Chances of losing (and winning!) are close to zero.

[Marc De Mesel]

If your thinking has ever changed before it got to where it is today, how can you be so certain that your thinking might not change again in the future?  For me, I have advocated many persuasive lines of argument over the years that nevertheless proved to have very little predictive value.  When I realized that my reasoning was tight, and yet I still wasn't able to understand what was actually going on with much nuance, I found my thinking evolving, and this evolution did help me to gain what I believe to be a stronger understanding of what is actually happening in the economy, regardless of how I may personally feel about those things. 

In other words, you can strive to understand a stupid system more deeply without giving up your belief that it's stupid.

There is a difference between analyzing a situation......identifying the most likely actions of the participants based on their sef-interest.....making a reasoned assumption of the impact on particular investments and positioning yourself to take advantage of it in accordance with an acceptable level of risk if you're wrong VS. "I don't like the govermment so I won't buy their bonds" or "I like welfare so I wanna buy government bonds".

The first is based in logic and reason, the second is emotional. Just because someone disagrees with you on whether or not it's possible to improve investment returns based on economic analysis of the global economy and current investment prices does not mean they are making emotionaly-driven decisions.

Do you guys not see that? I can EASILY argue that your persistant devotion to the HBPP in the face of the money printing and crushingly low rates is PURELY emotional-driven. I've asked about a BAZILLION times how anyone thinks they could get a real rate of return in LTBs.

I never get an answer.

I get "no one can know for sure......you might be wrong....how can you be sure....."  It's all emotional fear of loss preventing you from taking a look at what appears to be obvious. Or it's the belief that you have no way of possibly weighting what the likely outcome is. Or it's some kind of Stockholm syndrome. At least that's what it appears to me.

The condescending nature with which anyone with the opinion that the HBPP is not ideal at the moment is treated is palpable and I just don't get it. To constantly suggest that someone who is shying away from cash and bonds (at near all-time highs) is just being emotional or politically driven is really really freakin lame. I expect it from some younger-sounding members but they can be ignored.

Maybe they will turn off the money spigots tomorrow and stocks and gold will crash. Maybe they'll prioritze debt payments and stop the welfare/social security. If all that happens I will lose on my investments. I get it. I know that. I don't think that's gonna happen so I'm betting against it. It has nothing to do with opposing the violent system. As soon as the taper starts I'm selling all my stocks and moving that money to cash. Ohhh wait....they're gonna taper once they're done printing a good economy.....yeah right!

What a great post. I understand your frustration Kshartle and I think it is rightful to feel frustrated when your strong logic is continuously being rejected.

I have been a PP promotor. Indeed fear was my driver. Fear of losing. Also insecurity in my own capabilities. I used to self attack. I would say to myself: "You loser, you lost money again. You cannot speculate with capital you inherited. You will end up in the gutter if you lose it." I embraced the PP in 2009 because I believed I had failed again in 2008 when I lost money on silver. I believed Harry Browne that 'speculating' wasn't worth it and I should focus on setting up a company as well as setting up my life. So I sold most of my silver, converted to a pp and wrote some great articles about it that were embraced by the pp community.

I was also looking to offer something valuable for people and I realized the PP offered security that no other solution had. I thought I could have big success by setting up a European pp fund. But that fund never happened because something in me kept me from taking the step. 2010 and 2011 happened in the meantime and silver shot up 200%. I felt the pain of missing an opportunity, I had made yet another poor investment decision by selling most of my silver for a pp and realised speculating can be worth it.

I also started to look more critical at the other claims made by Harry Browne and the PP community and discovered that returns were actually not that good if you deduct true inflation. In fact they were very low. And some speculators/investors/traders did succeed in making much more by predicting the future evaluating risk/rewards and allocating capital accordingly.

But I still had that need for safety insecurity so I decided to go 50/50 PP/VP. Right at the top of gold/silver in 2011 I went back in and made again losses as it started dropping again. However, I also had learned a lot about psychology, philosophy and even started going to therapy. I did not self attack anymore but evaluated rationally what mistake I made in speculation (bought when it had just gone up parabolically). I also had a strong foundation of insight that risk taking was required if I wanted to make money.

I have been fighting my own prejudices over and over, first by questioning my qualities as an investor, and then questioning the pp. Only by doing the latter I was prepared to risk a considerable part of my capital on an amazing opportunity that passed by. Sure I had some luck too as every successful enterprise has. But as the saying goes, luck is when preparation meets opportunity.

