We're still too exuberant

[greg]

I'm a little uncertain, though, how that strategy squares with your stockpile of gold.

YTD: I shouldn't have to re-explain everything again. Go look at the first post in that thread and examine carefully what I said. I am not investing in gold ETFs to make money (although it may be possible to someday catch the top of some over-exuberance). It is a refuge from the marketplace, when every thing there seems overvalued. If, also, the US$ drops, then gold will still buy the same thing--a suit of clothes or its equivalent--nothing more, nothing less. I'm not buying tulip bulbs. I'm withdrawing my savings/earnings/money from the world--until a better time arrives when it can re-enter. 10% is a reasonable amount of that type of diversification. If--if-- it rises to 20%-25% of the portfolio, then I may rebalance at that time. But I won't be rebalancing because gold went up!!! I'll be rebalancing because paper money and/or the marketplace instruments went down to a point where I can justify getting safely back in.

If you go back in time to my original posts about 3-5 months back, I said that dividends are incredibly important. In fact, about 75% of portfolio money is constantly on the prowl for interest and dividends--safe dividends and interest. (e.g. not financial stock dividends or junk bond interest, which can disappear quickly if the market turns down significantly). Like JG says, maybe you should revisit my older posts . Right now, due to a number of reasons previously explained, I believe short-duration AAA bonds are safest. But I may soon speculate on some longer-duration ones if I can bear the risk.

I don't know about you, but I don't want an apocalypse to get all my money.

 

[greg]

A Financial non-Analogy

As drivers, we have a vested interest in what’s going on in front of our windshield. Our lives might depend on it. One interesting, but psychological part of driving that’s important is what actually happens to many people right before an accident. As we are driving along at thirty or more MPH and a car pulls out in front of us, we panic. We slam on the brakes and as we slide toward the impending accident, time suddenly slows down. We sort of slip into a trance-like state where everything in front of us appears as if in slow motion—until the collision.

I suspect what is going on here is that all our consciousness, all of our awareness, focuses for brief milliseconds of time upon that looming, unfolding reality. We don’t see the periphery, out the side windows or rearview mirror. We may not even be aware that we have pressed the brake pedal almost through the floorboard. Our hands and arms may not work properly. All this because our attention is so intent, so gathered up and directed, on that frontal experience that it can’t go to those other areas. Time seems to slow down for the primary observer of the unfolding events. But real time doesn’t. I’ve been in a couple accidents. Anti-lock brakes are a good thing.

I see real-time events that may get distorted by viewers of financial markets and by people driving their portfolios to a safe and happy retirement. Below are some events I see and observations on those events:

The macro-bears are wrong! The macro-bulls are wrong!: Each side of this “financial potato” tends to ignore or screen out the other side’s valid points. The bulls want to see their investments climb in value, grow, so they tend to focus on all the good aspects of the potato, the higher earnings, lower interest rate environment, the newly developed product, etc. The bears, at least the macro-bears I read, tend to focus on where the potato is going in space. And from this perceived data may or may not see a doomed potato—mashed.

These two differing perceptions of the financial markets are each a form of alienation. And they relate directly to the alienation described in the first two paragraphs. Often, right after we run into the other car and all the motion finally stops, we are semi-detached from the experience. We are as yet unsure if we’ve been injured, if bones are broken or we have bruises. Our consciousness is still not out there completely in the real world. In one sense, we are protected from ourselves. But after some passage of time, the bruises may start to hurt, and consciousness moves from its inner sanctuary back to the body. This is just the way things work in nature most of the time. So too when looking at the potato: We tend to crawl into our little safe haven sanctuaries. If we have been told that Modern Portfolio Theory works and that index funds are wonderful and all the evidence that verifies such things is sound or valid at least has been for the past few decades--and then if we believe that evidence--we then TEND to withdraw ourselves and our investments to the castle keep. We may become numb to where the potato is going. The bears do the same thing from their side: They see a doomed potato headed for a brick wall. They search for more evidence to confirm that hypothesis. They find it. They look for more. They find more. They also oftentimes alienate themselves, draw up consciousness into a differing mind set and refuse to see the actual potato, only where it’s going. They can easily become numb to the actual potato.

Each perception taken on its own is only part of financial reality. Reality is far greater than what any one human idea can hold.

But diversity helps, especially a macro-diversified portfolio that includes elements from each side. If one thinks that diversity is simply having a few different parts of the potato, one misses most of the bear’s point. A little skin, perhaps an eye or two, and some of the white, meaty . . . um . . . patatoey parts are all still part of the potato. One needs to find some anti-potato, whatever that might be.

By being at least slightly sensitized to the other side’s viewpoint, a driver of a portfolio, in a sense, is forcing consciousness back out on to the road—and into the real world. One becomes better able to move one’s arms and hands to control the steering wheel when one works at and practices such activities. One may calmly see periphery events that may also loom and subsequently avoid them if one practices putting consciousness out there where it may not have been before. It also improves agility so that the accident may be avoided next time.

The potato may be on the move and not just benignly growing in size. Got gold!

Live long and prosper.

