I live in the USA and I am concerned about the future. I created this blog to share my thoughts on the economy and anything else that might catch my attention.
Thursday, November 19, 2009
Dark Stores & Yellow Brick Roads (Musical Tribute)
Oh man I should NOT be admitting this, but we actually have one of these.
http://www.totousa.com/Default.aspx?tabid=111
Here's the part Mark will appreciate: We bought it with my wife's retirement nest egg 5 years ago; looking at what they go for on the web now, we show a compounded average annual return of better than 4%. I think that beats both the Dow and money markets.
Why her retirement nest egg? When our first was born she had worked not long enough for her pension to vest. About a year after she quit, they sent her a check out of the blue with no explanation. We were remodeling at the time and she insisted on getting it with her "mystery money". How could I say no, it was pennies from heaven; very bad luck not to spend them. At the end of the year I got the tax form showing it was an early withdrawal. #%!@
"What this means is that 90% of Americans in the labor force who are working are eager to spend again."
It's the old 90% of Americans aren't in much trouble at all theory. That exact same theory was applied to housing as it first started to collapse. Shortly thereafter, Tanta at Calculated Risk summed up the more accurate replacement theory...
There are none so blind as those who will not see....
So Mark, you've been bearish on gold from what price exactly? Assuming gold does not go meaningfully below $1000 (I think maybe you went bearish a wee bit above that, looking for say $800?) at what price will you admit that it was a wrong call?
I sold last at $675. I was indifferent until about $1000. At that point I was clearly bearish. That's probably the meaningful starting point for those tracking at home.
If gold goes to $10,000 an ounce but my nest egg is still somehow okay, then I won't admit it was a wrong call. I will admit that it was a missed opportunity though. My ONLY goal is nest egg preservation. Anything that accomplishes that is a success to me.
For example, technically speaking owning gold from 2004 to 2006 was a bad call even though it did very well. One of my stocks, had I held it until today would have made me a fantastic return. Hansen (HANS) made me 6x my money but could have made me 100x. So be it. No regrets.
On the other hand, gold could actually go down in price and my nest egg could vanish. Picture the US government simply refusing to pay me the money I loaned it. In that case, I would very much admit I was wrong! VERY wrong!
And lastly, dotcom stocks probably tripled from the point I first turned bearish (1998-1999). I turned bearish at least a year too early. I turned bearish on real estate at least a year too early (2004). Even if I am ultimately right on gold, you may have a LOT of room left to run.
$2000? $3000? I will never short it. I'll never be THAT bearish.
To put my bearishness in perspective, I would consider buying gold at $700 (in today's inflation adjusted dollars) if the opportunity came along and it wasn't constantly mentioned on TV.
My biggest chance to admit I was wrong is based on what I'm doing right now. I'm sitting on a chunk of nearly universally unwanted US paper dollars. We'll know within a few months how that works out. What can I say? I'm deflationary. It is not a long-term call though. I won't be in cash next year more than likely.
Mark said: "...and it wasn't constantly mentioned on TV."
And radio, the local newspapers, billboards on the highway, not to mention the town that I live by seems to have sprouted a new "Sell your unwanted gold here" sign at every previously vacant rundown storefront. Makes me wonder if I should take some profits here but I guess I'll be like Richard Dreyfuss's character Jay Trotter and 'Let It Ride'.
http://tinyurl.com/yaommk9
By the way, that is a really funny movie well worth watching IMO.
"A KIOSK buying unwanted gold - even gold teeth - is expected to open next year at Northland."
"By mid-next year the company expects to have 200 kiosks nationally, including one in Northland and another in Melbourne Central, and eventually one within 20 minutes’ reach of every metropolitan Australian home, she said."
I'm at least a year early it would seem, even if I am ultimately right to be bearish on gold.
That said, I still feel that toilet paper is the better long-term value at these prices, especially after looking at mab's historical toilet paper price data and factoring in possible future government policies.
I strongly suspect that toilet paper and canned food shortages would be at least slightly more likely than toilet paper and canned goods kiosks, not that I expect either.
Mark - putting discomfort with all the gold ads to one side for now (I don't like it even more than you don't cos i've still got gold, but it's early days - and of course it could be argued it's just smart money buying from weak, unknowing hands - and the extra supply will just make gold's ascent less dramatic and therefore longer-lasting)...
"If gold goes to $10,000 an ounce but my nest egg is still somehow okay, then I won't admit it was a wrong call."
This is the nub of my/your/our problem. I completely understand why you look at it the way you do, but objectively, objectively you're wrong to look at it this way in answer to my question!
I was bearish on the stock-market going into 1997 - I was 3 years too early - I was wrong. I didn't suffer and hopefully nor did my clients cos i quit, but objectively I was still wrong!
I was still basically bearish after 2000 - I was light years too early - I was wrong. I did not suffer, but objectively I was still wrong because my opinion was wrong!
If gold goes to $10,000 and your nest-egg is still somehow ok, you would still have been wrong about gold! Hell, having sold under $700 and whilst for you it may have been the right thing to do, you're already objectively wrong, even though you weren't overtly bearish til $1000+ & for you it's made no difference - yet.....
