Gyroscopic Investing

I very rarely agree with Krugman about anything, but he does make a few fair points. There are indeed some certifiably bat shyt crazies in the gold corner. And it is also very true that too many people on the right live in a self confirming bubble where the only opinions or news they expose themselves to are the sort found on FOX News and Free Republic. The problem is he doesn't grasp that lefties are just as guilty of this. MSNBC NPR CBS Daily Kos... come on. 

Beyond which Krugman's arguments against gold are lame because he plays to the stereotypes that far too many gold bugs happily help confirm with their bizarre conspiracy theories. And then he ignores or glosses over legitimate arguments for holding gold as part of a broadly diversified portfolio. Gold is my least favorite component in the PP. But it has also been the best performing over the last decade +. At a time when bonds and stocks, even with reinvested dividends, often smelled like last weeks trash left to ferment in 90 degree heat for a week, gold was the main driver that kept the PP in the black. And Krugman is way too quick to dismiss gold's value as insurance against disaster as well as severe inflation.

I don't know if the gold bull market is over. I tend to doubt it, but I could be wrong. In any case one day it will be. But I will still hold some because the future is unpredictable.

Read it here if you are so inclined.
http://www.nytimes.com/2013/04/12/opini ... ml?hp&_r=0

Gold is an insurance asset. I have car insurance. I have home insurance. I have health insurance. And yes, I have portfolio insurance.

Also, his arguments about the superiority of being able to flexibly move the money supply around ignores all the bubbles created by doing this exact thing. The real estate bubble, tech bubble, etc. weren't accidents. And they weren't caused by gold either.

It's the kind of thing where people expect we should give out awards to the arsonists setting the place on fire and then rushing in to put it out. Personally, I'd rather not have them setting my home on fire in the first place.

Economics and politics are tied at the hip. Gold bugs have their hang ups, but so do stock bugs. I can explain to a stock bug until I'm blue in the face about a Japan risk happening in the U.S. and they just won't believe you no matter what. They are just as bad as gold bugs expecting hyper-inflation at any moment.

The only protection an investor has is to stay widely diversified and that includes holding gold in a portfolio along with other assets. The fact that gold has gone down in value this year has not put the Permanent Portfolio into negative territory because it holds other assets to offset those risks.

Did Krugman explain why central banks are the biggest goldbugs of all?

MediumTex wrote: Did Krugman explain why central banks are the biggest goldbugs of all?

"Tradition"

Or maybe they are going into the artisan jewelry business.

From the article:

[quote=Paul Krugman]One way to think about this is that gold is like a very long-term bond that’s protected from inflation [...][/quote]

Looks like he gets it.

Fun article. As someone who holds gold, I find it frustrating how I automatically get lumped in with libertarians, proponents of Austrian economics, doomers, conspiracy theorists, and advocates of a gold based commodity system. I don't fit in with any of those groups, but I still see gold as worth holding in my portfolio!

"What do I mean by goldbuggism? Not the notion that buying gold sometimes makes sense. Gold has been a very good investment since the early 2000s, and it’s probably not all bubble. One way to think about this is that gold is like a very long-term bond that’s protected from inflation; and actual long-term inflation-protected bonds have also seen big price increases, reflecting a general perception that there aren’t enough alternative good investments."

He is essentially making an argument that real interest rates play a big role in gold's returns. I think that fits in perfectly with part of the role gold plays in the PP.

MediumTex wrote: Did Krugman explain why central banks are the biggest goldbugs of all?

I think he actually did a good job of making it clear that using his definition goldbugs are the people that hold gold as an expression of political views. I don't think the CBs would fit under the "goldbug" umbrella that he painted in the article. The CBs would be pragmatists who see gold as a useful reserve currency that doesn't rely on the benevolence of other CBs to keep interest rates above the inflation rate.

Are PPers "statists" because they hold 50%  in gov't securities? (cash / LTT)

murphy_p_t wrote: Are PPers "statists" because they hold 50%  in gov't securities? (cash / LTT)

I used to not want to hold government debt out of moral principles, but eventually I softened because taxpayers do pay taxes, so whats wrong with taxpayers holding government debt?  And then I softened even more when I learned about Monetary Realism.

I-Bond me for!!!

murphy_p_t wrote: Are PPers "statists" because they hold 50%  in gov't securities? (cash / LTT)

My personal definition of statism is wanting the government to control more rather than less of the rest of society, so holding their debt doesn't trigger that since their issuing that debt in no way controls anyone. Bad laws and regulations scare me a lot more than loose fiscal policy.