The PP philosophy is not a preparation but a rejection of opportunity. Supported by untrue statements that are coming from fear, not reason. If you cannot recognize that the real returns of the PP are low, if you cannot see that it is a contradiction that you can be hedged against everything but still make good money (no risk, high reward), you are missing something.

[edsanville]

To be fair, not all Austrians are huge gold bugs or hyperinflationists.  I consider myself an Austrian-leaner, and I'm only a 25% gold bug (from the PP). 

I think much of MMT is correct.  I don't expect hyperinflation in the US dollar any time soon.

I think economists "over-quantify" the unquantifiable way too much.  I think money is best spent when it is spent by the person who earned it and not the government who took it away.

I don't necessarily think that every business cycle is caused by monetary policy, although that no doubt influences business cycles in some way.

I think inductive logic in economics doesn't work too well, because we can't run economic control experiments.  Deductive logic is very powerful, and under-utilized.

I don't think unemployment or underemployment is necessarily a good or bad thing.  It depends heavily on the specific circumstances of the unemployment.  But, I can say that I believe some unemployment is natural in a free market, and not the worst thing in the world, to be eliminated at all costs.

To me, being an Austrian simply means that you read some Mises and Hayek, and agree with the subjective theory of value, the marginal utility theory of Carl Menger, ordinal utility theory, etc.  We tend to like the writings of Frederic Bastiat, and we see the Broken Window Fallacy thrown around and accepted constantly in the modern media.  We hate the Broken Window Fallacy most of all.

We ultimately believe that prosperity is found by increasing supply, not demand.  We envision a bountiful future utopia where almost anything can be obtained with very little effort, and we can focus our free time on whatever challenges we want. 

We would love to see real price deflation, not in nominal terms, but in terms of hours of human labor required to yield the goods and services we desire.

[Xan]

Hey, sometimes predicting the future works.  A lot of times it doesn't.  If it's working for you, great!  Just be aware that it might stop, in an ugly way, in some way that you didn't predict.

I could spend a lot of time spinning my wheels doing something that I don't enjoy and which is ultimately unproductive, that is, attempting to suss out some world-beating investment strategy.  Or I could put my money in the PP, where it'll grow without me worrying about it, and thenI can go out and do something actually productive to society to earn more of it.

[Gumby]

If you can't view, validate, or even see their methods why would you trust their results?

Not sure what to tell you. I don't represent the company. I don't really care that much to spend time investigating them. And I see no reason why MIT researchers and State Street Global would be in cahoots with the government. (State Street would lose all of its business if it wasn't reasonably correct.) MIT/PriceStats isn't the only third-party research that confirms the government numbers. All of the respected third-party data I've seen generally confirms the official US government statistics.

If you want to validate PriceStats, you should contact them directly: contact@pricestats.com

[Gumby]

I also started to look more critical at the other claims made by Harry Browne and the PP community and discovered that returns were actually not that good if you deduct true inflation.

Unfortunately, widely respected independent third-party research generally confirms the government numbers.

Keep in mind that the official core CPI isn't composed of items regularly purchased by individuals on a daily basis — they are composed of items that represent purchasing in the broader economy. Perhaps you could argue that the official numbers aren't relevant to you. In reality the BLS publishes data that is more representative of consumers (aka "Headline Inflation"), but Wall Street and the bond market is focussed on the broader effects of prices the broader economy rather than the effects of whether your toothpaste and coffee is more expensive.

For what it's worth, the government does publish some data that is more representative of inflation for consumers/households.

[align=center][/align]

But again, Wall Street and the bond market doesn't really care much about that data because it doesn't accurately represent the broad economy.

[Marc De Mesel]

To be fair, not all Austrians are huge gold bugs or hyperinflationists.  I consider myself an Austrian-leaner, and I'm only a 25% gold bug (from the PP). 

I think much of MMT is correct.  I don't expect hyperinflation in the US dollar any time soon.

I think economists "over-quantify" the unquantifiable way too much.  I think money is best spent when it is spent by the person who earned it and not the government who took it away.

I don't necessarily think that every business cycle is caused by monetary policy, although that no doubt influences business cycles in some way.

I think inductive logic in economics doesn't work too well, because we can't run economic control experiments.  Deductive logic is very powerful, and under-utilized.

I don't think unemployment or underemployment is necessarily a good or bad thing.  It depends heavily on the specific circumstances of the unemployment.  But, I can say that I believe some unemployment is natural in a free market, and not the worst thing in the world, to be eliminated at all costs.