At least you've put a time-scale on your dollar holding and for me you're certainly putting a different slant on the term -naked capitalism- !
I think you missed an important point. $10,000 gold says nothing about whether gold actually has kept up with inflation long-term. What if it takes 30 years to get there?
You are assuming it will happen sooner rather than later, are you not?
"If gold goes to $10,000 and your nest-egg is still somehow ok, you would still have been wrong about gold!"
That is most certainly not a given. For the sake of argument humor me for a moment.
1. Let's say gold's price keeps up with inflation long-term. 2. Let's say history shows the fair price is $700 right now and it is therefore about 50% overvalued. 3. At $10,000 at some point in the future, you sell. You'll lose another 28% in taxes. 4. Between buying it too expensive and paying those taxes, that would be about a 50% real loss.
I'm not saying that is the case. I'm saying it could be the case. I'm not a believer that gold is good at any price.
Meanwhile, "my nest-egg is still somehow okay". There's a reason I used that disclaimer. Would I really need to say I was wrong?
You want a simple answer out of me but it is a very complex question. Even if gold outperforms toilet paper there are other factors to consider.
Toilet paper is a MUCH safer store of value if the last 100 years are any indicator (over any 10 year period). Gold can hardly be considered safe. 70% nominal loss over a nearly 20 year inflationary period? Toilet paper prices track inflation much more safely and I can completely avoid ALL capital gains taxes as I won't be reselling it.
Put another way, if gold was the PERFECT inflation hedge, then you are guaranteed to lose money over the long run. You'll lose part of it in taxes when you sell. In order to buy gold, you have to...
1. Buy it REALLY cheap. 2. Buy it before a bubble and sell it higher.
You might claim complete financial collapse as well of course. My money would STILL be on toilet paper and canned goods though. If nothing else, gold is screaming that message at me! It's saying, "Bad times are coming! Stock up!" ;)
Mark - of course "just opinions" is all we have, and yes, obviously if gold goes to $10,000 in 30 years it could still be a bad investmernt - but....objectively.....in isolation....selling it at $700 would have been a mistake!
And for argument's sake I think keeping $ in $ and let's optimistically/pessimistically say earning potentially huge interest on it a/ would be unlikely to be "real" and b/ would indeed lead to a high income-tax bill. And when you say "gold can hardly be considered safe - 70% nominal loss over a nearly 20 year inflationary period", yes, you can prove almost anything in pre-defined narrow hindsight if you want, but...what's it got to do with the broad global future?
The thing about t-p is that, really, you're just playing with it. At significantly less than 1% of your assets, it's meaningless in your overall scheme of things - so far at least. And I don't have to sell all my gold at once - selling x/y/z/ number of coins at a time or swapping them for something I need (i do assume some sort of functioning economy) can overcome any tax problem. If you believe gold could be saying bad times are a-coming, maybe you should now (forgive me, can't resist it!) put your money where your...er...um... mouth is....and buy a truly serious amount of t-p!
"Mark - of course "just opinions" is all we have, and yes, obviously if gold goes to $10,000 in 30 years it could still be a bad investmernt - but....objectively.....in isolation....selling it at $700 would have been a mistake!"
Why is this so important to you? I don't mean to be rude but you seem very emotionally attached to gold and only gold.
It would only have been a mistake if I had shorted gold at $700. I didn't.
"Hell, having sold under $700 and whilst for you it may have been the right thing to do, you're already objectively wrong, even though you weren't overtly bearish til $1000+ & for you it's made no difference - yet....."
We have very different ways to look at it. Although I sold Citigroup in 2004 for a profit, I didn't short it after I sold. Mistake? I wasn't long oil to $140+ and then short it down to $30+. Mistake? There are an infinite number of things I've been wrong about using your criteria.
I did buy gold and silver in 2004 and sold them in 2006 for a 50% gain. I got in relatively early (bought low) and got out relatively early (sold high). If that is truly a mistake, even in hindsight, then I very much hope to continue making them.
Mark - whilst you haven't addressed the other points I made, in the general sense & to some degree you're right the way you put this particular one. Obviously making a profit at least risk is what it's about and you and I both don't care if it could have been a lot bigger. But....IMO you cannot be constantly bearish on something for years and then claim you were right all along when/if it eventually falls from a much higher level than your initial bearishness.
And when you are allocating your life-long assets, you should not/do not necessarily sell 1 part of them in isolation (and never come back to that asset unless it falls). I think you're unbalanced (portfolio-wise of course) as a result, but i guess if we all thought the same then markets would end-up pretty unbalanced too!
In my way of thinking a money "mistake" is anytime you lose money. Now of course this has wiggle room, but it is the criteria I use.
In that sense, Mark has not made a mistake about gold/silver, in fact he cleaned up. Not as much as he might have, but still way ahead.
Up front I love the Au/Ag metals and think they are going higher, but you have to always listen to counter views, and this blogs take on gold keeps my sharp and my stops tight, lol!
My biggest mistake: In 2000 I bought shares in a local imaging company, ticker KOPN. I loved their products and I liked that they were here in Mass. I rode that baby from about $30 all the way down to $5! Now that was a bad call! One of my first trades and one of about 10 losers for me over the last 9 years. Ouch!
