where are the gold threads?

[Texas Proud]

I'm not exclusively talking about Mad Max scenario's.

In Argentina people who had gold in a safe place were the lucky ones. Having it in a foreign country was even better, because they could try to leave and start a new life elsewhere.

But when I talk to the guy who buys into this at work.... I ask.... where are you going to go

If the US is is such a state that there is chaos in the streets and HAVING GOLD matters... which country is NOT going to be in the same situation.. and why do you think they will let YOU in... I mean, if this happens... there are a lot of richer people who can afford to get there easier than you... you will be stuck here with a bunch of gold... and nobody will want that gold... they will want food and water...

So it is not a complete breakdown... or even a major breakdown that you are protecting from.... so it has to be a big one, but not one that 'destroys' our way of life... again.... I don't think gold will help me... unless I have a LOT of it... I don't want to invest for that small possibility enough money to make a difference if it happens... I will adjust to the new reality...

And yes... it has happened a lot... but the countries where it has happened have continued on... Germany, Argentina, Russia and even Japan... I just don't buy into the doomsday possibility...

 

[Tigger]

Warning: I do not suggest that anyone buy gold. I know someone who got burned big time the last time gold was in a bull market. He didn't get out in time and didn't live long enough to see it recover.
I'm just trying to explain why I think it makes sense to me to own some, especially at this time. It's a good diversifier but it has its disadvantages. It has gone up a lot and could go down a lot. If you want to buy some, I recommend using your time machine and buying it in 2001 ;-)

If I understand your suggestion, you think gold is a good hedge against the collapse of financial institutions in the US and dollar values, as long as viable economies and financial institutions continue to function elsewhere. Possibly allowing emigration.
(...)
I doubt I'd want to devote that much of it to such unlikely scenario.

My euros suffered a lot this year and it may not be over. Stocks are suffering. Real estate is not doing well. Banks are in trouble in Spain, maybe tomorrow in my country. Etc.
I personally don't care about the specifics of the catastrophes that might happen. Anything that causes a flight to safety would likely be good for my gold and compensate losses in other assets. (until the day that for one reason or another people don't want gold anymore, which is why I try not to overdo this) I lost buying power in my euros this year, but part of that loss was offset by gold moving up. I didn't own enough gold for it to compensate for all the buying power that my euros lost, but it's better than nothing and if things continue to worsen, gold will probably react much harder. (though I kind of expect extreme volatility and am aware that one day it will probably crater hard - by then I hope to have moved most of it into a more traditional portfolio)

Alternatively, if I am protecting against "Mad Max" scenarios, I'd rather invest in rural land, skills and equipment to farm it, and means to protect it (if I assume that with the demise of means of exchange will also come demise of law and order). Or if you are thinking some milder form of breakdown (think Katrina or Haiti) then perhaps I want to invest in useful trade goods (plus again a means to protect myself) and distribute my investments so that losing no one position will devastate me. I don't see how gold helps me in either case, except possibly if I think I can buy low now (really?) and sell high(er) later to make some money with it. Again, at record highs, this seems unlikely.

I'm not especially preparing for this kind of situations, though it's nice to know that part of my money isn't just ones and zeroes in a computer that might disappear, but in a portable form that I could take elsewhere to build a new life. As interest rates are very low, so far I'm not losing much.

Wars do happen, my parents lived through the last war. It's one of the many reasons why it would be nice to have a big garden, but the risk seems low so I stay in a rental apartment until (hopefully) real estate becomes cheaper here. (prices are at a historic high; they may or may not go down from here; I'm hoping there will be a return to the mean)

My strategy remains in a diversified portfolio, save, save, save and LBYM.
DD

Sounds great.

you will be stuck here with a bunch of gold... and nobody will want that gold... they will want food and water...

I don't own gold to help me survive in the short term. I own it hoping it will help to better preserve my capital in the long term. (until I find a better asset allocation or strategy). I'd try to get my food and water by different means, but not give up my gold.
Sooner or later things would improve and it would be nice not to have lost everything.
But if gold becomes illegal or crashes, I could lose it, yes. Therefore I don't bet the farm on it.