To me, being an Austrian simply means that you read some Mises and Hayek, and agree with the subjective theory of value, the marginal utility theory of Carl Menger, ordinal utility theory, etc.  We tend to like the writings of Frederic Bastiat, and we see the Broken Window Fallacy thrown around and accepted constantly in the modern media.  We hate the Broken Window Fallacy most of all.

We ultimately believe that prosperity is found by increasing supply, not demand.  We envision a bountiful future utopia where almost anything can be obtained with very little effort, and we can focus our free time on whatever challenges we want. 

We would love to see real price deflation, not in nominal terms, but in terms of hours of human labor required to yield the goods and services we desire.

Wauw, another great post

There are some real diamonds here

I think real price deflation in nominal terms is possible. Bitcoin has proven that.

[moda0306]

Marc,

What are you suggesting as a better strategy?  What "fear" are we trying to put out there?  What are we saying that is "untrue?"  Had 2008 been allowed to turn into a full-blown banking disaster (no rescues), regardless of our opinions on what was appropriate, we could have had a full-blown deflationary depression with massive amounts of bankruptcies and foreclosures.... this would have resulted in cash/bonds doing phenomenally well in real terms, and gold probably having trouble deciding which way to go (if we couldn't say we were already there).  We were ALMOST there.  What is the use of having an asset that does a few points better against inflation long-term if it leaves you hamstrung during the next crisis, when your likelihood of both economic opportunity AND economic emergency are presen

You can say inflation is really 5%, but what  would you invest in to capture that higher rate?  Those could easily involve LONG periods of lagging inflation.  A very volatile asset has the capability of lagging inflation for a LONG time.  Look at real-estate in Japan.

In fact, we've explained, logically, probably hundreds of times, with ZERO emotion, why LTT's could very well do just fine long-term, and inflation could stay very low. We've all been through this period of disbelief that treasury bonds could havea meaningful role to play in a portfolio, even today.  We were mostly on your side once.  We had to learn through hard, long, drawn out debates, articles, discussions and analysis what the nature of the treasury market was.  We've tried to explain these things, but even the most libertarian/conservative among us feel like sometimes we're bouncing ideas off of people too emotionally attached to their political/moral assertions.

Is this condescending?  Maybe.  But it doesn't mean it's not true.  Hell, have you ever told an emotional woman in a debate that she's being overly emotional and irrational?  It usually doesn't work.  But sometimes it. just. needs. to. be. said .

I have no problem with VP strategies that contain all sorts of fun ways to speculate... hell we have a whole discussion section for that.  What I DO have a problem with, is exposing your core strategy to systemic-freaking-risk to get an extra couple points of Rate of Return and pretending that we're comparing apples to apples with the PP, or ignoring that systemic-risk that you're exposed to.  Building wealth is a HELL of a lot more than the rate of return on your standard savings/investment portfolio... it's making career/life/family/retirement/etc decisions from a position of strength.  Having our core portfolio ready to survive a deflationary recession makes our ability to have a lucrative VP STRONGER!  If your core portfolio was down 30% during 2008/2009 (at the same time your job was at-risk and your home had lost 30% of its value), do you think the REAL opportunities (not stocks, but closely-held investments, properties, refinances, etc) were more or less accessible?

Part of taking calculated risks involves realizing when to stop trying to squeeze more water out of the rock, while you're tripping over opportunities all around you to allocate some of your portfolio/cash-flow to small, speculative, closely-held ventures that could provide you FAR more RoR.

But without a reliable core that is protected from systemic-risk... all those opportunities are going to come with uncertainty.

The VP is better for having the PP.  This shouldn't be a debate... it should be a partnership... none which having your core portfolio collapse during a deflationary shock is unacceptable.

[Marc De Mesel]

"Property is theft. Nobody 'owns' anything. When you die, it all stays here."

- George Carlin

You must be a troll.

Moving on ...

[Gumby]

"Property is theft. Nobody 'owns' anything. When you die, it all stays here."

- George Carlin

You must be a troll.

Moving on ...

Heh. You just proved Moda's earlier point. Instead of being agnostic, your political biases are driving your own logic (and investment decisions).

[buddtholomew]

If your thinking has ever changed before it got to where it is today, how can you be so certain that your thinking might not change again in the future?  For me, I have advocated many persuasive lines of argument over the years that nevertheless proved to have very little predictive value.  When I realized that my reasoning was tight, and yet I still wasn't able to understand what was actually going on with much nuance, I found my thinking evolving, and this evolution did help me to gain what I believe to be a stronger understanding of what is actually happening in the economy, regardless of how I may personally feel about those things. 

In other words, you can strive to understand a stupid system more deeply without giving up your belief that it's stupid.