"But....IMO you cannot be constantly bearish on something for years and then claim you were right all along when/if it eventually falls from a much higher level than your initial bearishness."
I completely agree. It would have to fall below the point of the initial bearishness and by enough to matter. You won't see me ratchet up my bearishness to new levels. In fact, let me state my exact bearishness to be forever locked in stone.
1. $1000 per ounce of gold (spot price)
2. $23.97 per 45 rolls, 500 sheet, 2-ply toilet paper (9.5% sales tax included)
I'm bearish on gold at that price compared to toilet paper at that price. You've already got a decent lead. Toilet paper hasn't even risen yet. Fair enough? You may now gloat if you so desire. :)
I used imaginary money to short Google by the way. I said if it ever doubled from my entry point, I would have been financially ruined. It doubled. Behold the power of imaginary money, lol. Even if it went to zero tomorrow, I'd still have been ruined. No undoing that now. Once ruined, always ruined.
Gold and silver clearly beat TIPS since I sold. I would also argue that the odds do not favor a change in that. Gold has taken a substantial lead. No doubt about it. Further, as can be seen in my last trade, I'm not all that bullish on TIPS right now clearly (at least in the short term).
"...and never come back to that asset unless it falls..."
I generally like rooting through the bin of unwanted "toys" when looking for investment ideas, especially these days. I think the US Dollar qualifies right now (based on my deflationary outlook for Christmas), but I'll be the first to admit it looks pretty darned broken!
There's a bit more to the story on this one though. It goes back to the time I bought. After looking at the 1970s and knowing how wrong I would have been to want to load up on gold when inflation was out of control I think it would have had a decent chance to ruin me financially.
Right or wrong, I promised myself when I bought that I would only own it once and sell it once, no matter how bad things got (the trading costs are high and I did not want to churn them). Once I sold, I'd ride the rest out in TIPS. That's where I am right now. I'm taking a bit of a gamble being out of TIPS, but with TIPS rates so low and 0% being the ultimate floor, I'm not taking much risk even if things turn against me. I just have a Christmas hunch and I'd like to play it with a bit of my portfolio. If I'm right, the gains could be fairly decent. If I'm wrong, very little pain anyway. Christmas deflation or no Christmas deflation, that is the question!
This plan clearly has a chance to financially ruin me of course. We could hyperinflate. That's the risk I take. It's sort of a "if I am ruined, at least I won't be first" plan. I could also be ruined if the government just decided to default outright. Sigh.
I'm with Greenspan, no safe store of value. He ought to know. He helped get us here.
Although I did not buy dotcom stocks, I felt the need to dabble in Nortel. Fortunately, it was only half investment (out of about 20 stocks it was about 2% of the total when I bought).
I bought it at $11. At about $50 I really wanted to sell. However, the investment that retired me was starting to pay off big and it was not a good time to sell for tax reasons. I watched it go to $100 and still I held.
I eventually got my wish. The taxes on Nortel worked out very much in my favor. I sold it at $1 for the tax write-off. That made it worth about $3 to me, lol.
Mark, I remember a lady at the biotech firm I worked at (to remain unanmed so dont ask) and while we were all dumping our stock options at say (all prices changed to protect my butt, but the ratio is the same) $99 she insisted on waiting for $100 for whatever reason. A few of us cashed out all we had, while she waited. Then the tech/biotech bust happened and she did sell in 2003 on her way out the door for $9! Now that is a MAJOR MISTAKE no matter how you spin it. WOWZA.
As an aside, I like and respect your opinions on gold/silver. I do take then into consideration and they do keep my stops ultra tight! We still fundamentally disagree about what is driving the metals, but we can have open debate with no acrimony which is more than I can say for most sites. All my best, and my shout out to Illusion of Prosperity made Seeking Alpha today as well.
I'm almost afraid to share this story but I figure it will never get back to the person. We'll have to quickly bury this thread so it doesn't. It is certainly not my intent to make someone feel bad.
A few of my coworkers decided to invest in the company that retired me. Needless to say, it paid off big for them. However, one coworker thought about it but ultimately decided to buy new tires for his truck instead.
By my estimates, those tires ended up costing about $300,000.
Technically speaking, I'm being a bit of a hypocrite here. He didn't invest. He therefore didn't suffer a loss. Right? ;)
That said, if gold makes both of you two millionaires many times over and I have somehow still managed to protect my nest egg in the process, then I will most certainly not complain. I have very different goals these days than I once had.
All I want is to not have to worry about money day to day ever again. I grew up poor (like you read about) and had to contend with pinto beans for 5 out of 7 days for dinner. I have as much money as I will ever need (not as much as I want, big difference) as longs as I do not go stupid with it. In the end, money is a grease to lube your life, not your life. Too many people are focused on "the next million dollar idea" to see that they might be fine in safe bets. I guess thats why the number one sales item in the US is a lottery ticket! Not me, try not eating for 4 days and a million dollars equals 3 dollars. sorry for the rant.
You don't have to apologize for rants around here. I'm sorry to hear you had it rough growing up. Most people in your situation wouldn't have risen above it, and you clearly have.
