Uncertain Future

[Gone4Good]

Quote:

Originally Posted by brewer12345 So you have already made up your mind and want our approval. Good luck!

Got to hand it to brewer for nailing this one on the very first try.

[ultimo]

Quote:

Originally Posted by . . . Yrs to Go Shhhhh, the trick is not to think too hard about it. No matter what happens commodities always go up. It's a sure thing.

I disagree. Boom markets in commodities tend to run in 20 year cycles.

[ultimo]

Quote:

Originally Posted by . . . Yrs to Go Got to hand it to brewer for nailing this one on the very first try.

You're right that I've made up my mind that certain things are likely to happen in the future with regard to economic conditions.

I have not made up my mind what I should put my money into under those conditions. I did get some very good suggestions here from a few people.

I really don't believe that these are times for an "anything could happen" view of the future. It's not business as usual anymore. It requires that models be questioned and that people seek out their own answers rather than accept time-worn financial advice that no longer fits the times.

[Zathras]

ultimo, so you want diversification but only in the areas that you know will do well??
People use diversification to cut down on risk, that is the whole idea.
If you KNOW what is going to do well, by all means, invest solely in that, or that group of things.
Most people around here freely admit they can't know with absolute certainty what is going to do well and what won't.
So rather than place a bet and hope for the best they diversify so they won't loose everything if the one asset goes bust.
Sure, you do better if you are right, but on the chance you are wrong, and if you are not diversified, you get wiped out.
But by all means, feel free to diversify between the assets you know are going to do well in the future.

[Zathras]

Quote:

Originally Posted by ultimo I really don't believe that these are times for an "anything could happen" view of the future. It's not business as usual anymore.

Aha, so this time things are different

[ultimo]

Quote:

Originally Posted by Zathras ultimo, so you want diversification but only in the areas that you know will do well?? People use diversification to cut down on risk, that is the whole idea. If you KNOW what is going to do well, by all means, invest solely in that, or that group of things. Most people around here freely admit they can't know with absolute certainty what is going to do well and what won't. So rather than place a bet and hope for the best they diversify so they won't loose everything if the one asset goes bust. Sure, you do better if you are right, but on the chance you are wrong, and if you are not diversified, you get wiped out. But by all means, feel free to diversify between the assets you know are going to do well in the future.

To put a finer point on things, I know (shorthand for believe very strongly) that certain conditions are firmly in place and they will drive the broad macro trends going forward. I don't know for sure what will do well, especially over the next two to five years. I do know where I don't want to be. I want to diversify but to eliminate the obvious losers. I think that's pretty rational.

[ultimo]

Quote:

Originally Posted by Zathras Aha, so this time things are different

Yes, I believe they are, and that's, in part, why I believe models like FIRECalc may be misleading.

"Business as usual" has meant, up to now, that one strives for a balanced, well-diversified portfolio because anything could happen--the stock market might be up next year, and down slightly the next, etc., but that over the longer term, it all balances out.

It's different now. We're at the beginnings of trends that take years to unfold. It's not business as usual anymore....

[REWahoo]

Quote:

Originally Posted by ultimo It's not business as usual anymore. It requires that models be questioned and that people seek out their own answers rather than accept time-worn financial advice that no longer fits the times.

You are making the well-worn "this time it's different" arguement. Sometimes it is, but more often it isn't. Only time will tell and few investors are willing to take extreme portfolio positions based on what someone on an internet board is "sure" will happen.

That said, you can be among the first to say "I told you so" if you are right. If you aren't, I doubt we will ever hear from you again.

[Cross-posted with Zathras]

[M Paquette]

Quote:

Originally Posted by ultimo To put a finer point on things, I know (shorthand for believe very strongly) that certain conditions are firmly in place and they will drive the broad macro trends going forward. I don't know for sure what will do well, especially over the next two to five years. I do know where I don't want to be. I want to diversify but to eliminate the obvious losers. I think that's pretty rational.

Just beware that there's no secret knowledge in current financial and economic conditions. Knowledge is widespread, and understanding of expected broad macroeconomic trends is also widespread, if diverse. Much of what you are concerned with, as well as other areas you may not be aware of, has been considered and is now priced into the broad market of various assets.

