Uncertain Future

[ultimo]

I have been listening to predictions of financial doomsday since I was a child in the 1970s.

I was a child in the 60's, and looking for a job in the 70's, right when unemployment reached this terrible high and interest rates were in the mid-teens. I don't know how much of a child you were at this time, but I was 22 and my future was at stake, and we haven't come near anything like that since... until now.

 

[ultimo]

I think only time will tell if those who are buying gold at these prices are "very smart investors".

Jim Rogers, Paul Tudor Jones, Peter Schiff, Marc Faber, David Einhorn, John Paulson, etc..etc..including Buffett and Bill Gates... yep, they might be proven wrong... but they're certainly not your everyday "gold bugs"!

 

[ultimo]

"The only thing gold is telling us is that people love to chase the latest, greatest, can't miss, investment of a lifetime."

I'd say we're not nearly there yet.

I don't want to get caught up in a bubble. In my first post here I said I'm thinking about selling my gold. I'm not banking on yet another frenzy...

If I were 40 I'd hold onto my gold for at least another four years. But I'm 53, I already put in 9 years with gold, I've done very well, I want to sleep at night and I want to retire in two years.

I'd be happy to sell my gold in the next couple of months still knowing it will go higher only because I want the certainty of a number I can plan around.

53 hit me like a sledge hammer... maybe it's a different age for others. This is the year I think I'm willing to give up gains (and risk) for a knowable future, even if it means leaving money on the table.

 

[ultimo]

Samclem:

You never know what some folks will do.

or did

 

[ultimo]

Samclem, I get the feeling that what you're saying is that what I did was wrong--to put all my eggs in one basket--but the proof is on the table, at least for me. No, I didn't diversify. Yes, I did put my money where my instincts were. Yes, I was right. But that was an easy exercise (and I was also quite astute at that time, much to my eternal gratitude). It was an easy call back then (I'm talking 2001!). It's much more difficult now, largely because of fiscal policy and FED intervention...

 

[REWahoo]

Samclem, I get the feeling that what you're saying is that what I did was wrong--to put all my eggs in one basket--but the proof is on the table, at least for me. No, I didn't diversify. Yes, I did put my money where my instincts were. Yes, I was right.

I think what Sam and others might be saying is what you did is only a good move if your instincts are correct. Most of us are not as gutsy (pun intended), don’t have your clear 2001 insight and choose to hedge our financial future by diversifying.

Assuming you sell before gold prices decline significantly (not saying they will), you can probably lay claim to being smarter than the rest of us in the room. Had your instincts been wrong, you probably wouldn't be posting here - or if you were, you might be telling a story similar to this one.

I don't think my instincts or my intellect can know which investment will be "the one", so I choose to take what I believe to be a more conservative course and diversify. I see no reason to add to the risk of becoming a “lost it all in the market” statistic.

Congratulations on picking the right number on the roulette wheel.

I think your idea of selling soon is an excellent one.

 

[samclem]

Isn't diversification for people who aren't willing or able to stake out a clear position on something? Isn't it for financial advisors who want to cover their backsides?

Yes, diversification is for people who don't know what the future will look like, and who understand their level of uncertainty and what that uncertainty could mean to their portfolio.

Did you own only gold, or did you own other stuff (i.e diversify) at the same time (you mentioned foreign stocks)? Why would anyone own anything else if gold is the the ticket?

Keep spinning the wheel and doubling down. I don't need to hit a home run, I need to keep hitting singles reliably.

It's a common fallacy to believe that a good result is proof that the decision that produced it was also a good one.

So you have already made up your mind and want our approval. Good luck!

Seems so.

 

[Zathras]

As ReWahoo said, it is wonderful that your gamble paid off.
I don't feel like taking the risk with a single asset portfolio.
More often than not, those that doe have tales of woe to tell. Although there are also some like you that hit it big. Kudos to them

I am also not saying it is a bad idea to buy ANY gold, just not to go 'all in' in gold or any other single asset class. Most if not all of the investors you listed would say the same. They may have stakes in gold, but also in many other asset classes (or at the very least, different commodities).

 

[TargaDave]

Jim Rogers, Paul Tudor Jones, Peter Schiff, Marc Faber, David Einhorn, John Paulson, etc..etc..including Buffett and Bill Gates... yep, they might be proven wrong... but they're certainly not your everyday "gold bugs"!

Be aware that most of these current gold advocates would never suggest going 100% into precious metals, let alone any one asset class. They also work with advanced stop loss mechanisms knowing full well they could be wrong on a bet.

 

[ultimo]

Did you own only gold, or did you own other stuff (i.e diversify) at the same time (you mentioned foreign stocks)? Why would anyone own anything else if gold is the the ticket?

Yes, I also bought foreign currencies, mostly Aussie dollar, but not initially. I didn't diversify into things that didn't look positive against the scenario I strongly believed was unfolding: a declining stock market and U.S. dollar. I didn't put money into things that I thought would lose money in that scenario.