"Up front I love the Au/Ag metals and think they are going higher, but you have to always listen to counter views, and this blogs take on gold keeps my sharp and my stops tight, lol!"
"I have as much money as I will ever need...as long as I do not go stupid with it. "
What makes this interesting for me is that we 3 seem to be in a similar situation. Maybe the fact that I'm the "senior" figure here means my approach is less aggressive/more passive, but trading is a risky business and I now try not to do it unless my gut (for lack of a better way of putting it) screams at me that I have to. This leads to balance - if my proportion of assets in "A" goes down, "B" should compensate so i'm not behind.
Mark - I think I'm so fixated on your gold comments/position because i am convinced you've misplaced gold in the overall scheme of things. Did you sell your house cos you thought it was overvalued? Hell no! Did I in the '70's - hell no, even though I desperately wanted to buy some sort of insurance policy or put option on house prices - but they didn't exist.
So I see gold a bit like a house - buy an out-of-the-money put if you want, but don't sell it unless your gut screams at you (maybe you've got an ultra-sensitive gut), because there could be no way back to balance!
I DO have an ultra sensitive gut. You nailed it. Within the span of just a 4 years (1997 to 2001) I'd bought my first house, got married, got divorced, basically won the lottery (even positive change is stressful), saw hundreds of thousands of dollars of stock options vanish, my project cancelled, lay offs, quit my job, watched stock market collapse with me 80% in it, watched 9/11 unfold, my dad died, and watched my dog slowly die from mouth cancer and had to tell the vet to end it. I'm not the same person I was in 1997. I understand post-traumatic stress. Still have it.
I think that's one reason we're almost on the same page but not quite.
Here's the second reason.
Neither my hoard of basic necessities nor my purchase of gold were based on financial apocalypse protection. It was simply because I thought they were bargains. I'm a cheapskate. I'm not trading gold. That's not my mindset. I'm not waiting for an oppurtinity to get back in. It might happen, but I strongly suspect it won't.
I have almost no financial apocalypse protection at all, except for my paid off house (minimal protection at best). I would also agree with you that financial apocalypse is more than just a trivial risk. It is a risk I am taking. I'm going in naked so to speak, because I don't think there is a defense unless I go all out and turn completely survivalist. That's not how I want to live. I've thought about how I would react in nuclear war. I'm the guy who would pull out the lawn chair and move to ground zero. It would be quite the view. Might just as well go out in style.
I can survive something bordering on twice as bad as the 1970s the way I'm positioned. As a saver, the Great Depression won't hurt me much at all.
My nest egg cannot survive worse though. Whatever happens, happens.
In any event, I consider myslf very lucky. I was born at the right time and the right place. I don't think our forefathers had it this good and I don't think our grandchildren will either.
Mark - It's great not quite being on the same page and hopefully instructive for us both.
Being self-aware, truly self-aware, is IMO greatly to be prized - especially when it comes to money. And it seems to me, despite some of my earlier misgivings, that perhaps you're nearer to it than I thought. You consider yourself very lucky (happiness/contentment is a good sense of perspective as I said ealier somewhere else on your blog), but I'm even luckier. Born in 1945, first of the baby-boomers, little talent but fluked my way through a charmed life so far, mainly cos there weren't too many of us by way of competition.
"I'm going in naked so to speak, because I don't think there is a defense unless I go all out and turn completely survivalist"
You see, I don't think it's all or nothing as you imply. It's not necessarily "financial apocaypse protection" that you need, but a full line of defense against the slow decline of the West in general v the Developing world in general for maybe 10 years at least. As an aside, I'm seeing more calls for trade protection and whilst vaguely understandable because of a manipulated Chinese currency perspective, this would lead to nothing but a speedier ossification of the developed economies. But it still wouldn't be as black-and-white as going survivalist. It's the areas of grey that can nibble away at wealth over time unless you've tried to cover as many angles as you can. I just think gold is an essential, unsubstitutable (?) part of one's non-survivalist armoury against the potential economic decline for the vaguely forseeable future of the country in which one lives.
I just don't share your belief, but that's okay. We'll just have to agree to disagree.
I will never see any individual investment as essential at any price. I believe that there are always alternatives, even if I thought hyperinflation was imminent (which I do not).
If everyone here felt exactly the same way, it would probably be time to panic! ;)
I take some comfort that the inflation vs. deflation debate continues.
I was at the local mall yesterday and it was packed. I couldn't help but think most must think our problems are over. There wasn't even a hint of panic.
That's not quite true. We walked into two stores and a restaurant.
One was a game and toy store. We were asked if it was our first trip to the store. My friend said it wasn't. He was then asked, "This one?!" It was a vey odd follow up question. Further, he wasn't the only sales person to help us during our short visit (neither of us bought anything).
The second was Borders Books. They were handing out brochures to everyone who entered (neither of us bought anything).
Then there was the nicer restaurant. It was fairly empty and quiet. Granted, it was 3pm but then again it was a Saturday with a packed mall. Further, the mall's cheaper food court certainly wasn't empty. We'd just come from there.
In case you miss it, that top link is a series of pictures. Just click the arrow on the right to advance to the next one.
ReplyDeleteYou can have all the gold in the world, but you are not really rich until it's been converted to 2 ply toliet paper.