And yes... it has happened a lot... but the countries where it has happened have continued on... Germany, Argentina, Russia and even Japan... I just don't buy into the doomsday possibility...

Most people have survived there, but many families have lost their wealth.
If I would wake up tomorrow and the euro would only be worth 1/3 of what it's worth today, my gold would probably mean that my chances at E-R might not be completely lost. (because gold would likely react very hard to such an event on such a scale) Same thing if the Eurozone would break up. I don't expect that to happen, but while it's improbable, it's technically not impossible.

We're each trying to cope with these strange days as good as we can.
Maybe I'll regret my choices and then you can tell me "told you so".
I'm trying to give it my best shot.

 

[REWahoo]

I'm trying to give it my best shot.

This might be right up your alley: Montana Gold Bullet, Incorporated - Kalispell, Montana

 

[Tigger]

This might be right up your alley: Montana Gold Bullet, Incorporated - Kalispell, Montana

Hehe.

 

[growing_older]

My euros suffered a lot this year and it may not be over.

What You buy Euros? You buy gold?

Why not buy actual investments, like stocks, bonds, real estate and mutual funds. If you keep screwing around with commodities and currency arbitrage you are gambling, not investing.

 

[brewer12345]

What You buy Euros? You buy gold?

Why not buy actual investments, like stocks, bonds, real estate and mutual funds. If you keep screwing around with commodities and currency arbitrage you are gambling, not investing.

Hmmm, not sure I agree. There can be lots of good reasons some more esoteric strategies have attractive risk-reward mixes. For example, I have a modest allocation to merger arbitrage funds. These are specialty mutual funds that "pick up dimes in front of bulldozers" via merger spreads. They do so in a highly diversified and disciplined fashion and they generally offer mid to high single digit returns afterexpenses with low volatility and modest downside.

 

[RonBoyd]

These are specialty mutual funds that "pick up dimes in front of bulldozers" ...

I don't know what that means. This is the only other reference I can find:



(The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street)

 

[Tigger]

What You buy Euros? You buy gold?

I'm a European living in Europe. This is why most of my money is in Euros.

I used to have real estate, but sold it in 2008 shortly before the real estate boom stalled here. Which is how I ended up in cash without any diversification.

My plan was to figure out the best way to build a diversified and balanced portfolio with passive stock and bond funds, but the market crashed before I figured out how I would do that. (we don't have Vanguard in my country, there is no cookie cutter solution; costs are high, tax rules for funds and ETFs are complex and few people know them)

Not being ready to invest in stocks or bonds, I started buying gold from time to time, to add some hard needed diversification and protection against some of the hazards of what seemed to become the worst crisis in generations. Meanwhile I continued to research investment strategies and assets available in the Eurozone.

Why not buy actual investments, like stocks, bonds, real estate and mutual funds. If you keep screwing around with commodities and currency arbitrage you are gambling, not investing.

I'm preparing to invest in ETFs, treasuries, real estate, etc. My plans aren't clear enough to move yet. So I wait and research my options.

I like the Boglehead approach. But the last decade has been harsh for many buy and hold investors and this crisis may offer unique chances to buy low. (and I may miss them, I'm well aware that market timing tends to be a bad idea)

Going all-in now would be a normal Boglehead strategy. But I need to be able to sleep and can't think of any stock/bond ratio that would let me sleep now. I've considered the Harry Browne Permanent Portfolio and would probably sleep better with it. But it's focused on wealth preservation and this may be the biggest opportunity of my life to buy low. Nobody knows the future, but I suspect chances are very high that we're going to get another serious leg down within less than a year. If it happens, I want to be ready to start buying. I realize that it may never happen and that I can't guess where the bottom is. I'm trying to figure out the least bad approach.

I may pay very dearly for my hubris. We'll see.