There is a difference between analyzing a situation......identifying the most likely actions of the participants based on their sef-interest.....making a reasoned assumption of the impact on particular investments and positioning yourself to take advantage of it in accordance with an acceptable level of risk if you're wrong VS. "I don't like the govermment so I won't buy their bonds" or "I like welfare so I wanna buy government bonds".

The first is based in logic and reason, the second is emotional. Just because someone disagrees with you on whether or not it's possible to improve investment returns based on economic analysis of the global economy and current investment prices does not mean they are making emotionaly-driven decisions.

Do you guys not see that? I can EASILY argue that your persistant devotion to the HBPP in the face of the money printing and crushingly low rates is PURELY emotional-driven. I've asked about a BAZILLION times how anyone thinks they could get a real rate of return in LTBs.

I never get an answer.

I get "no one can know for sure......you might be wrong....how can you be sure....."  It's all emotional fear of loss preventing you from taking a look at what appears to be obvious. Or it's the belief that you have no way of possibly weighting what the likely outcome is. Or it's some kind of Stockholm syndrome. At least that's what it appears to me.

The condescending nature with which anyone with the opinion that the HBPP is not ideal at the moment is treated is palpable and I just don't get it. To constantly suggest that someone who is shying away from cash and bonds (at near all-time highs) is just being emotional or politically driven is really really freakin lame. I expect it from some younger-sounding members but they can be ignored.

Maybe they will turn off the money spigots tomorrow and stocks and gold will crash. Maybe they'll prioritze debt payments and stop the welfare/social security. If all that happens I will lose on my investments. I get it. I know that. I don't think that's gonna happen so I'm betting against it. It has nothing to do with opposing the violent system. As soon as the taper starts I'm selling all my stocks and moving that money to cash. Ohhh wait....they're gonna taper once they're done printing a good economy.....yeah right!

What a great post. I understand your frustration Kshartle and I think it is rightful to feel frustrated when your strong logic is continuously being rejected.

I have been a PP promotor. Indeed fear was my driver. Fear of losing. Also insecurity in my own capabilities. I used to self attack. I would say to myself: "You loser, you lost money again. You cannot speculate with capital you inherited. You will end up in the gutter if you lose it." I embraced the PP in 2009 because I believed I had failed again in 2008 when I lost money on silver. I believed Harry Browne that 'speculating' wasn't worth it and I should focus on setting up a company as well as setting up my life. So I sold most of my silver, converted to a pp and wrote some great articles about it that were embraced by the pp community.

I was also looking to offer something valuable for people and I realized the PP offered security that no other solution had. I thought I could have big success by setting up a European pp fund. But that fund never happened because something in me kept me from taking the step. 2010 and 2011 happened in the meantime and silver shot up 200%. I felt the pain of missing an opportunity, I had made yet another poor investment decision by selling most of my silver for a pp and realised speculating can be worth it.

I also started to look more critical at the other claims made by Harry Browne and the PP community and discovered that returns were actually not that good if you deduct true inflation. In fact they were very low. And some speculators/investors/traders did succeed in making much more by predicting the future evaluating risk/rewards and allocating capital accordingly.

But I still had that need for safety insecurity so I decided to go 50/50 PP/VP. Right at the top of gold/silver in 2011 I went back in and made again losses as it started dropping again. However, I also had learned a lot about psychology, philosophy and even started going to therapy. I did not self attack anymore but evaluated rationally what mistake I made in speculation (bought when it had just gone up parabolically). I also had a strong foundation of insight that risk taking was required if I wanted to make money. I heard about the serious collapse of bitcoin since 2011 and challenged my ideas why I had rejected it. I used my knowledge of value investing and technical analyses to take a sizeable 10% position in bitcoin at the end of 2012.


Today a year later I can say that I succeeded finally in being a successful investor. Bitcoin worked out tremendously and I held tight knowing the potential. My return on my whole portfolio is a staggering 65% for this year eventhough my pp as well as precious metals went down. Since 2008 I used to have only 6% on average, but now I have 12% on average. PP philosophy will say I was just lucky but that is incomplete.

I have been fighting my own prejudices over and over, first by questioning my qualities as an investor, and then questioning the pp. Only by doing the latter I was prepared to risk a considerable part of my capital on an amazing opportunity that passed by. Sure I had some luck too as every successful enterprise has. But as the saying goes, luck is when preparation meets opportunity.

The PP philosophy is not a preparation but a rejection of opportunity. Supported by untrue statements that are coming from fear, not reason. If you cannot recognize that the real returns of the PP are low, if you cannot see that it is a contradiction that you can be hedged against everything but still make good money (no risk, high reward), you are missing something.