Knowing this, I'm sticking with my current asset allocation, which provides similar allocations to my 'buckets' post above.

[ultimo]

Quote:

Originally Posted by REWahoo You are making the well-worn "this time it's different" arguement. Sometimes it is, but more often it isn't. Only time will tell and few investors are willing to take extreme portfolio positions based on what someone on an internet board is "sure" will happen. That said, you can be among the first to say "I told you so" if you are right. If you aren't, I doubt we will ever hear from you again. [Cross-posted with Zathras]

I'm not asking anyone to follow my advice. I've explained my position because I've been asked.

And, likewise, I don't care what anyone else here does. These are personal decisions. I don't even give my friends advice.

I doubt I'll be saying "I told you so," because once I reallocate my portfolio I'll be off doing other things. I'm not here for lifestyle advice. I came here with a specific question.

Thanks to all.

[traineeinvestor]

I fall into the camp of people who believe that current stimulus measures (and government inability to keep spending under control generally) have and will continue to result in continued expansion of the money supply. In principle, this should be inflationary. However, I do not feel that a deflationary or stagnation scenario casued by (among other things) higher taxes can be entirely ruled out. In effect, there is enough uncertainty to lead me to prefer a diversified portfolio of cash flow producing assets (+ a few commodities) over a portfolio that is concentrated in assets which are expected to do well in what I expect to be the more likely scenario.

[ultimo]

Quote:

Originally Posted by M Paquette Just beware that there's no secret knowledge in current financial and economic conditions. Knowledge is widespread, and understanding of expected broad macroeconomic trends is also widespread, if diverse. Much of what you are concerned with, as well as other areas you may not be aware of, has been considered and is now priced into the broad market of various assets. Knowing this, I'm sticking with my current asset allocation, which provides similar allocations to my 'buckets' post above.

The markets are constantly being repriced. The Aussie dollar went up recently on expectations of another rate increase, and now it's back down because the possibility is less certain. The U.S. dollar is up on expectations of improved employment, but we'll see how things pan out and, ultimately, where workers put their money--into retail or into savings.

That's why it's best to look five to 10 years out. Probably the biggest drivers on that scale are the deficit, the U.S. dollar, interest rates and the Chinese economy. I'll set up my diversified buckets within those parameters, and expect that everyone else will similarly act based on their own view of the world.

To act and be wrong is, at worst, stupidy. To not act, or to act counter to one's instincts, when you feel strongly about something is insanity. I guess, the worst case, I'd rather feel stupid than insane. Hopefully, I'll continue feeling the way I do today

[Alan]

Quote:

Originally Posted by ultimo To act and be wrong is, at worst, stupidy. To not act, or to act counter to one's instincts, when you feel strongly about something is insanity.

History is littered with folks that have ruined finances because they followed their instincts as regards financial decisions. For example I'm sure all those folks who instinctively followed Madoff are feeling much more stronger emotions than just stupidity.

[ultimo]

Quote:

Originally Posted by traineeinvestor I fall into the camp of people who believe that current stimulus measures (and government inability to keep spending under control generally) have and will continue to result in continued expansion of the money supply. In principle, this should be inflationary. However, I do not feel that a deflationary or stagnation scenario casued by (among other things) higher taxes can be entirely ruled out. In effect, there is enough uncertainty to lead me to prefer a diversified portfolio of cash flow producing assets (+ a few commodities) over a portfolio that is concentrated in assets which are expected to do well in what I expect to be the more likely scenario.

Thank, traineeinvestor. This is the question of the decade, perhaps the century. Inflation or deflation? I tend to believe that the U.S. will continue to print money, and that this is inflationary. Even with higher taxes, I think there will be inflation in certain sectors, such as commodities. I think China and India, as examples, will start to experience their own internal domestic demand, develop regional markets and will thus exert an increased demand for commodities. The price of imported electronic gizmos may go down, but the price of copper may rise.

But it's very dynamic... it's possible we could have continued deflation for a while, followed by inflation, followed by more severe deflation. . .