 

[REWahoo]

Why not invest a small portion (20 - 30%) in equities and bonds now, in the event that 'serious down leg' doesn't come to pass? That way you will have at least invested some of your cash near the bottom while not risking the bulk of your cash if it does happen. Not exactly euro cost averaging, but something along the same lines.

 

[Tigger]

Why not invest a small portion (20 - 30%) in equities and bonds now, in the event that 'serious down leg' doesn't come to pass? That way you will have at least invested some of your cash near the bottom while not risking the bulk of your cash if it does happen. Not exactly euro cost averaging, but something along the same lines.

That sounds reasonable. It is an option that I'll have to consider once I've chosen the ETFs to use for stocks and bonds.

 

[REWahoo]

Careful you don't think yourself into gridlock and end up doing nothing while the world marches on - even though that can be a good option, it rarely is.

 

[growing_older]

Hmmm, not sure I agree. There can be lots of good reasons some more esoteric strategies have attractive risk-reward mixes. For example, I have a modest allocation to merger arbitrage funds. These are specialty mutual funds that "pick up dimes in front of bulldozers" via merger spreads.

I certainly didn't mean that sophisticated investors shouldn't diversify as they see fit. Even into some of these more exotic vehicles. I'm assuming that they do so with a reasonably thought out plan and appropriate portion of the total portfolio. What I was reacting to was the general advice to plunge deeply into gold to avert Argentine catastrophe in your future financial life. Likewise, I was suggesting that if someone's past experience is limited to buying gold or currencies, and not buying other investments such as stocks or bonds, then I am not sure I call that experience investing. Maybe speculation. Perhaps gambling.

Similarly, assuming that you have had good experience with your snatching quarters in front of steamrollers strategy (I did not have such good experience with mine - or rather I did until that one time I got steamrolled) I doubt you would recommend it as the ONLY way people should invest in the future nor as the primary way they should protect themselves for all financial ills and disasters.

 

[endthefed]

thanks for the many replies. i'm all out of arguments. i will just repeat something from earlier. gold is a much neglected asset class and enhances diversification.

holding only dollar (or euro..or other paper) based assets is a high risk gamble.

the chart i posted two weeks ago clearly shows paper vs gold cycles. we have been (and continue to be imo) in the gold portion of the cycle. the fact that this move has yet to reach the tech/real estate manias tells me there is plenty of room to run.

as for those that focus on my delivery - let's settle this now. i call it as i see it. i'm not afraid to make public mistakes. i am just giving my opinions. i welcome those that differ and enjoy lively, even combative banter. no hard feelings - ever!

 

[Tigger]

What I was reacting to was the general advice to plunge deeply into gold to avert Argentine catastrophe in your future financial life. Likewise, I was suggesting that if someone's past experience is limited to buying gold or currencies, and not buying other investments such as stocks or bonds, then I am not sure I call that experience investing. Maybe speculation. Perhaps gambling.

Indeed. What I'm doing now is part diversification, part speculation. The current situation lures people into speculation because rates are low, banks seem less safe than they used to and (in my eyes) there's a lack of "safe" assets.
As I didn't have an existant plan or fixed allocation to fall back on, I'm at great risk of making big mistakes.

Similarly, assuminyg that you have had good experience with your snatching quarters in front of steamrollers strategy (I did not have such good experience with mine - or rather I did until that one time I got steamrolled) I doubt you would recommend it as the ONLY way people should invest in the future nor as the primary way they should protect themselves for all financial ills and disasters.

I agree.

 

[Gone4Good]

I think we have enough hindsight now to understand it did prevent collapse.

Of course we do. It's obvious to anyone willing to look at the facts. But not everyone is. And that is because many people aren't conducting an economic analysis, they are engaging in political argument disguised as economic analysis. You see, government intervention couldn't have been beneficial because government is always bad. Don't you remember Ronald Reagan "Government isn't the solution, it's the problem"? Well that is a universal truth, to some. And it is applicable in every situation, without exception. So all you need know about the current crisis is that there was a massive government intervention and then you already know the outcome . . . it's very, very, very bad. We don't need to look at the facts. We don't need to consider how the decline was arrested and how all of the worst case predictions failed to materialize. All we have to do is project future calamity 10, 15, 20 years down the road. That way we can pretend forever that "it's too soon to tell". It's far easier to do that then to admit that your world view is flawed.

