Uncertain Future

[ultimo]

...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]

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]

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]

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]

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.

 

[Meadbh]

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.

I agree with you about this. Many members of this forum do seek out their own answers and shun financial advisors; however, my impression is that the majority focus on "conventional" asset allocation. It's good to hear a contrarian voice. As in any community, dissenters are often ridiculed. A little diplomacy on everyone's part can help us all learn something.

 

[ultimo]

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

Hi Spanky, it'll be about 45% commodities and commodities-related, 45% foreign currencies and 10% gold (in addition to that which might be included in the commodities funds).

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%. 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.

You're assuming, I take it, that gold was accurately priced in 2000, at the height of the stock market bubble, and that there's always a perfect correlation between the purchasing power of the dollar and the price of gold. You already know, I'm sure, that if you adjust the nominal peak of gold in 1980 for inflation, it would be priced around $2000 in today's dollars. Further, CPI is notoriously meaningless as a measure of real inflation. In fact, the government deliberately under-reports CPI because so many things, including SS liabilities, are linked to CPI. So predictions that gold will go higher are based, in part, on the likelihood that real inflation will rise significantly as the government attempts to monetize the budget deficit by printing ever increasing amounts of money. Gold's strongest correlation is not to CPI (or to the USDX), but to real inflation. Gold started off from a low base and is still catching up to where it should be priced today, and has a lot farther to go.

Many members of this forum do seek out their own answers and shun financial advisors; however, my impression is that the majority focus on "conventional" asset allocation. It's good to hear a contrarian voice. As in any community, dissenters are often ridiculed.

Thanks, and with this post I think I'll make my exit from this forum. Good luck to all.

 

[Gone4Good]

You're assuming, I take it, that gold was accurately priced in 2000.

Yup, that particular calculation used 2000 as a baseline. But if you pick any other period over the last 40 years, with the exception of a couple of years in the early 80's, gold shows up as being overvalued by varying degrees. In order to argue otherwise you have to benchmark against the last bubble, which is exactly what you are doing. But by that analysis, the NASDAQ is really cheap, and the Nikkei is an absolute steal.

Further, CPI is notoriously meaningless as a measure of real inflation.

Only among internet conspiracy theorists. I've yet to see a mainstream economist claim he is adjusting his macroeconomic model for known problems with reported CPI. But don't take anyone's word for it. Please feel free to check out a basket of actual prices as reported in the Daily Record going back to 1900 and benchmark them against CPI. I've done it and CPI tracks very well.

Historic prices: Morris County, NJ

 

[Gone4Good]

Gold started off from a low base and is still catching up to where it should be priced today

I'm curious. By what measure are you valuing gold? What is fair value and how did you arrive at that number?

 

[Meadbh]

Thanks, and with this post I think I'll make my exit from this forum. Good luck to all.

...Yrs to go, it appears that Ultimo has left the [-]building[/-] forum. My last post seems to have been the last straw. Driving him/her away was not my intention. I was actually interested in what he/she had to say. But he/she is exquisitely sensitive to criticism.

 

[ultimo]

Yup, that particular calculation used 2000 as a baseline.

But my question was, was gold accurately valued then? This was at the peak of the stock market bubble and all commodities were undervalued.

Only among internet conspiracy theorists. I've yet to see a mainstream economist claim he is adjusting his macroeconomic model for known problems with reported CPI.

You're talking about the mainstream economists who ao accurately predicted the recession, and the housing crash and the decline of the dollar? Seriously, there are many mainstream economists who are critics of Greenspan's redefinition of inflation which we still live with today. From The Economist a few years ago:

Mr Greenspan’s eagerness to redefine inflation gives Stephen Roach, the chief economist at Morgan Stanley Dean Witter, a horrible sense of déjà vu. In the 1970s, Mr Roach worked in the Fed, under the then chairman Arthur Burns. When oil prices surged in 1973-74, Mr Burns asked the Fed’s economists to strip out energy from the CPI to get a “less distorted” measure. As food prices then rose sharply, they also stripped out food, followed by jewellery, mobile homes and so on, until over half of the contents of the CPI were excluded. Yet the core measure continued to rise. Eventually, but much too late, the Fed slammed on the brakes. With hindsight the Fed’s fixation on core inflation was a serious blunder which kept it in denial, says Mr Roach. Naturally, this time things are completely different.
​

Do you, too, think things will be completely different this time?

...Yrs to go, it appears that Ultimo has left the [-]building[/-] forum. My last post seems to have been the last straw. Driving him/her away was not my intention. I was actually interested in what he/she had to say. But he/she is exquisitely sensitive to criticism.

I thought I'd return here and explain that I'm not leaving because of your post, or because I'm sensitive to criticism, but because my purpose wasn't, as someone said, to rain on people's parades. You've formed a community here with fairly mainstream ideas about the economy and I don't wish to spend my time challenging the status quo. I came here with specific questions. I know what I want to do and now I need to go do it.

Best to all!

 

[traineeinvestor]

I thought I'd return here and explain that I'm not leaving because of your post, or because I'm sensitive to criticism, but because my purpose wasn't, as someone said, to rain on people's parades. You've formed a community here with fairly mainstream ideas about the economy and I don't wish to spend my time challenging the status quo. I came here with specific questions. I know what I want to do and now I need to go do it.

Best to all!

Sometimes challenging the status quo (or at least putting your views out there for comment and debate) is healthy, both mentally and financially. Equally, hanging out with people who have a different perspective on issues such as the economy and investment management is also a good thing.