When I filter out all the noise and unknowables, what I'm left with is commodities (which I feel will do well under most scenarios) and bonds, when interest rates inevitably rise in the future, as they are starting to in other countries.

What you have done, i.e., concentrating your portfolio in areas you think will do well, is exactly what I'm trying to do. Everyone has to follow their own instincts. Mine tell me to start moving out of gold (not because I don't believe it will go higher, but because I'm not young anymore and don't want to wait out a correction) and to take a "capital preservation" stance until it's time to buy long-term bonds.

Fortunately, I can work for as long as I need to, but I'd like to be retired in the next few years. Unfortunately, timing is everything and there's no schedule for what's going to happen in the world.

Thanks, again.

[ultimo]

Quote:

Originally Posted by Alan History is littered with folks that have ruined finances because they followed their instincts as regards financial decisions. For example I'm sure all those folks who instinctively followed Madoff are feeling much more stronger emotions than just stupidity.

Most of those investors relied on something other than instinct. The advice of others, for example. Peer pressure. Wanting to be in the "in" group. Etc., etc., etc.

Instinct that results from study and research is the best we can go on, I'd think. Instinct that results from questioning everything, not taking anything for granted, and avoiding wishful thinking. Those Madoff investors would have avoided some big mistakes had they not taken anyone else's word as good enough. Yes, they feel much worse than stupid, aI'm sure, although they were, indeed, very, very stupid. But stupidity's the least of their problems now, I'd expect.

[ultimo]

Quote:

Originally Posted by traineeinvestor ...a diversified portfolio of cash flow producing assets (+ a few commodities) over a portfolio that is concentrated in assets which are expected to do well in what I expect to be the more likely scenario.

Here are a few of the funds I'm currently considering:

iShares S&P GSCI Commodity-Indexed ETF
PowerShares DB Agricultural Fund
Market Vectors-RVE Hard Asset Producers ETF

These are consistent with my own world view and would give me some needed diversity... all thoughts appreciated.

[brewer12345]

Quote:

Originally Posted by . . . Yrs to Go Got to hand it to brewer for nailing this one on the very first try.

I like to think I was one of the first to put ultimo on ignore, as well.

Thank you, ladies and gentlemen. I'll be here all week...

[Spanky]

Quote:

Originally Posted by ultimo Here are a few of the funds I'm currently considering: iShares S&P GSCI Commodity-Indexed ETF PowerShares DB Agricultural Fund Market Vectors-RVE Hard Asset Producers ETF These are consistent with my own world view and would give me some needed diversity... all thoughts appreciated.

What will be your allocation (in terms of percentage of your portfolio) to commodities?

[Gone4Good]

Quote:

Originally Posted by ultimo You're right that I've made up my mind that certain things are likely to happen in the future with regard to economic conditions.

Keep in mind that the kind of speculation you're attempting isn't about getting "economic conditions" right. It's about correctly measuring current market expectations as reflected in asset prices against those likely future "economic conditions". You need to get both right.

With respect to Gold, it's hard to argue that expectations for continued dollar weakness aren't priced in. For you to do well owning gold, you don't just need the dollar to continue to decline, you need it to decline by more than current expectations. That is a tall order.

Consider. Since the beginning of 2000, the dollar purchasing power versus other currencies has declined by 24%. As measured against a basket of US goods and services (CPI) the dollar's purchasing power has declined by 22%. But as measured against gold, the dollar's purchasing power has declined 75%. Gold would have to fall $800 from current levels to hold its purchasing power constant.

Alternatively, US inflation needs to be 12% annually over the next 10 years (starting today) for the current price of gold to be justified by future US dollar weakness. That 12% inflation is likely the market expectation priced in to gold at the moment . . . anything short of that probably means gold will be a disappointing long term investment.

Good luck.

[samclem]

Quote:

Originally Posted by . . . Yrs to Go Keep in mind that the kind of speculation you're attempting isn't about getting "economic conditions" right. It's about correctly measuring current market expectations as reflected in asset prices against those likely future "economic conditions". You need to get both right.

Well put, with good substantiation.

Most of us are hard-wired to expect a continuation of recent patterns (whatever they have been). Add in a tablespoon of fear and it's poor recipe for decision making.