 

[Gone4Good]

Many "experts" predict inflation, many others predict deflation.

My quote says "Inflation is trending downward", which it is. That isn't a prediction. It is an observation. But if one were to predict future inflation, they might want to reconcile that prediction with the observation that inflation has fallen since all of the supposed money creation.

 

[Tigger]

I think we have enough hindsight now to understand it did prevent collapse.

Of course we do. It's obvious to anyone willing to look at the facts. But not everyone is.

The immediate crash of the credit market and of certain big banks was stopped by handing them lots of free money. And even today money is being pumped into the economy, money that we don't have (as most countries are deep in debt).

Quantitative easing was recently reduced. And look how the stock markets have behaved since.

Has the collapse been prevented? I'm not convinced. Maybe it has just been delayed. Corporate debt has been changed into public debt, but is this really sustainable? Spain has had a failed bond auction if I remember well, and even Germany just had one. The bond market hasn't blown up yet, but it can't believe the free money will keep coming the way it has until now.

My quote says "Inflation is trending downward", which it is. That isn't a prediction. It is an observation. But if one were to predict future inflation, they might want to reconcile that prediction with the observation that inflation has fallen since all of the supposed money creation.

You indeed didn't predict anything. My bad, my reply wasn't clear and I quoted the wrong part of your message. I tried to defend against your statement that the gold story starts with fact but then continues with predictions of hyperinflation. I don't own gold specifically to protect against hyperinflation. Even during deflation it might have its advantages. And certainly during devaluations (the Greek drama resulted in a de facto devaluation of the Euro vs the other currencies). I wanted to point out that I don't pretend to know about future inflation or deflation. I should have been clearer and quoted a different part of your message.

You did indeed observe that inflation was trending downwards (as opposed to predicting it).

I'm not contradicting that observation. But what inflation is currently doing in the US doesn't mean that high inflation isn't a risk further down the road or elsewhere. In my country it looks like inflation is back, though the trend could change at any time:

P.S. I hope I'm not scaring anyone into hasty and regrettable decisions. I'm just trying to explain my current point of view. You should know that I tend to be relatively extreme in most of what I do. This is often but not always an advantage.

 

[FIREd]

In my country it looks like inflation is back, though the trend could change at any time:

I wonder how much of that latest spike in inflation is due to the Euro losing about 25% of it's value in just a few months, making imports like oil more expensive. Still, the spike is quite small relative to the plunge in the Euro.

 

[samclem]

And that is because many people aren't conducting an economic analysis, they are engaging in political argument disguised as economic analysis. . . . We don't need to look at the facts. We don't need to consider how the decline was arrested and how all of the worst case predictions failed to materialize. All we have to do is project future calamity 10, 15, 20 years down the road. That way we can pretend forever that "it's too soon to tell". It's far easier to do that then to admit that your world view is flawed.

Easier still--build an extreme strawman argument and then ridicule it.

 

[brewer12345]

I don't know what that means. This is the only other reference I can find:

View attachment 9355

(The Predictors: How a Band of Maverick Physicists Used Chaos Theory to Trade Their Way to a Fortune on Wall Street)

Sorry, industry jargon.

Simply put, what merger arbitrage strategies do is some variant of the following:

Company A announces this morning that it is buying company B and paying $50 a share, with the closing to happen in about 6 months. The stock of B Corp. jumps to $48 and flatlines. Our merger arbitrageur checks out the deal, determines it is highly likely to be consummated, and buys B Corp. stock at $48. Perhaps Mr. arb spends a little money hedging downside in B Corp. stock, or perhaps he goes naked. In 6 months time he collects $50/share for his B Corp. stock thus earning gross returns of a shade over 8% annually. Risk in this strategy is mitigated by due diligence, perhaps some hedging, and the fact that most arbs will diversify broadly over a number of deals so that a single deal going wrong does not make that much of a difference. Some arbs will try to juice returns with leverage, but I believe the mutual funds I own generally do not employ leverage.

