"Theres what went wrong. I'm sure plenty of things can go wrong. Historically, plenty of things did go wrong and some that could have, didnt. I cant guess, you cant guess, nobody can guess. Thats why you lay out your asset allocation in the buckets you do and in the bucket sizes you do. Its still not clear to me what the "gold" bucket does for me. It doesnt seem to ying or yang with anything with consistency...at least not anymore. So whether the problem is currency valuations or godzilla, I dont see the benefit. Except as I've already described, the blind run to gold when 'scary' things happen, and I think that bullet may have already left the chamber."
CFB: I guess, I guess. The ardent/strident goldbugs have spent a goodly portion of time not studying gold but the fundamentals under it, the paper currency expansion and the flows of it throughout the system, in a sense, the unseen fingers of money. (My guess, you have quickly jumped to your conclusions—although I may be wrong—but I see no evidence pointing toward my being wrong.) There is no down and dirty easy answer. I can't sprinkle fairy dust on you or click my heels together three times and say "There's no place like gold."
Here is a recent article by John Mauldin that I think proves my point. If you understand it clearly after one read, then I am wrong, and you are right. (Please be fair and honest, not with me but, rather, yourself.) I think those who have studied this subject even semi-intensively will get it immediately (if you can’t find it immediately, go to Fingers of Instability):
http://www.2000wave.com/article.asp?id=mwo040706
For me, understanding gold is relatively unimportant, having help understanding how unreal currencies have shaped our minds and behaviors is. Plus, I like to make money by attempting to understand where people will go—but before them.
Your cheese argument: Again, you’re right but in a wrong way according to my thinking. The goldbugs/bears have explained numerous times that the Fed has been pumping money into the system for numerous years. Some say that even the 80s stock boom/bubble was at least partially blown by the expansion of paper money. (See Creature from Jeckle (sp) Island) We don’t know where this created money will flow for sure, except primarily in hindsight. I can guess that as in the past during long periods of what appears to be moderate inflation it will rotate around: from a booming stock market to a booming housing market. On a smaller cycle, from oil to um uranium or silver or gold or lead. Or cheese. It, the money, will rotate in and rotate out. For basically conservative old farts that is a good reason to maintain a diversified, balanced portfolio, with perhaps a mildly heavier bucket of commodities in portions that please you. But don’t forget to rebalance. Personally, I think inflation always returns to gold and in difficult times bubbles it up with a vengeance. So my bucket has a little more than 10%, and I’ll trust my timing skills. If you buy cheese or any single commodity, you’re trusting your timing skills. As with all rebalancing schemes in a diversified portfolio, you won’t do as well as someone who chooses just one bucket and completely fills it—and then hits. I moderately rotate; that’s my choice. That’s the positive side of the cheese.
Mauldin’s article talks in the abstract about coming possible cascades. Studying gold and money creation and flows has sensitized me to this possibility—I think. I believe gold will hold up far better than other commodities in such an event. Or it will hold up better than other commodities in a series of smaller cascades over time. (If you have questions as to why, please feel free to ask.) Long bonds will be hit and fall in price at some point in the future. Maybe derivatives. Housing prices are in slow cascade mode right now. We currently have a gov’t that thinks it is invincible; they think they can manage it ALL successfully. I think not, not any more. I suspect you agree with this last comment because if you didn’t you wouldn’t be interested in the least bit in gold, would you? Enough today. DW has chores for me. But here's another fun one:
http://www.safehaven.com/article-4965.htm
Off topic: We got home from our trip to Texas the other day. We pulled into the back of the house and started to unload stuff. On the last load for me I had my arms full and a few loose items in my pockets such as three cans of beer and a couple of hand tools. As I waddled to the door, my pants started to drop. As I crossed the threshold, they fell to my ankles. I dropped everything on the kitchen counter that I could and just stood there for a moment thinking “Home at last, home at last, thank God, home at last. (I am not making this up).
--Greg