ReplyDeleteOh No!! Another convert!!!!
ReplyDeleteThis is becoming a cult following.
Hahaha! :)
ReplyDeleteI guess the only question now is go long the standard stuff or the super soft stuff that feels wrong to use.
ReplyDeleteRemy supplied a link in the last comment section that is well worth the read. I'm giving people a second chance to read it.
ReplyDeletehttp://www.scribd.com/doc/6674234/Citigroup-Oct-16-2005-Plutonomy-Report-Part-1
Oh man I should NOT be admitting this, but we actually have one of these.
ReplyDeletehttp://www.totousa.com/Default.aspx?tabid=111
Here's the part Mark will appreciate: We bought it with my wife's retirement nest egg 5 years ago; looking at what they go for on the web now, we show a compounded average annual return of better than 4%. I think that beats both the Dow and money markets.
Why her retirement nest egg? When our first was born she had worked not long enough for her pension to vest. About a year after she quit, they sent her a check out of the blue with no explanation. We were remodeling at the time and she insisted on getting it with her "mystery money". How could I say no, it was pennies from heaven; very bad luck not to spend them. At the end of the year I got the tax form showing it was an early withdrawal. #%!@
AllanF,
ReplyDelete"Unprecedented comfort" beats unprecedented economic pain 5 years and counting? Who could have known?
"...she insisted on getting it with her "mystery money"."
And you could have kept it all if it wasn't for those pesky kids, their dog, and that mystery van. Scooby-dooby-doo!
Reasons to Doubt the Double-Dip Recession
ReplyDeletehttp://online.barrons.com/article/SB125684374196016703.html
"What this means is that 90% of Americans in the labor force who are working are eager to spend again."
It's the old 90% of Americans aren't in much trouble at all theory. That exact same theory was applied to housing as it first started to collapse. Shortly thereafter, Tanta at Calculated Risk summed up the more accurate replacement theory...
We're all subprime now!
There are none so blind as those who will not see....
ReplyDeleteSo Mark, you've been bearish on gold from what price exactly? Assuming gold does not go meaningfully below $1000 (I think maybe you went bearish a wee bit above that, looking for say $800?) at what price will you admit that it was a wrong call?
Stevie b.,
ReplyDeleteI sold last at $675. I was indifferent until about $1000. At that point I was clearly bearish. That's probably the meaningful starting point for those tracking at home.
If gold goes to $10,000 an ounce but my nest egg is still somehow okay, then I won't admit it was a wrong call. I will admit that it was a missed opportunity though. My ONLY goal is nest egg preservation. Anything that accomplishes that is a success to me.
For example, technically speaking owning gold from 2004 to 2006 was a bad call even though it did very well. One of my stocks, had I held it until today would have made me a fantastic return. Hansen (HANS) made me 6x my money but could have made me 100x. So be it. No regrets.
On the other hand, gold could actually go down in price and my nest egg could vanish. Picture the US government simply refusing to pay me the money I loaned it. In that case, I would very much admit I was wrong! VERY wrong!
And lastly, dotcom stocks probably tripled from the point I first turned bearish (1998-1999). I turned bearish at least a year too early. I turned bearish on real estate at least a year too early (2004). Even if I am ultimately right on gold, you may have a LOT of room left to run.
$2000? $3000? I will never short it. I'll never be THAT bearish.
To put my bearishness in perspective, I would consider buying gold at $700 (in today's inflation adjusted dollars) if the opportunity came along and it wasn't constantly mentioned on TV.
My biggest chance to admit I was wrong is based on what I'm doing right now. I'm sitting on a chunk of nearly universally unwanted US paper dollars. We'll know within a few months how that works out. What can I say? I'm deflationary. It is not a long-term call though. I won't be in cash next year more than likely.
Who entered home and decorated for Christmas?
ReplyDeletehttp://www.chicagotribune.com/news/chi-ap-il-mysteriousdecorat,0,416537.story
I have a theory. It would be someone who was high on the Christmas spirit!
A new tradition: The Christmas bong
http://blogs.kansascity.com/crime_scene/2009/11/a-new-tradition-the-christmas-bong.html
Mark said:
ReplyDelete"...and it wasn't constantly mentioned on TV."
And radio, the local newspapers, billboards on the highway, not to mention the town that I live by seems to have sprouted a new "Sell your unwanted gold here" sign at every previously vacant rundown storefront.
Makes me wonder if I should take some profits here but I guess I'll be like Richard Dreyfuss's character Jay Trotter and 'Let It Ride'.
http://tinyurl.com/yaommk9
By the way, that is a really funny movie well worth watching IMO.
http://preston-leader.whereilive.com.au/news/story/sell-your-unwanted-gold-while-precious-metal-is-at-record-high/
ReplyDelete"A KIOSK buying unwanted gold - even gold teeth - is expected to open next year at Northland."
"By mid-next year the company expects to have 200 kiosks nationally, including one in Northland and another in Melbourne Central, and eventually one within 20 minutes’ reach of every metropolitan Australian home, she said."
I'm at least a year early it would seem, even if I am ultimately right to be bearish on gold.