 

[drb111]

Has anyone else noticed that every 4th or 5th commercial on CNBC et al these days is a washed up actor or actress peddling gold? No offense, this has been a fun thread to read, but these commercials are hysterical and may be indicating that its time to head for the exits with a short gold etf in hand.

Good luck!

 

[Gone4Good]

Seriously, there are many mainstream economists who are critics of Greenspan's redefinition of inflation which we still live with today. From The Economist a few years ago:

Mr Greenspan’s eagerness to redefine inflation gives Stephen Roach, the chief economist at Morgan Stanley Dean Witter, a horrible sense of déjà vu. In the 1970s, Mr Roach worked in the Fed, under the then chairman Arthur Burns. When oil prices surged in 1973-74, Mr Burns asked the Fed’s economists to strip out energy from the CPI to get a “less distorted” measure. As food prices then rose sharply, they also stripped out food, followed by jewellery, mobile homes and so on, until over half of the contents of the CPI were excluded. Yet the core measure continued to rise. Eventually, but much too late, the Fed slammed on the brakes. With hindsight the Fed’s fixation on core inflation was a serious blunder which kept it in denial, says Mr Roach. Naturally, this time things are completely different.
​

You completely misunderstand this quote. Mr. Roach isn't criticizing the actual CPI calculation, but rather a separate calculation called "Core CPI". Core CPI is something economists look at but nothing is indexed to it.

 

[unclemick]

Well of course this time it is different - cause I have a Curmudgeon Certificate. Now pay attention not because I'm only going to say it once(I'm hard to shut up).

Vanguard Total World Stock Index Fund - inception 2008 so you don't have to fiddle with past performance.

So if things get too bad and you don't have a ticket to Mars you've had the weenie anyway.

heh heh heh - After 16 yrs of ER and with my past chewy '1966-1982 end of the world days behind me' this stuff gets amusing in my 66th year - starting a new career as a regular retired phart. .

 

[ultimo]

You go, Uncle Mick!

As for yearsto go, or whatever your name is, I think you're being very disingenuous. I think you're bending over backwards to justify a very naive point of view. Core inflation is exactly what's left after you strip away all those things Greenspan excluded. Where were you 10 years ago?

I don't know how old you are or what your circumstances are, but I'd advise that it would be very good for you to quit justifying yourself and criticizing others and just look at the world as it is.

 

[MichaelB]

As for yearsto go, or whatever your name is, I think you're being very disingenuous. I think you're bending over backwards to justify a very naive point of view. Core inflation is exactly what's left after you strip away all those things Greenspan excluded. Where were you 10 years ago?

I don't know how old you are or what your circumstances are, but I'd advise that it would be very good for you to quit justifying yourself and criticizing others and just look at the world as it is.

A show of support here for . . . Yrs to Go. I thought his posts have been engaging and well presented. Disagreement does not call for lack of a civil tone.

 

[REWahoo]

I remind all those posting on this thread of our Community Rules, specifically:

Be Courteous! We aim to ensure that the forum is an enjoyable place that you want to visit time and time again. Our underlying philosophy is that the strength of the member relationships we build here is what sets us apart from the other boards. Treating each other with respect and kindness, and thinking before you speak will go a long way towards making this an enjoyable place.

• Do not engage in personal attacks. Challenge others' points of view and opinions, but do so respectfully and thoughtfully.

After one unheeded reminder of our rules, the Pig has the final word.

 

[MichaelB]

I remind all those posting on this thread of our Community Rules, specifically: After one unheeded reminder of our rules, the Pig has the final word.

Excuse my ignorance - who (or what) exactly is "the Pig".

 

[REWahoo]

Excuse my ignorance - who (or what) exactly is "the Pig".

Porky Pig gets the last word

 

[MichaelB]

Porky Pig gets the last word

A picture is worth a thousand words...

 

[brewer12345]

I will go one further. Yrs has been far more patient than a certain poster deserved.

 

[cardude]

Wait, Ultimo, before you go, I'd like to try to get a debate going over whether to keep the mortgage or pay it off. Got any ideas?

 

[Gone4Good]

Further, CPI is notoriously meaningless as a measure of real inflation. In fact, the government deliberately under-reports CPI because so many things, including SS liabilities, are linked to CPI.

I think you're being very disingenuous. . . . Core inflation is exactly what's left after you strip away all those things Greenspan excluded. Where were you 10 years ago?

Perhaps its worth pointing out that CPI and "Core" CPI are two completely different things. In quote one you are clearly talking about CPI, not "Core" CPI. Social Security is not indexed to "Core" CPI. It never has been. Not today. Not 10 years ago.

So I don't believe I'm being disingenuous in pointing out that the criticisms you posted about "Core" CPI don't apply to a completely different inflation measure which doesn't strip out all of those things you mention.

 

[Hamlet]

This is something that seems to be poorly understood by a lot of people.

Everything is indexed to CPI, which does include food and energy.

They publish a core CPI that excludes those things, but that core CPI is just for information only.

Perhaps its worth pointing out that CPI and "Core" CPI are two completely different things. In quote one you are clearly talking about CPI, not "Core" CPI. Social Security is not indexed to "Core" CPI. It never has been. Not today. Not 10 years ago.

So I don't believe I'm being disingenuous in pointing out that the criticisms you posted about "Core" CPI don't apply to a completely different inflation measure which doesn't strip out all of those things you mention.