As they say in the classics, timing is everything.

[Xan]

"Property is theft. Nobody 'owns' anything. When you die, it all stays here."

- George Carlin

You must be a troll.

Moving on ...

Moda's a troll, all right.  He pops up every few months to say "Hey everyone, I've finally found THE way to invest that's WAY better than the PP!  We should all be doing <insert fad of the day> now!"

Or do I have him confused with somebody else.

[Lowe]

@ Marc

It sounds like you've gone on a journey, and learned many things.  Things that I don't know, and may never.  I think that's great, and I think it's also great you make the kinds of posts you have.  I've learned more from this forum than anywhere except maybe FDR, and it is these discussions that have enabled that.

I feel anxious when I read that you chose the PP because you were insecure.  I am afraid of losing my savings, so I put them in the PP.  I understand the principles behind it, and even if it gives low returns, I do not see a safer alternative.  I don't know if my anxiety is because you are right, and I have self-limiting beliefs about my ability to speculate, or because you aren't being empathetic to my fear, or the fear others might have with their savings.

[Marc De Mesel]

@ Marc

It sounds like you've gone on a journey, and learned many things.  Things that I don't know, and may never.  I think that's great, and I think it's also great you make the kinds of posts you have.  I've learned more from this forum than anywhere except maybe FDR, and it is these discussions that have enabled that.

I feel anxious when I read that you chose the PP because you were insecure.  I am afraid of losing my savings, so I put them in the PP.  I understand the principles behind it, and even if it gives low returns, I do not see a safer alternative.  I don't know if my anxiety is because you are right, and I have self-limiting beliefs about my ability to speculate, or because you aren't being empathetic to my fear, or the fear others might have with their savings.

I felt anxiety when reading your post. I felt the opening compliments would likely lead to critique.

When reading the critique I felt defensive.

What was coming up is:

"Yes, I was not giving empathy to your or other people's fear to lose their savings"

"I don't believe you don't know whether your anxiety was because I was right or because I was not giving empathy."

Please speak your mind.

[Lowe]

@ Marc

It sounds like you've gone on a journey, and learned many things.  Things that I don't know, and may never.  I think that's great, and I think it's also great you make the kinds of posts you have.  I've learned more from this forum than anywhere except maybe FDR, and it is these discussions that have enabled that.

I feel anxious when I read that you chose the PP because you were insecure.  I am afraid of losing my savings, so I put them in the PP.  I understand the principles behind it, and even if it gives low returns, I do not see a safer alternative.  I don't know if my anxiety is because you are right, and I have self-limiting beliefs about my ability to speculate, or because you aren't being empathetic to my fear, or the fear others might have with their savings.

I felt anxiety when reading your post. I felt the opening compliments would likely lead to critique.

When reading the critique I felt defensive.

What was coming up is:

"Yes, I was not giving empathy to your or other people's fear to lose their savings"

"I don't believe you don't know know whether your anxiety was because I was right or because I was not giving empathy."

Please speak your mind.

My anxiety is because I am afraid of being less than other people.  When you tell me that your are successful speculating, I suspect I am not as good as others, who can do this, and maybe are.

I find myself looking at the bull run in US stocks, and thinking, "I should have known this, two years ago."  But how could I have?  I ask the part of me who believes I should have known.  There isn't an answer.

When I looked over your posts in the thread, at first I wanted to ask accusingly if you thought you were being responsible, in suggesting speculation to people who are afraid, or who may not have the time or the means for  it.  I decided that was harsh, so instead I told you that you must have learned a lot, as a way of saying you've spent a lot of time.  Time that not everyone might have.

[Marc De Mesel]

@ Marc

It sounds like you've gone on a journey, and learned many things.  Things that I don't know, and may never.  I think that's great, and I think it's also great you make the kinds of posts you have.  I've learned more from this forum than anywhere except maybe FDR, and it is these discussions that have enabled that.

I feel anxious when I read that you chose the PP because you were insecure.  I am afraid of losing my savings, so I put them in the PP.  I understand the principles behind it, and even if it gives low returns, I do not see a safer alternative.  I don't know if my anxiety is because you are right, and I have self-limiting beliefs about my ability to speculate, or because you aren't being empathetic to my fear, or the fear others might have with their savings.

I felt anxiety when reading your post. I felt the opening compliments would likely lead to critique.

When reading the critique I felt defensive.

What was coming up is:

"Yes, I was not giving empathy to your or other people's fear to lose their savings"

"I don't believe you don't know know whether your anxiety was because I was right or because I was not giving empathy."