That said, I still feel that toilet paper is the better long-term value at these prices, especially after looking at mab's historical toilet paper price data and factoring in possible future government policies.
I strongly suspect that toilet paper and canned food shortages would be at least slightly more likely than toilet paper and canned goods kiosks, not that I expect either.
Mark - putting discomfort with all the gold ads to one side for now (I don't like it even more than you don't cos i've still got gold, but it's early days - and of course it could be argued it's just smart money buying from weak, unknowing hands - and the extra supply will just make gold's ascent less dramatic and therefore longer-lasting)...
ReplyDelete"If gold goes to $10,000 an ounce but my nest egg is still somehow okay, then I won't admit it was a wrong call."
This is the nub of my/your/our problem. I completely understand why you look at it the way you do, but objectively, objectively you're wrong to look at it this way in answer to my question!
I was bearish on the stock-market going into 1997 - I was 3 years too early - I was wrong. I didn't suffer and hopefully nor did my clients cos i quit, but objectively I was still wrong!
I was still basically bearish after 2000 - I was light years too early - I was wrong. I did not suffer, but objectively I was still wrong because my opinion was wrong!
If gold goes to $10,000 and your nest-egg is still somehow ok, you would still have been wrong about gold! Hell, having sold under $700 and whilst for you it may have been the right thing to do, you're already objectively wrong, even though you weren't overtly bearish til $1000+ & for you it's made no difference - yet.....
At least you've put a time-scale on your dollar holding and for me you're certainly putting a different slant on the term -naked capitalism- !
Stevie b.,
ReplyDeleteI think you missed an important point. $10,000 gold says nothing about whether gold actually has kept up with inflation long-term. What if it takes 30 years to get there?
You are assuming it will happen sooner rather than later, are you not?
"If gold goes to $10,000 and your nest-egg is still somehow ok, you would still have been wrong about gold!"
That is most certainly not a given. For the sake of argument humor me for a moment.
1. Let's say gold's price keeps up with inflation long-term.
2. Let's say history shows the fair price is $700 right now and it is therefore about 50% overvalued.
3. At $10,000 at some point in the future, you sell. You'll lose another 28% in taxes.
4. Between buying it too expensive and paying those taxes, that would be about a 50% real loss.
I'm not saying that is the case. I'm saying it could be the case. I'm not a believer that gold is good at any price.
Meanwhile, "my nest-egg is still somehow okay". There's a reason I used that disclaimer. Would I really need to say I was wrong?
You want a simple answer out of me but it is a very complex question. Even if gold outperforms toilet paper there are other factors to consider.
Toilet paper is a MUCH safer store of value if the last 100 years are any indicator (over any 10 year period). Gold can hardly be considered safe. 70% nominal loss over a nearly 20 year inflationary period? Toilet paper prices track inflation much more safely and I can completely avoid ALL capital gains taxes as I won't be reselling it.
Put another way, if gold was the PERFECT inflation hedge, then you are guaranteed to lose money over the long run. You'll lose part of it in taxes when you sell. In order to buy gold, you have to...
1. Buy it REALLY cheap.
2. Buy it before a bubble and sell it higher.
You might claim complete financial collapse as well of course. My money would STILL be on toilet paper and canned goods though. If nothing else, gold is screaming that message at me! It's saying, "Bad times are coming! Stock up!" ;)
Just opinions!
Mark - of course "just opinions" is all we have, and yes, obviously if gold goes to $10,000 in 30 years it could still be a bad investmernt - but....objectively.....in isolation....selling it at $700 would have been a mistake!
ReplyDeleteAnd for argument's sake I think keeping $ in $ and let's optimistically/pessimistically say earning potentially huge interest on it a/ would be unlikely to be "real" and b/ would indeed lead to a high income-tax bill. And when you say "gold can hardly be considered safe - 70% nominal loss over a nearly 20 year inflationary period", yes, you can prove almost anything in pre-defined narrow hindsight if you want, but...what's it got to do with the broad global future?
The thing about t-p is that, really, you're just playing with it. At significantly less than 1% of your assets, it's meaningless in your overall scheme of things - so far at least. And I don't have to sell all my gold at once - selling x/y/z/ number of coins at a time or swapping them for something I need (i do assume some sort of functioning economy) can overcome any tax problem. If you believe gold could be saying bad times are a-coming, maybe you should now (forgive me, can't resist it!) put your money where your...er...um... mouth is....and buy a truly serious amount of t-p!
Stevie b.,
ReplyDelete"Mark - of course "just opinions" is all we have, and yes, obviously if gold goes to $10,000 in 30 years it could still be a bad investmernt - but....objectively.....in isolation....selling it at $700 would have been a mistake!"
Why is this so important to you? I don't mean to be rude but you seem very emotionally attached to gold and only gold.
It would only have been a mistake if I had shorted gold at $700. I didn't.
"Hell, having sold under $700 and whilst for you it may have been the right thing to do, you're already objectively wrong, even though you weren't overtly bearish til $1000+ & for you it's made no difference - yet....."
We have very different ways to look at it. Although I sold Citigroup in 2004 for a profit, I didn't short it after I sold. Mistake? I wasn't long oil to $140+ and then short it down to $30+. Mistake? There are an infinite number of things I've been wrong about using your criteria.