It's a common fallacy to believe that a good result is proof that the decision that produced it was also a good one.

I agree that sometimes bad decisions can produce good outcomes... and sometimes good decisions can produce terrible outcomes.... but all that matters in the end is outcomes.

I believe my decisions were very good ones. I followed macro trends (a postgraduate program in economics, which I undertook purely for my own information, helped in this regard). I didn't listen to the talking heads on CNBC nor follow the herd. At that time it was clear that the stock market would eventually reach an inflection point. I wouldn't call myself lucky on that point, but my timing was fortuitous to some degree, as it always is, for everyone.

And now I'm at another decision-making point and this time with a view to retirement. I'm interested in the perspective of others who are engaged in similar planning. I've given a general summary of where I'm at, what my circumstances are, what I'm invested in and have asked others for their perspectives on asset allocation against a bearish backdrop of continued dollar depreciation, higher inflation (longer term), etc., etc. I've received some good information and advice, and for that I'm very thankful.

 

[oldtrig]

I was a child in the 60's, and looking for a job in the 70's, right when unemployment reached this terrible high and interest rates were in the mid-teens. I don't know how much of a child you were at this time, but I was 22 and my future was at stake, and we haven't come near anything like that since... until now.

I agree

I was a child in the 40's and 50's. I also was self-employed in the late 70's, 80's and half of the 90's. None of those times compare to whats happening now. I believe we are already in the early stages of a depression. My dad would be 94 if he were alive. He told me many stories about how hard times were in the last depression. It was really sad about how some of his friends lost everything. oldtrig

 

[Gone4Good]

o really, do u know actually know alot of people buying gold? i dont. so i dont think it is to the point of "the latest, greatest,..."

Yup.

What gold is telling us is that there's no faith in dollar

. . . To not buy gold you'd have to make a case that the dollar's going higher

Maybe, except Gold is completely unhinged from dollar moves. Since 2000 the dollar index is down 25%, Gold is up 360%. Since October 2008, the dollar is down 10%, gold is up 140%. And in January and February of this year when the dollar rose nearly 10%, gold rose by slightly less. Clearly something else is going on here.

But at the same time, it looks like we're still in the early days of a gold bubble. These things typically last years. So I wouldn't be surprised to see $2,000 or higher before its all done. It doesn't hurt to have a major "news" network forecasting the end of western civilization every night. But none of that makes me want to buy it.

 

[timwalsh300]

I'm skeptical of the various asset allocation models I've seen (e.g., X% stocks, Y% bonds). What happens if both go bad?

This is a strange statement/question, given that you are talking about holding 100% gold, cash, or bonds. What happens if your one asset goes bad?

I agree that things are very uncertain right now for investors. Stocks are still somewhat expensive according to historical P/E10 data and dividend yields. But bond yields are also near historic lows and interest rates have nowhere to go but up. Commodities like gold, copper, and oil are at or near historic highs despite huge inventories, from what I understand. And real estate prices, while down from their peak, are still above their historical trend line too.

So nothing appears obviously undervalued right now, except maybe the Dollar - and that may in fact be the case if the loose fiscal and monetary policy (which has people in such a panic about inflation) ultimately fails to stop the deflationary forces at work. Indeed, we can't even agree on whether the US is headed for a Japanese-like "lost decade" or Zimbabwe-like hyperinflation.

I guess it's more likely that the outcome will be something in between. Anyway, all this probably makes the case for balance and diversification between cash, bonds, stocks, etc. even stronger.

Tim

 

[Berkshire_Bull]

There are so many uncertainties with regard to the future that it's difficult to know how to plan.

Even the worst case scenario in FIRECalc may not be bad enough to reflect what the future may hold.

U.S. dollar index is at new lows and heading lower. Interest rates held artificially low into the foreseeable future. Inflation and higher taxes almost certain.

I've had a large percentage of my savings in gold and gold funds since 2001, and the rest in foreign currencies. At that time it was easy to foresee what was going to happen economically. It's much more difficult now, the question being, how much worse will it get?

Hate to sound pessimistic, but I'm sure others have similar concerns. I'm skeptical of the various asset allocation models I've seen (e.g., X% stocks, Y% bonds). What happens if both go bad?

The strategy I'm considering is to cash in gold and gold funds, hold on to the cash, and then invest in bonds when interest rates inevitably rise. Didn't 30 year bonds hit 15% back in the late 70s or early 80s? At some point, especially when inflation kicks in, I'd expect interest rates would have to move up significantly.

All thoughts appreciated!

You're going to be sorely disappointed with cash. The US Consumer is important but nowhere near as important as they once were. China now has a middle class, India has a middle class, Brazil with a middle class, the real story is the global economy. Don't miss the forest for the trees. Inflation is dead and will be for many years. Wages makeup most of inflation and with the HUGE cheap labor pool in Asia and South America it will take years to utilize the capacity before wages can start to climb.

The story is global competition for the worlds resources. Get long this market, the train's leaving.