Please speak your mind.

My anxiety is because I am afraid of being less than other people.  When you tell me that your are successful speculating, I suspect I am not as good as others, who can do this, and maybe are.

I find myself looking at the bull run in US stocks, and thinking, "I should have known this, two years ago."  But how could I have?  I ask the part of me who believes I should have known.  There isn't an answer.

When I looked over your posts in the thread, at first I wanted to ask accusingly if you thought you were being responsible, in suggesting speculation to people who are afraid, or who may not have the time or the means for  it.  I decided that was harsh, so instead I told you that you must have learned a lot, as a way of saying you've spent a lot of time.  Time that not everyone might have.

Thanks for your openness.

I agree that speculation requires a lot of time, energy, risk appetite and losses before successful. It is a valid choice to prefer not doing that and instead choose for a simple, stable and proven pp.

I like to use employment vs entrepreneurship as an analogy as it is also a lower risk/lower reward proposition, but equally entrepreneurship requires a lot more time, energy, risk appetite and losses before successful. It is a valid choice to prefer not doing that and instead choose for a simple, stable job.

I don't think you are less if you are not good at entrepreneurship and choose for a job. Happiness is about finding what fits for you. And success always has a cost at the expense of something else. I spend all day investing in financial markets at the expense of investing in my health and my social life.

What I protest against is when people say entrepreneurship (speculation) is just luck. That a job (pp) offers high rewards with low risk.  Ie: I protest not against the pp, but against the pp philosophy. The pp is an ingenious solution to achieve the highest possible safety and still keep up with true inflation, however how Harry Browne promoted the pp was full of falsehoods. There is no 'fail safe investing' there is only 'fail safe hedging'. 'Why the best laid investments usually go wrong' is equally biased as 'why the best business plans usually go wrong' and concluding that entrepreneurship isn't worth it, it's just luck, and you should just find a job. 

Sure a job (pp) might be the best solution for you if you don't have the time, the means or the desire to do entrepreneurship (speculation). I don't think you are less.

People may choose a pp (job) out of insecurity, as I did, but they may also choose it out of healthy preference.

You seem to have no problem accepting that pp's hedges comes at a price of potential reward so you seem to fall in the latter.

Also if part of you says that you should have bought this or that, but he can't say why, he does not seem to be experienced/knowledgeable enough to do it and a pp makes very good sense, though using a small part of your capital to speculate and learn, also. 

I want to let you know as well that part of me still wants security above profit, I negotiate with this part and it's really great. Also it does not like to be called insecure

[moda0306]

Marc,

I assure you I am no troll.  My quote is a clumsy way of reinforcing a point in a debate regarding the nature if property within the libertarian framework. I'm no communist. I actually think I'll change it so people don't think I'm some sort of Bolshevik revolutionary.

But if you really don't want to respond to my points, feel free to ignore them and just debate the other folks here.

Certainly didn't mean to offend. Though I didn't try very hard not to upset. We've just had these debates a lot. 

[moda0306]

There's nothing wrong with speculation. There's two main problems I see with it, if not put in the proper context:

1) Speculating is a zero sum game. If you're winning, someone else is losing. A lot of times these "someone else" are supercomputers and billionaire hedge fund managers on Wall Street.  Tough competition.

2) leading off the end of the first point, if I'm going to speculate, it's probably more effective to do so in assets that aren't so efficiently traded on wallstreet.  Closely held assets and businesses I think are the best way to speculate.  You can identify value easier and control them more.

3) completely abandoning hedging the risks associated with a deflationary depression (or whatever someone wanted to abandon) is retaining systemic risk, and I hate the idea of knowingly doing that for a couple extra hopeful points of IRR. I'd rather use my VP to identify things I can control to a much higher IRR end.

[Marc De Mesel]

House payments are determined by a combination of housing prices and mortgage rates.

Here is what mortgage rates have done over the last 25 years (basically a straight line down):

Good point, borrowing money has become cheaper indeed.

So indeed my capital can borrow more money today than a few years back, or 20 years back.

This finally clicked with me, thanks for repeating it for me.


You can say that the 'borrowing power' of my capital has gone up.

However, thinking more about it, has the purchasing power of my capital gone up?

No, only the borrowing power.

I think it is logically correct to deduct from this that mortgage rates are of no importance when studying how much money is losing or gaining in 'purchasing power'.

And the price of housing (over the last 7 years basically straight down):

I have recognized this argument that real estate has fallen on the first page and have calculated that prices still went up by 2.5% since 2000 after the correction. As I showed many other prices went up by more than 5% since 2000, so an average of 5% since 2000 is still reasonable as an estimate.