I did buy gold and silver in 2004 and sold them in 2006 for a 50% gain. I got in relatively early (bought low) and got out relatively early (sold high). If that is truly a mistake, even in hindsight, then I very much hope to continue making them.
Mark - whilst you haven't addressed the other points I made, in the general sense & to some degree you're right the way you put this particular one. Obviously making a profit at least risk is what it's about and you and I both don't care if it could have been a lot bigger. But....IMO you cannot be constantly bearish on something for years and then claim you were right all along when/if it eventually falls from a much higher level than your initial bearishness.
ReplyDeleteAnd when you are allocating your life-long assets, you should not/do not necessarily sell 1 part of them in isolation (and never come back to that asset unless it falls). I think you're unbalanced (portfolio-wise of course) as a result, but i guess if we all thought the same then markets would end-up pretty unbalanced too!
Wow, heated debate here!
ReplyDeleteIn my way of thinking a money "mistake" is anytime you lose money. Now of course this has wiggle room, but it is the criteria I use.
In that sense, Mark has not made a mistake about gold/silver, in fact he cleaned up. Not as much as he might have, but still way ahead.
Up front I love the Au/Ag metals and think they are going higher, but you have to always listen to counter views, and this blogs take on gold keeps my sharp and my stops tight, lol!
My biggest mistake:
In 2000 I bought shares in a local imaging company, ticker KOPN. I loved their products and I liked that they were here in Mass. I rode that baby from about $30 all the way down to $5! Now that was a bad call! One of my first trades and one of about 10 losers for me over the last 9 years. Ouch!
Stevie b.,
ReplyDelete"But....IMO you cannot be constantly bearish on something for years and then claim you were right all along when/if it eventually falls from a much higher level than your initial bearishness."
I completely agree. It would have to fall below the point of the initial bearishness and by enough to matter. You won't see me ratchet up my bearishness to new levels. In fact, let me state my exact bearishness to be forever locked in stone.
1. $1000 per ounce of gold (spot price)
2. $23.97 per 45 rolls, 500 sheet, 2-ply toilet paper (9.5% sales tax included)
I'm bearish on gold at that price compared to toilet paper at that price. You've already got a decent lead. Toilet paper hasn't even risen yet. Fair enough? You may now gloat if you so desire. :)
I used imaginary money to short Google by the way. I said if it ever doubled from my entry point, I would have been financially ruined. It doubled. Behold the power of imaginary money, lol. Even if it went to zero tomorrow, I'd still have been ruined. No undoing that now. Once ruined, always ruined.
Gold and silver clearly beat TIPS since I sold. I would also argue that the odds do not favor a change in that. Gold has taken a substantial lead. No doubt about it. Further, as can be seen in my last trade, I'm not all that bullish on TIPS right now clearly (at least in the short term).
"...and never come back to that asset unless it falls..."
I generally like rooting through the bin of unwanted "toys" when looking for investment ideas, especially these days. I think the US Dollar qualifies right now (based on my deflationary outlook for Christmas), but I'll be the first to admit it looks pretty darned broken!
There's a bit more to the story on this one though. It goes back to the time I bought. After looking at the 1970s and knowing how wrong I would have been to want to load up on gold when inflation was out of control I think it would have had a decent chance to ruin me financially.
Right or wrong, I promised myself when I bought that I would only own it once and sell it once, no matter how bad things got (the trading costs are high and I did not want to churn them). Once I sold, I'd ride the rest out in TIPS. That's where I am right now. I'm taking a bit of a gamble being out of TIPS, but with TIPS rates so low and 0% being the ultimate floor, I'm not taking much risk even if things turn against me. I just have a Christmas hunch and I'd like to play it with a bit of my portfolio. If I'm right, the gains could be fairly decent. If I'm wrong, very little pain anyway. Christmas deflation or no Christmas deflation, that is the question!
This plan clearly has a chance to financially ruin me of course. We could hyperinflate. That's the risk I take. It's sort of a "if I am ruined, at least I won't be first" plan. I could also be ruined if the government just decided to default outright. Sigh.
I'm with Greenspan, no safe store of value. He ought to know. He helped get us here.
GYSC,
ReplyDeleteI've done worse!
Here's my biggest one.
Although I did not buy dotcom stocks, I felt the need to dabble in Nortel. Fortunately, it was only half investment (out of about 20 stocks it was about 2% of the total when I bought).
I bought it at $11. At about $50 I really wanted to sell. However, the investment that retired me was starting to pay off big and it was not a good time to sell for tax reasons. I watched it go to $100 and still I held.
I eventually got my wish. The taxes on Nortel worked out very much in my favor. I sold it at $1 for the tax write-off. That made it worth about $3 to me, lol.
Mark,
ReplyDeleteI remember a lady at the biotech firm I worked at (to remain unanmed so dont ask) and while we were all dumping our stock options at say (all prices changed to protect my butt, but the ratio is the same) $99 she insisted on waiting for $100 for whatever reason. A few of us cashed out all we had, while she waited. Then the tech/biotech bust happened and she did sell in 2003 on her way out the door for $9! Now that is a MAJOR MISTAKE no matter how you spin it. WOWZA.