 

[Texas Proud]

Warning: I do not suggest that anyone buy gold. I know someone who got burned big time the last time gold was in a bull market. He didn't get out in time and didn't live long enough to see it recover.
I'm just trying to explain why I think it makes sense to me to own some, especially at this time. It's a good diversifier but it has its disadvantages. It has gone up a lot and could go down a lot. If you want to buy some, I recommend using your time machine and buying it in 2001 ;-)



My euros suffered a lot this year and it may not be over. Stocks are suffering. Real estate is not doing well. Banks are in trouble in Spain, maybe tomorrow in my country. Etc.
I personally don't care about the specifics of the catastrophes that might happen. Anything that causes a flight to safety would likely be good for my gold and compensate losses in other assets. (until the day that for one reason or another people don't want gold anymore, which is why I try not to overdo this) I lost buying power in my euros this year, but part of that loss was offset by gold moving up. I didn't own enough gold for it to compensate for all the buying power that my euros lost, but it's better than nothing and if things continue to worsen, gold will probably react much harder. (though I kind of expect extreme volatility and am aware that one day it will probably crater hard - by then I hope to have moved most of it into a more traditional portfolio)



I'm not especially preparing for this kind of situations, though it's nice to know that part of my money isn't just ones and zeroes in a computer that might disappear, but in a portable form that I could take elsewhere to build a new life. As interest rates are very low, so far I'm not losing much.

Wars do happen, my parents lived through the last war. It's one of the many reasons why it would be nice to have a big garden, but the risk seems low so I stay in a rental apartment until (hopefully) real estate becomes cheaper here. (prices are at a historic high; they may or may not go down from here; I'm hoping there will be a return to the mean)



Sounds great.



I don't own gold to help me survive in the short term. I own it hoping it will help to better preserve my capital in the long term. (until I find a better asset allocation or strategy). I'd try to get my food and water by different means, but not give up my gold.
Sooner or later things would improve and it would be nice not to have lost everything.
But if gold becomes illegal or crashes, I could lose it, yes. Therefore I don't bet the farm on it.



Most people have survived there, but many families have lost their wealth.
If I would wake up tomorrow and the euro would only be worth 1/3 of what it's worth today, my gold would probably mean that my chances at E-R might not be completely lost. (because gold would likely react very hard to such an event on such a scale) Same thing if the Eurozone would break up. I don't expect that to happen, but while it's improbable, it's technically not impossible.

We're each trying to cope with these strange days as good as we can.
Maybe I'll regret my choices and then you can tell me "told you so".
I'm trying to give it my best shot.

As others have pointed out... gold is not really a long term investment... it IS a hedge that some take in rough times... because it is an emotional purchase... and emotions are running very high right now about a pending collapse...

But when you break down the reasoning that people say why they buy gold... it just does not hold water.

Take yours.... IF the Euro was worth 1/3 of what it is today... how does that affect your life? My first question I ask... 1/3 based on what The US$? Most people throw out 'the dollar is falling' or for you 'the Euro is falling' and don't really know what that means..

So, if it is the dollar... right now it is 1.22 euro to 1$... so make that .40 to $1... you will experience some inflation IMO... but how much does that change your lifestyle? Probably not as much as you think...

Now, let's just use %s.... you have a portfolio... and it drops by 2/3rds... you now have 33% of what you had...

The other guy used 10% of his portfolio to hedge... (and I bet you do not put 10% of your portfolio in gold... but I have been wrong before... just go with me here)... and after this big crash... gold goes up 50%... this portfolio is now worth about 44%... sure, it is better than the first one, but I don't think that the first portfolio person will be in a soup line and the second on easy street... both are hurting a lot... SO, your hedge did not do what you intended... you still have a problem with ER..