That being said you are right that since 2007 prices of real estate have actually gone down, so is true inflation since 2007 still 5% on average? For that other prices need to go up a lot more than 5%. This however happened as I proved with prices for Big Mac, Campbell Soup, Gold, all of whom have started to go up with not 5% but around 10% per year.

MangoMan also confirmed here that things like taxes, health insurance, education have gone up in such fast pace that the reduction of real estate prices has been neutralized and living expenses are still up considerably since the crises started.

I also refer to Peter Schiff his study of price increases since 2000. Sadly he is also not publishing the price data (and did not respond to my email asking for it) that shows shocking price increases in certain areas since the crises started.

Check out the price of natural gas in real terms over the last four decades:

'real terms'? To judge the rise of prices, prices corrected for inflation are of no value.

I quoted prices of natural gas here, please address that also when using natural gas as proof for lower inflation than 5%.

The price of oil is about where it was at five years ago.  Over the last 30 years, we see an annual inflation rate in oil prices of about 5.5% (from $20/barrel in the early 1980s through $100/barrel in 2013):

And, finally, automobile prices:

In 1973, a new Corvette cost $5,562.  In 2013, a new Corvette cost $49,600.  Over 40 years, this reflects an annual price increase of about 5.6%

Agreed that price of oil has not gone up since 2008 but that is at best an argument that inflation since 2008 is not 5% but less, which I also don't think to be the case as I documented above.

However as you agree, over the long term oil prices have still gone up by 5%, as does the Corvette.

If price goes up by 5%, that only confirms my estimate that true inflation is around 5%, as you try to disprove. I'm confused why you quote these prices if they disprove you.

As far as the price of food goes, here is a 1990-2012 chart.  Starting value is about 105 and ending value is about 195.  This change translates into a 2.8% annual inflation rate.

LINK TO CHART

Good point and I already recognized this here, due to this fact that food prices only went up around 3% you convinced me to lower my estimate of true inflation since 1972 from 7.5% to 5.5%.

However, please note that your linked chart also shows a massive increase of prices since 2009. So likely it was 2% in 90's and 4% since 2000 for foods.

Please address my argument of 'average' inflation in that I state that if some prices go up more than 5% and other less than 5%, the average is still 5%.

Something tells me that despite all of the data above, you will nevertheless find some way to "debunk" it in order to maintain your belief in a certain preconceived notion that long term U.S. inflation is somehow higher than about 5%.

Data cannot be debunked, it can be ignored though. Where did I ignore your data? Please link for proof or recognize your accusation was false.

You have ignored my data here by dismissing it with arguments that I have debunked here. After which you ignored most of my counterpoints.

A rational discussion means that if an argument is disproven with evidence or logic (also called debunking), you recognize that and withdraw your faulty argument.

I have not experienced you doing this. When you dismiss evidence you do not even recognize that you dismiss it. Please show me one example where you have recognized that a previous argument you made was wrong and you have corrected it. Link or it didn't happen.


To summerize:

I've given you price evidence of the biggest expenses a household has, real estate, car, food, energy.

And I have shown you the following:

1. Real estate costs over the last 5 years have declined for millions of Americans as a result of falling mortgage interest rates.

2. I picked a car model and tracked its price over 40 years and showed how it has seen around 2-3% annual price inflation.

3. I have shown how since 2008 food prices have risen at the rate of 2-3% per year.

4. I have shown how the price of oil is about the same as it was five years ago and how the price of natural gas has totally collapsed, resulting in lower heating and cooling bills for millions of Americans.

1. see above
2. no, you have not. the car you quoted went up by 5.5%
3. no, you have not quoted any prices of foods. The linked chart above is the first you gave and it is an index, not price data.
4. you did not, only now you quoted oil prices and natural gas prices, see above for my response


As to your questions of my motivation.

My motivation for this is truth. I value it. Even though it is painful to face the truth. It is the only way to improve my life.

[Thomas Hoog]

I have read all 21 pages and it confirms my own experience with investing .
Investing is not an exact science any more than economics or predicting the weather.
And figures, including the inflation figures are manipulated. But it is a balanced system.
A high pressure area always flows to a low pressure area.
Printing money leads to inflation etc. .. But it is impossible to predict how and when ?

The HB philosophy is just so beautiful as it is a philosophy and not a science and it is based on a balanced system which reflects the fact that the economy is a balanced system.
Second, human. People are not rational but emotional. So it makes no sense to convince others using graphs or figures.
The HB portfolio is very agnostic; so it appeals to people who are naturally so.
Personally, I am very stoically, so it suits me like a glove.
But a part of me likes more challenge and I have a great analysis urge which is the reason I buy individual stocks.

