold is just a rock that sits there and does nothing while businesses perform business.

What does it mean when businesses don’t outperform rocks? Does it mean the capital invested in those businesses is used up solely to create products for society and to create jobs for people but effectively break even with inflation and money printing?

If so, does it mean we need to keep the money printer going Brrrrrrr to incentivize people to invest capital in businesses since matching inflation is the best they can hope for and we give stocks a 15% tax rate but gold a 28% tax rate so if you want to break even with money printing on an after-tax basis, invest in businesses not rocks?

Does it mean government regulation has absorbed the potential for profits beyond inflation? Such that protecting the environment and racial diversity in the world place, which comes at a negative cost to the business, Is sucking dry profits so all we do is break even? We know these regulations have a drag on profits. otherwise they’d be doing it without government mandate at gunpoint, if it was the best way to run a business and maximize profits.

Is it possible to hit a point where government regulation is so onerous, that rocks are a better investment than business? Imagine a bigger government than we have today. One that regulates everything in the business down to making sure the paper clips in the dispensers are of an allowed quantity. For example, never allowing 13 paper clips in one bunch because it’s unlucky and thus requiring several full time employees to be on paper clip counting duty.

And if we can imagine a government where regulations are so onerous as to deplete every penny of profit, and the only reason the business still functions is because losing $X per year on a net basis, when factoring in economic gains minus costs of paper clip and diversity inspectors, is less of a negative loss than $Y if you divested the business and sold the machinery for scrap since no new entrants to this market exist, because there’s no profits to be made.

Yes, we can start a business in 2020, pay licensing fees to governments, meet regulatory criteria for HR, the EPA, transgender handicap bathroom stalls, etc and still make a nominal profit on our investment. But, are we making a profit in real terms of money buying ability? Or are we just breaking even with real inflation? CPI is a bull crap metric. Housing is over half of our expenses and it’s been going up 10% per year in most major cities the last decade. Healthcare is 20% of our costs and it’s going up 10%+ each year. Where does the 2% inflation number come from? Not from reality.

What if we are there now or rapidly approaching that point? Where it’s simply not profitable to run a business while attempting to meet government paper clip mandates and all the rest? What happens then? Do investors simply exit the stock market and buy rocks to store under their bed?

Does the government step in and print more money to offer incentives to businesses to keep going, so that the loss of $X per year is offset by the $2x payment government stimulus is providing. Which of course triggers higher inflation, thus making the business still be unprofitable in real dollars.

I believe we are reaching a unique point in history where no one is starving in first world countries and everyone has too much time to complain and special interest groups can lobby for all sorts of protective regulations that come at a great cost. These regulations never go away and only get added to over time. Eventually we hit a breaking point where businesses can’t operate profitably.

We’re seeing it now with small-medium businesses that are too big to qualify for sub-50 employee regulation exemptions but too small to have economies of scale to fill out regulatory paperwork.

At this point, does the PP work? Not really but gold and lead does. And PP holders have 25% in gold and some undisclosed amount in lead. Also, the entire world would look like Venezuela so relatively speaking you’d be doing pretty good.

Also, since the stock market is full of bubbles, as long as you rebalance regularly, you can capture the fake gains during that time and lock back in to gold. I’m starting to look at the PP as 2 assets that bubble (stocks and bonds), one asset as a buffer for spending money (cash) and the whole purpose of those 3 assets is to increase your gold holdings over time because that’s the only real money.

Oh great. A stock bubble, sweet, I captured the profit and sold off and bought more gold. Stocks go down, no problem, we know there will be another bubble because our country would fail if not for the lottery ticket mentality of stock bubbles, why else would anyone invest capital in factories and business if long-term the net gain is zero compared to shiny rocks, unless they are spinning the lottery wheel hoping they are getting in before the top of the next bubble.

We in PP land know there will always be another stock or bond bubble so when they go down, we can sell off some of our gold to buy back in waiting for the recovery. But long-term we know gold is the only asset that means anything at all. Since businesses all produce zero real profit in long term under highly regulated first world governments and bonds and cash are fiat currency worth nothing on a long enough time frame.

Last week the Fed came out and said “we are going to aim for higher inflation than the usual 3% in order to help stimulate growth” as if they could stop the inflation from occurring based on all the printing. I believe the fed has lost control of the fed funds rate and of inflation. And they only “lower” the rate after the market has lowered it for them. It’s 0% not because the fed stood on top of a mountain and proclaimed it, but because the market decided it and the fed retroactively decided that’s what they meant to do. We’ve seen this during the repo rate crisis earlier this year. Now the fed is claiming “oh hai guyz we are actually shooting for over 3% inflation this year so when it happens, we meant for that to happen because stagnation seems like a good idea and Orange Man only cares about the DJIA numbers in nominal terms, nothing else matters.”

Inflation and government regulation are destroying the ability for business to profit. It’s all about the gold. Go buy some jewelry for your wife.
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Re: My Wife’s Jewelry Is Getting Really Expensive!

Post by stuper1 » Sat Jul 25, 2020 1:36 pm

I was talking to my 84-year-old mother last night. She said that when she was in college, she used to clean houses at $1 per hour to make money. We started wondering how much $1 back then is worth today. We calculated that at an average inflation rate of 3%, $1 in the 1950s should be worth about $8 today. However, house cleaners today are making much more than $8 per hour. Which makes me think that the inflation rate is a lot more than 3%.
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Re: My Wife’s Jewelry Is Getting Really Expensive!

Post by mathjak107 » Sat Jul 25, 2020 2:13 pm

stuper1 wrote:
Sat Jul 25, 2020 1:36 pm
I was talking to my 84-year-old mother last night. She said that when she was in college, she used to clean houses at $1 per hour to make money. We started wondering how much $1 back then is worth today. We calculated that at an average inflation rate of 3%, $1 in the 1950s should be worth about $8 today. However, house cleaners today are making much more than $8 per hour. Which makes me think that the inflation rate is a lot more than 3%.
You can’t compare what job markets value jobs at to inflation.... Some jobs based on demand will earn many times the rate of inflation while others if it wasn’t for minimum wage laws would earn very little .

Markets value that which we can’t or won’t do for ourselves far more than that which any of us can do
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Re: My Wife’s Jewelry Is Getting Really Expensive!

Post by vnatale » Sat Jul 25, 2020 2:40 pm

stuper1 wrote:
Sat Jul 25, 2020 1:36 pm
I was talking to my 84-year-old mother last night. She said that when she was in college, she used to clean houses at $1 per hour to make money. We started wondering how much $1 back then is worth today. We calculated that at an average inflation rate of 3%, $1 in the 1950s should be worth about $8 today. However, house cleaners today are making much more than $8 per hour. Which makes me think that the inflation rate is a lot more than 3%.
From here...

https://www.usinflationcalculator.com/

...and using 1956...you were close...$9.48 her hour.

Vinny
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Last edited by vnatale on Sat Jul 25, 2020 2:49 pm, edited 1 time in total.
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Re: My Wife’s Jewelry Is Getting Really Expensive!

Post by vnatale » Sat Jul 25, 2020 2:48 pm

And, if it WAS 1956 she was earning exactly minimum wage.

Vinny
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