 

[FIREd]

A
Take yours.... IF the Euro was worth 1/3 of what it is today... how does that affect your life? My first question I ask... 1/3 based on what The US$? Most people throw out 'the dollar is falling' or for you 'the Euro is falling' and don't really know what that means..

So, if it is the dollar... right now it is 1.22 euro to 1$... so make that .40 to $1... you will experience some inflation IMO... but how much does that change your lifestyle? Probably not as much as you think...

I am a European citizen living in the US, so I can relate to this. From 2001 to 2007, I have seen the dollar lose about half of its value relative to the Euro (and even more relative to gold). Yet I saw no change to my lifestyle (my own personal inflation rate is close to zero over the 2004-2009 period) because the majority of my wealth was denominated in the same currency as my spending (US$) so the exchange rate was of little importance as long as I did not have to spend money in Euros (or in gold). Of course, had I moved back to Europe in 2007 or had my supermarket decided to require payment in gold bullions, my wealth would have taken a huge hit.

Edit: Lately I have started to denominate my finances in onces of gold as an exercise. I found that, between 2004 and 2009, my net worth (in oz of gold) managed to increase about 20% despite the big increase in gold prices vs. the US $. It was still disappointing given how aggressively I have contributed to my portfolio between 2004 and 2009. But imagine my surprise when I found out that, in the mean time, my expenses (in oz of gold) have plummeted about 60%! So I am in fact much better off today with the once of gold near $1,200 (NW = 23 x expenses) than I was in 2004 when the once of gold was near $400 (NW = 8 x expenses), despite the fact that the vast majority of my assets were denominated in US dollars all the while.

 

[Tigger]

IF the Euro was worth 1/3 of what it is today... how does that affect your life? My first question I ask... 1/3 based on what The US$? Most people throw out 'the dollar is falling' or for you 'the Euro is falling' and don't really know what that means..

The Euro has dropped compared to most major currencies. I usually track it by comparing it to special drawing rights (XDR), a basket of major currencies.
Much of what I consume is imported. If the Euro drops, then our imports will become more expensive (like oil). In the short run a devaluation doesn't change much but in the long run it makes life more expensive, unless the other currencies devalue too, which is a possibility. Even if you don't consider it an important problem, I don't mind making a buck from it as a side-effect of holding gold.

but how much does that change your lifestyle? Probably not as much as you think...

Difficult to say in advance, but being mostly in cash with an amount large enough to retire early, I'm not as confident as you that a devaluation won't hurt me.

(I'm not planning to remain this vulnerable, I'm trying to design a diversified portfolio, but am not ready to buy equity at this time - I hear the Bogleheas go "boo hiss!" and do understand that I may be foolish to try to somewhat time my entry point; value investors on the other hand maybe would agree that entering at a lower PE10 wouldn't hurt, provided such a lower PE10 presents itself)

Now, let's just use %s.... you have a portfolio... and it drops by 2/3rds... you now have 33% of what you had...
The other guy used 10% of his portfolio to hedge... (and I bet you do not put 10% of your portfolio in gold... but I have been wrong before... just go with me here)... and after this big crash... gold goes up 50%... this portfolio is now worth about 44%... sure, it is better than the first one, but I don't think that the first portfolio person will be in a soup line and the second on easy street... both are hurting a lot... SO, your hedge did not do what you intended... you still have a problem with ER..

I would be amazed if gold only went up 50% when cash drops 66%. I would expect gold to overreact because of the resulting panic, but of course I could be wrong.

Also, I don't own enough gold to make up for 100% of possible currency problems, but do you know many people who would dare to buy enough gold for that? Are you recommending me to invest 50% in gold?

 

[RonBoyd]

Sorry, industry jargon.

Simply put, what merger arbitrage strategies do is some variant of the following:

Thank you.

 

[brewer12345]

Thank you.

NP.

Of course I should note that whether any of this is a good idea or even appropriate as an investment for any particular person is an exercise left up to the reader...