About truth. Sorry, there isn't any.

[Marc De Mesel]

Marc,

I assure you I am no troll.  My quote is a clumsy way of reinforcing a point in a debate regarding the nature if property within the libertarian framework. I'm no communist. I actually think I'll change it so people don't think I'm some sort of Bolshevik revolutionary.

But if you really don't want to respond to my points, feel free to ignore them and just debate the other folks here.

Certainly didn't mean to offend. Though I didn't try very hard not to upset. We've just had these debates a lot.

You did not offend me. Ofcourse I thought you were a communist thinker. It's a contradiction that you say you are not but then say the quote is to reinforce a point in a debate.

[Marc De Mesel]

About truth. Sorry, there isn't any.

[kka]

About truth. Sorry, there isn't any.

So the claim that there isn't any is untrue as well.

[l82start]

About truth. Sorry, there isn't any.

So the claim that there isn't any is untrue as well.

All statements are true in some sense, false in some sense, meaningless in some sense, true and false in some sense, true and meaningless in some sense, false and meaningless in some sense, and true and false and meaningless in some sense.”?
Malaclypse the Younger   

and according to some, if you repeat the above quote 666 times you will become enlightened ... "in some sense"

[Kshartle]

Given the bad balance-sheets in the United States, and the fact that the fed is having trouble even generating its stated-target of 2% inflation, the productive capacity that's not going to use, the 3.7% you can earn on a 30-year treasury right now could very well give you a 1.7% real rate if we sustain 2% inflation.

This is the analytical equivalent of you making a very well-reasoned argument regarding supply and demand for gold against anticipated expansion of the supply of dollars as well as other factors and concluding that gold will not achieve a long-term real return in the near future......to which I reply "Well what if it doubles in price?"

The US government is currently running a trillion dollar deficit. Inflation, Obamacare, the retirement of baby boomers and social security will only increase the amount of expenditures in the coming years.

In the face of higher taxes, more regulation, disincentives to hire and produce how are tax receipts going to keep pace with the expenditures?

This means the deficits continue to grow, which means the supply of bonds the US must sell has to grow. Supply goes up price goes down. Price of bonds goes down, yields go up.

The only reason the US can afford interest payments right now is because interest rates are at all time lows and they are borrowing on the short-end. If short term rates go up even a couple points in response to the things I've mentioned after a couple years the US deficit grows by 400-500 billion a year just due to the interest alone.

How does the US government get out of this predicament? China and Russian who are holders of treasuries are calling for an end to US dollar hegemony. When they sell or even stop buying the inflation effects to the US and Americans will get worse, further discouraging legitimate bond purchases. The FED will have to buy more and more or the US govt will have to just print.

In the face of all this how can price increases stay low (we disagree that it's 2%, I shop and buy things and I'm confident it's much higher but that's another discussion).

I've put forward the US can turn its back on the welfare state and the dependant classes as a possible solution but if you agree with that you need to admit the entire notion of robbing one man to give to another has created a massive problem that more theft cannot solve. This would challenge the "world-view" that dominates a lot of these threads but it would be a welcome relief to see that nonsense fall by the wayside.

At 3.6% - 3.7% how on Earth are you going to get a real return out of LTBs?

Now look, you can say that all this might not happen. You can say that but you cannot pretend that is analysis. Reading what I've summarized here (which is only a fraction of the analysis I've done elsewhere) and calling it an emotional or political stance is foolish and false.

Ignoring it and saying the US will economy will behave like the Japanese economy is clinging to an economic catch phrase thrown around here for emotional comfort. Or it's just an admittance that you're not concerned and haven't thought about the issue. The latter is fine but then please admit that you either don't know or don't care rather than saying you've actually thought it out and the people disagreeing are ignoring your analysis because they are politically biased. Sorry for the long post. We have that in common. I hope this isn't taken personally, I think it's good that we have a forum where we can learn from each other and challenge our critical thinking.

[Kshartle]

Kshartle,

You said they live in their ivory towers.  I didn't realize what you meant is that they're simply overpaid, but certainly not wealthy. 

I was referring to the rulers, not all goverment workers. I think that was quite obvious. I'm talking about the politicians, central bankers, political appointees, generals etc. The people who live fabulously wealthy at the expense of everyone else and provide nothing of value. You turned it to all government workers to change the subject and I indulged the diversion. my mistake.