Gyroscopic Investing

Reub wrote: budd, haven't we had this conversation before?

buddtholomew wrote: Yes we have, but the PP finds new ways of challenging your confidence with performances like today. Who needs assets like gold and treasuries when equities go up no matter what the news. Everything looks so bleak so run to equities.

MachineGhost wrote:

buddtholomew wrote: Yes we have, but the PP finds new ways of challenging your confidence with performances like today. Who needs assets like gold and treasuries when equities go up no matter what the news. Everything looks so bleak so run to equities.

Until it doesn't and then you have cash, gold and T-Bonds to protect you.  Don't think so linearly.

buddtholomew wrote: Honestly, who wakes up this morning and says...the world is fantastic, let's sell our gold and fixed income and buy stocks...

ochotona wrote:

buddtholomew wrote: Honestly, who wakes up this morning and says...the world is fantastic, let's sell our gold and fixed income and buy stocks...

Cortopassi wrote: Seriously though, I just wish it would be over.  There are so many theoretically gold positive things going on in the world, that gold can't find any support, hell, just drive it below $1000 and be done with it.

Pointedstick wrote: Gold priced in USD doesn't care all that much what's going on the rest of world. Gold priced in USD cares about what the rate of inflation is in the absolute sense, whether the rate of inflation is higher than various USA interest rates, and how smelly other USD-denominated assets look.

Right now there's basically no inflation in the USA, the real return on average interest bearing securities is roughly zero but not negative, and stocks are madly being pumped up by the Fed. These things are neutral or bearish for gold. If inflation kicks up--especially if interest rates don't rise--and if stocks start to tank when the Fed stops pumping them up, that's when gold will shine. And we hold it so we can be prepared for that time, which will eventually come. No bubble lasts forever.

buddtholomew wrote: Same story since 2011. The "inevitable decline" may not happen in our investment timeframe. The portfolio is actually more risky now than ever before. Rising interest rates with no inflation.

buddtholomew wrote:

Pointedstick wrote: Gold priced in USD doesn't care all that much what's going on the rest of world. Gold priced in USD cares about what the rate of inflation is in the absolute sense, whether the rate of inflation is higher than various USA interest rates, and how smelly other USD-denominated assets look.

Right now there's basically no inflation in the USA, the real return on average interest bearing securities is roughly zero but not negative, and stocks are madly being pumped up by the Fed. These things are neutral or bearish for gold. If inflation kicks up--especially if interest rates don't rise--and if stocks start to tank when the Fed stops pumping them up, that's when gold will shine. And we hold it so we can be prepared for that time, which will eventually come. No bubble lasts forever.

Same story since 2011. The "inevitable decline" may not happen in our investment timeframe. The portfolio is actually more risky now than ever before. Rising interest rates with no inflation.

iwealth wrote: All the more reason something has to give. I still have doubts that the Fed will raise interest rates with inflation under 2%. That's a risky move. That said, how the economy is humming along as is with strong job growth and earnings growth without any signs of inflation is beyond me.

Pointedstick wrote: Right now there's basically no inflation in the USA, the real return on average interest bearing securities is roughly zero but not negative, and stocks are madly being pumped up by the Fed. These things are neutral or bearish for gold. If inflation kicks up--especially if interest rates don't rise--and if stocks start to tank when the Fed stops pumping them up, that's when gold will shine. And we hold it so we can be prepared for that time, which will eventually come. No bubble lasts forever.

buddtholomew wrote: Same story since 2011. The "inevitable decline" may not happen in our investment timeframe. The portfolio is actually more risky now than ever before. Rising interest rates with no inflation.

MachineGhost wrote:

Pointedstick wrote: Right now there's basically no inflation in the USA, the real return on average interest bearing securities is roughly zero but not negative, and stocks are madly being pumped up by the Fed. These things are neutral or bearish for gold. If inflation kicks up--especially if interest rates don't rise--and if stocks start to tank when the Fed stops pumping them up, that's when gold will shine. And we hold it so we can be prepared for that time, which will eventually come. No bubble lasts forever.