--Greg

 

[unclemick]

Hmmmm

Still have my 10% interest in a NON working gold mine outside of Jamestown CO and a few gold, silver, and platinum coins wasting space in a deposit box in LA.

Now where are all those 4% div yielding PM and mining stocks - I used to own in the 70's and 80's.

The old Southern Peru Copper - now Southern Copper - 'might' offer some entertainment this winter.

Older - and not as exuberant this time around.

What's the modern price of Ruff Times back issues?

Heh heh heh heh heh.

We gots snow on the ground here.

P.S. Then there is the Oregon timberland partnership with the stinking Spotted Owls.

Rats!

 

[REWahoo]

The potato may be on the move and not just benignly growing in size. Got gold!

Is it just me, or does everyone else have difficulty deciphering Greg's posts? For the life of me, I cannot figure out what the man is trying to say. "Modern Potato Theory"? What the heck do bears or bulls have to do with potatoes? Salmon or corn I can understand, but spuds?

And the auto driving accident analogy also escapes me. I'm forced to believe he's been in a car accident, suffered a concussion and has been playing with Mr. Potato Head as part of his recovery therapy.

Greg, take your meds and say "Hi!" for me to your friends in the basement.

 

[Nords]

Is it just me, or does everyone else have difficulty deciphering Greg's posts?

When the ultimate "Ignore" feature arrives on this board, it should be configurable. We could program it to "skip Greg's posts containing the words dollar, gold, and the phrase 'suit of clothes'"...

 

[73ss454]

When I retire maybe I'll find the time to figure them out.

 

[greg]

Wahoo: I sat looking at your question for a half hour. I thought my explaination was pretty good at the time I wrote it. I'm sorry I can't do better in 200-300 words. It takes a few thousand. I just can't do it here. Sorry.

I'll stick to comedy and wiseguy stuff Thanks.

 

[REWahoo]

Greg, are you sure you're ready to throw in the towel so quickly? Only two responses to my question so far out of almost 2,000 members on the forum doesn't seem like an ovewhelming majority...even in Florida. You may want to wait for more input before removing the mortarboard and donning the jester's hat.

 

[Gone4Good]

One needs to find some anti-potato, whatever that might be.

Here is some 'anti-potato' for you - BEARX.  Not sure its healthy to eat, but it seems right up your alley.

I am not investing in gold ETFs to make money (although it may be possible to someday catch the top of some over-exuberance).  It is a refuge from the marketplace, when every thing there seems overvalued.  If, also, the US$ drops, then gold will still buy the same thing--a suit of clothes or its equivalent--nothing more, nothing less.  I'm not buying tulip bulbs.  I'm withdrawing my savings/earnings/money from the world--until a better time arrives when it can re-enter. 

Greg, I honestly don't see your logic for a number of reasons:
1) Gold ETFs are part of the market - unless by 'market' you mean equities.
2) There is no law of nature that requires a certain weight of gold to be worth a specific amount of goods and services - a suit of clothes or otherwise.
3) Point '2' is specifically relevant considering how much gold has outperformed CPI over the past several years.  Is 'mean reversion' also a concern for gold, or just stocks?
4) In view of gold's recent price appreciation I don't see why you are not worried about a bubble in gold prices . . . you seem to think every other asset class is a bubble . . . why not gold? 
5) You say "when everything else seems over valued" but would you know if gold is overvalued?  Are you sure its not?  By what measure do you evaluate golds relative attractiveness to other investments?

Are you sure gold isn't looking a bit bubbly??

 

[sgeeeee]

Yeah. He's really onto something.

If I suggested that today's stock prices was a good indicator of future performance, no one would believe me.

If I suggested past performance was a good indicator of future performance, no one would believe me.

But . . . through the magic of division, we now have a future prediction metric that we can trust. Forget about the fact that people have been looking for future prediction metrics without success for over 100 years. This division thing will probably really work. And it's based on . . . ta da da daaaaa. . . taking the average of this same metric over the past 130 years, then comparing the current number to that. How can that not work? It seems pretty fundamental cause and effect to me.

 

[Mr._johngalt]

Is it just me, or does everyone else have difficulty deciphering Greg's posts?  For the life of me, I cannot figure out what the man is trying to say.  "Modern Potato Theory"?  What the heck do bears or bulls have to do with potatoes?  Salmon or corn I can understand, but spuds?

And the auto driving accident analogy also escapes me.  I'm forced to believe he's been in a car accident, suffered a concussion and has been playing with Mr. Potato Head as part of his recovery therapy.

Greg, take your meds and say "Hi!" for me to your friends in the basement.

It's simple really. Greg thinks our economy is spuddering.

JG

 

[unclemick]

I bought Greg's argument thru the 70's and 80's - I had the 10% gold more than enough times - and yes I owned Vanguard PM for a long time.

This time - lean more toward De Gaul - and of course Bogle - buy the whole market and let the market cap of different sectors do the adjusting.

Counterpoint - foreign stocks.

P.S. ?Is Harry Browne still around??

This time is different - Right!