 

[samclem]

Inflation is dead and will be for many years. Wages makeup most of inflation and with the HUGE cheap labor pool in Asia and South America it will take years to utilize the capacity before wages can start to climb.

There are many possible causes for inflation. High labor costs were the cause of the last big US inflation bout in the 1970s, and I agree that isn't going to happen again soon. But the more "normal" cause for inflation, historically, has been debasement of fiat currencies through introduction of excess money. When the US government owes huge amounts to many foreign entities, and the US government owns the printing presses, the conditions are ripe for a the government to create a lot of money. Inflation s great if you are the debtor. Add to this the paucity of means by which the government can legitimately raise real revenue (because slow overall economic growth isn't expanding the tax base and already high tax rates can't be increased further without killing the economy) and other govt spending requirements (ballooning social spending, continued high levels of military spending, etc) , and inflating the currency begins to look like the least bad option.

I wouldn't bet against high US inflation in the coming 5-10 years.

 

[jdw_fire]

I've had a large percentage of my savings in gold and gold funds since 2001,

a curiosity question, how do you own your gold? ETF, futures, FOREX, options, physical gold stored in a storage facility, or did you take physical delivery (if so was it bars, coins, jewelry, or something else)?

 

[FIREd]

I sold my gold at a huge profit last year but I am hanging on to my 30 lbs of silver. It's my ticket out of Dodge is things get as dire as some of you predict...

 

[ultimo]

a curiosity question, how do you own your gold? ETF, futures, FOREX, options, physical gold stored in a storage facility, or did you take physical delivery (if so was it bars, coins, jewelry, or something else)?

Unfortunately, I bought gold before ETFs were invented, so it's in coins and funds like BGEIX and FSAGX. My gold (and silver) coins are stored in a safe deposit box at my bank.

 

[ultimo]

Inflation is dead and will be for many years. Wages makeup most of inflation and with the HUGE cheap labor pool in Asia and South America it will take years to utilize the capacity before wages can start to climb. The story is global competition for the worlds resources. Get long this market, the train's leaving.

I agree that inflation is dead for the next few years, which is why I'm willing to just park my money by the roadside somewhere. BUT I think inflation, if not hyperinflation, is a sure thing down the road. I want to organiize myself around that scenario.

 

[W2R]

I agree that inflation is dead for the next few years, which is why I'm willing to just park my money by the roadside somewhere. BUT I think inflation, if not hyperinflation, is a sure thing down the road. I want to organiize myself around that scenario.

My crystal ball says... "The future is misty and obscured. Guess anything you like, but prepare with all possibilities in mind. Above all, read and study every word of William Bernstein's The Four Pillars of Investing."

 

[semtex]

Like i did not put it clear. my understanding, gold is something useless at normal evn unless something very bad happens. so when gold keeps up and up, it is telling use something, what's the thing, i wish i know,

but should be something big,

How do you interpret what the gold price is 'telling you' though?
Is it telling you that it is going to crash soon as it is at a decade long high (or multi year, or something of that sort)?
Or is it telling you that you should buy a bunch of it because it is still only at half of what it went for in the 70's (inflation adjusted)?
And no matter what it does, there will be people (I am NOT suggesting you are one of those) that will use whatever gold does to say "It was sooooo obvious"

 

[M Paquette]

Um. Don't mind me, but when I see all the discussion of buying gold here, and among friends, family, and casual acquaintances, I can't help but think back to 1999 when these same people were all talking up hot stocks.

This, to me, is an indicator that a particular market is far closer to a top than a bottom. I'd rather buy the unpopular, oversold assets myself. (Currently trolling real estate markets...)

 

[brewer12345]

MP, are you looking at properties or securities? Resi, commercial, something else?

 

[semtex]

basically gold is the last resort, means people lost confidance to the whole financial system.

why not, jp debt is 200% gdp and neg saving rate and people are older and older. us is following up closely.

 

[M Paquette]

MP, are you looking at properties or securities? Resi, commercial, something else?

Residential properties in higher end resort areas, particularly ones impacted by the recent economic fluctuation. It's amazing how overextended the 'well-off' can get.

The intent is to get something I can enjoy as a second/vacation home that will also do reasonably well over a 15-20 year holding period. Realistically, I don't expect to break even taking expenses into account, unless I run this particular as a rental. The 'imputed rent' and intangible benefits should be worthwhile for me, personally, though. This will be capped at not more than 10% of net worth.

There is a possibility of converting the property to my primary residence, if I buy in another state with certain tax advantages to me, so I'm also screening with suitability for a primary residence in mind, including access to shopping, medical care, airports, etc.

One target, Incline Village, NV, made #1 on Forbes "America's Most Troubled Luxury Neighborhoods" list.
In Pictures: America's Most Troubled Luxury Neighborhoods - 1. Incline Village-Crystal Bay, Nev. - Forbes.com

And there are plenty of troubled properties at a small fraction of the insane prices in that article in the town, probably two dozen with Walk Scores of 90 or better.