Just a minor correction.  The Fed isn't literally pumping up stocks; desparate yield-chasing investors are.

iwealth wrote: All the more reason something has to give. I still have doubts that the Fed will raise interest rates with inflation under 2%. That's a risky move. That said, how the economy is humming along as is with strong job growth and earnings growth without any signs of inflation is beyond me.

Lowe wrote: The economy is not bad.  I get that equity is supported in part by rounds of QE, but that is not all that is happening.

This is a time of prosperity, mostly among the wealthy.  They are pulling away from the pack.  And getting fewer in number, relative everyone else.  So they are not bidding up physical goods like land, energy, or consumables.  That is what you do when you're having kids, which they're not.  Instead their money stays in businesses, in corporations, trusts, and foundations.

Gold stays down for years, if not decades.  The Fed eventually raises interest rates, but by a pittance.  Bonds fall or tread water for a while.  Eventually rates go lower again, and hover around 0%.  The Fed will pretend they let it happen.  But they can't help it.  How can the teeming mass of unproductive people bid up interest rates?  Will they all take out loans for quickie marts?  No.

Lowe wrote: Let us say the treasury issues a lot more debt.  Enough that it isn't just a quarter or a third of the US debt market.  It's half, or three quarters even.  For the sake of safety and reducing the volatility of their cash, banks, corporations, and pension funds will still be vying to buy up those new bonds.  Whether the Fed keeps buying up some of them doesn't matter.  Someone is still going to buy and hold them, even when they are at 0%.

There is no beating the safety of bonds in developed countries with productive people.  That's why German and US bonds are where they are now.  The Fed doesn't have the power to change that.  If they try they will fail.

It might be different if the world weren't filling up with unproductive people, trying their best to live off other people's efforts.  But it is, and those growing populations aren't inflationary.  They are deflationary, because they do not create much commercial value themselves, and cannot command competitive wages.  The only way they live is by producers giving them things, which deflates prices.

The dollar, euro, or yen doesn't have to be strong against some abstract standard.  It just has to be stronger than everything else.  Nobody going to run out of those currencies in a hurry, because there are no trustworthy alternatives.  What banker or businessperson would put his or his clients' money in the currency of South Africa, or Chile, or Egypt, or even China or Taiwan?  That is crazy.

Libertarian666 wrote:

Lowe wrote: Let us say the treasury issues a lot more debt.  Enough that it isn't just a quarter or a third of the US debt market.  It's half, or three quarters even.  For the sake of safety and reducing the volatility of their cash, banks, corporations, and pension funds will still be vying to buy up those new bonds.  Whether the Fed keeps buying up some of them doesn't matter.  Someone is still going to buy and hold them, even when they are at 0%.

There is no beating the safety of bonds in developed countries with productive people.  That's why German and US bonds are where they are now.  The Fed doesn't have the power to change that.  If they try they will fail.

It might be different if the world weren't filling up with unproductive people, trying their best to live off other people's efforts.  But it is, and those growing populations aren't inflationary.  They are deflationary, because they do not create much commercial value themselves, and cannot command competitive wages.  The only way they live is by producers giving them things, which deflates prices.

The dollar, euro, or yen doesn't have to be strong against some abstract standard.  It just has to be stronger than everything else.  Nobody going to run out of those currencies in a hurry, because there are no trustworthy alternatives.  What banker or businessperson would put his or his clients' money in the currency of South Africa, or Chile, or Egypt, or even China or Taiwan?  That is crazy.

How about a "currency" that no one can issue arbitrarily, but has to be "mined" and is therefore fairly static in quantity? And what if it also had uses besides as money, like in industry, and had a multi-thousand year record of never becoming worthless? Of course there isn't anything like that, but suppose there was...