Heh heh heh

 

[REWahoo]

I liken it to going to the store to buy a loaf of bread. The price of the bread is what you need to pay if you want to eat. Don’t like the high cost of the bread? Are you going to walk out of the store and come back next week to see if it costs less? Forgo eating at your own peril.

Make that wheat bread and I know at least one guy who will buy your arguement.

 

[Jarhead*]

UncleMick: As you probably know, old Harry
started the Permanent Porfolio fund in the early 80's. Last I heard he no longer runs the fund, but is on the Board of Directors.

Fund was, and still is, set-up to combat run away inflation. Gold, Silver, (Swiss Franks, stable currancy play), T-bills.

Yep, I think we all did some (in retrospect), pretty dumb things during that period.

I was married with two small children in 1966, and like most in my generation, was very naive about investing, which is just as well, because
until the mid 70's I had too much month at the end of my income.

Reading Harry Browne, Howard Ruff, and Casey,
in the 70's, and following some of their recommendations, mostly kept me humble, and
broke.

Interesting times.

 

[Jarhead*]

Make that wheat bread and I know at least one guy who will buy your arguement.

ReWahoo: I, for one, would appreciate it if you wouldn't give Nords a hard time about this.

After all, according to him, it's only an "occasional" problem. Besides that, a Pineapple and wheat bread sandwhich, especially if you slap a little mustard on it, is hard to beat.

P.S. We are now into our 4th. day of raining like dogs and cats. (No Golf).
At this point, it is an endurance contest, to see if my wife or I end up in the "Funny Farm"

 

[Eagle43]

P.S.  We are now into our 4th. day of raining like dogs and cats.  (No Golf).
At this point, it is an endurance contest, to see if my wife or I end up in the "Funny Farm"

There are other games!

Here in Texas, we'd kill for that rain.  You must be getting ours.  We're in a drought, and I suspect it won't be remedied until Spring.  It's ironic that I had a houseful of Katrina refugees this summer, running to evade that storm, and I had to ask them to help me water my yard. 

 

[REWahoo]

P.S. We are now into our 4th. day of raining like dogs and cats. (No Golf).
At this point, it is an endurance contest, to see if my wife or I end up in the "Funny Farm"

I can see it now...

 

[tiredofwork]

3) Point '2' is specifically relevant considering how much gold has outperformed CPI over the past several years. Is 'mean reversion' also a concern for gold, or just stocks?
4) In view of gold's recent price appreciation I don't see why you are not worried about a bubble in gold prices . . . you seem to think every other asset class is a bubble . . . why not gold?
5) You say "when everything else seems over valued" but would you know if gold is overvalued? Are you sure its not? By what measure do you evaluate golds relative attractiveness to other investments?

Are you sure gold isn't looking a bit bubbly??

One way to compare relative value of gold to the stock market is the Dow:Gold ratio. Run a Google search on it. Gold would definitely be overvalued at somewhere less than 5:1

 

[Gone4Good]

One way to compare relative value of gold to the stock market is the Dow:Gold ratio.  Run a Google search on it.  Gold would definitely be overvalued at somewhere less than 5:1
 

Any idea why the Dow should trade at any specific ratio to gold?

Let's say that in 1970 I bought an ounce of gold and an equivalent dollar amount of GE stock and stuck them in a safety deposit box for the last 35 years. When I open that box today my ounce of gold is still just one ounce of gold. But my GE stock is a completely different and much larger company. Why should the ratio between these two things have any correlation whatsoever?

 

[preben]

Putting 10% in gold/PM seems prudent to me. Make it gold/PM equities if you want to "gear" the return a bit and do not see armageddon just around the corner.
I hold VGPMX and PCRIX up 40% and 22% ytd respectively so they have certainly added to my christmas happiness this year!
Cheers!

 

[Ed_The_Gypsy]

tiredofwork,

Years ago, there was a guy on the radio with a monicker like the Street-wise Economist or something. He insisted that there was a magic ratio of the price of gold to the price of oil. It always seemed daft to me. Their uses are no way connected. The major use of gold is in class rings. The major use of oil is fuel to run the world. I forget what the magic number was. It would be interesting to back-test it from today--just for fun.

Unc2: Harry Browne, eh? For 10 points, how many out there know who Harry Browne is? How many put your money in Mexican bank accounts?

Cheers,

Ed

 

[preben]

The permanent portfolio is based on the Harry Brown stuff: PRPFX. not a bad performer/fund.
(but yeah - he had some bad calls too!). Cheers!

 

[haha]

For 10 points, how many out there know who Harry Browne is?  How many put your money in Mexican bank accounts?

Cheers,
Ed

I know who Harry Browne is, but I had and have no interest in Mexican banks. I do like Mexican food however.

Now a question for those who got Harry Browne- who was Franz Pick, and what was his famous quote?

Ha

 

[preben]

He was a gold bug - and recommended to "buy gold and sit on it". Not bad advise I think - for SOME of a well diversified portfolio. (I prefer a Lazyboy though ). Cheers!

 

[haha]

He may have said this- but the one I remember is "US Government Bonds, certificates of guaranteed confiscation!"

Ha