As an aside, I like and respect your opinions on gold/silver. I do take then into consideration and they do keep my stops ultra tight! We still fundamentally disagree about what is driving the metals, but we can have open debate with no acrimony which is more than I can say for most sites.
All my best, and my shout out to Illusion of Prosperity made Seeking Alpha today as well.
GYSC & Stevie b.,
ReplyDeleteI'm almost afraid to share this story but I figure it will never get back to the person. We'll have to quickly bury this thread so it doesn't. It is certainly not my intent to make someone feel bad.
A few of my coworkers decided to invest in the company that retired me. Needless to say, it paid off big for them. However, one coworker thought about it but ultimately decided to buy new tires for his truck instead.
By my estimates, those tires ended up costing about $300,000.
Technically speaking, I'm being a bit of a hypocrite here. He didn't invest. He therefore didn't suffer a loss. Right? ;)
That said, if gold makes both of you two millionaires many times over and I have somehow still managed to protect my nest egg in the process, then I will most certainly not complain. I have very different goals these days than I once had.
Mark,
ReplyDeleteYou really hit the nail on the head there!
All I want is to not have to worry about money day to day ever again. I grew up poor (like you read about) and had to contend with pinto beans for 5 out of 7 days for dinner. I have as much money as I will ever need (not as much as I want, big difference) as longs as I do not go stupid with it. In the end, money is a grease to lube your life, not your life. Too many people are focused on "the next million dollar idea" to see that they might be fine in safe bets. I guess thats why the number one sales item in the US is a lottery ticket!
Not me, try not eating for 4 days and a million dollars equals 3 dollars.
sorry for the rant.
GYSC,
ReplyDeleteYou don't have to apologize for rants around here. I'm sorry to hear you had it rough growing up. Most people in your situation wouldn't have risen above it, and you clearly have.
GYSC
ReplyDelete"Up front I love the Au/Ag metals and think they are going higher, but you have to always listen to counter views, and this blogs take on gold keeps my sharp and my stops tight, lol!"
"I have as much money as I will ever need...as long as I do not go stupid with it. "
What makes this interesting for me is that we 3 seem to be in a similar situation. Maybe the fact that I'm the "senior" figure here means my approach is less aggressive/more passive, but trading is a risky business and I now try not to do it unless my gut (for lack of a better way of putting it) screams at me that I have to. This leads to balance - if my proportion of assets in "A" goes down, "B" should compensate so i'm not behind.
Mark - I think I'm so fixated on your gold comments/position because i am convinced you've misplaced gold in the overall scheme of things. Did you sell your house cos you thought it was overvalued? Hell no! Did I in the '70's - hell no, even though I desperately wanted to buy some sort of insurance policy or put option on house prices - but they didn't exist.
So I see gold a bit like a house - buy an out-of-the-money put if you want, but don't sell it unless your gut screams at you (maybe you've got an ultra-sensitive gut), because there could be no way back to balance!
Stevie b.,
ReplyDeleteI DO have an ultra sensitive gut. You nailed it. Within the span of just a 4 years (1997 to 2001) I'd bought my first house, got married, got divorced, basically won the lottery (even positive change is stressful), saw hundreds of thousands of dollars of stock options vanish, my project cancelled, lay offs, quit my job, watched stock market collapse with me 80% in it, watched 9/11 unfold, my dad died, and watched my dog slowly die from mouth cancer and had to tell the vet to end it. I'm not the same person I was in 1997. I understand post-traumatic stress. Still have it.
I think that's one reason we're almost on the same page but not quite.
Here's the second reason.
Neither my hoard of basic necessities nor my purchase of gold were based on financial apocalypse protection. It was simply because I thought they were bargains. I'm a cheapskate. I'm not trading gold. That's not my mindset. I'm not waiting for an oppurtinity to get back in. It might happen, but I strongly suspect it won't.
I have almost no financial apocalypse protection at all, except for my paid off house (minimal protection at best). I would also agree with you that financial apocalypse is more than just a trivial risk. It is a risk I am taking. I'm going in naked so to speak, because I don't think there is a defense unless I go all out and turn completely survivalist. That's not how I want to live. I've thought about how I would react in nuclear war. I'm the guy who would pull out the lawn chair and move to ground zero. It would be quite the view. Might just as well go out in style.
I can survive something bordering on twice as bad as the 1970s the way I'm positioned. As a saver, the Great Depression won't hurt me much at all.
My nest egg cannot survive worse though. Whatever happens, happens.
In any event, I consider myslf very lucky. I was born at the right time and the right place. I don't think our forefathers had it this good and I don't think our grandchildren will either.
Mark - It's great not quite being on the same page and hopefully instructive for us both.
ReplyDeleteBeing self-aware, truly self-aware, is IMO greatly to be prized - especially when it comes to money. And it seems to me, despite some of my earlier misgivings, that perhaps you're nearer to it than I thought. You consider yourself very lucky
(happiness/contentment is a good sense of perspective as I said ealier somewhere else on your blog), but I'm even luckier. Born in 1945, first of the baby-boomers, little talent but fluked my way through a charmed life so far, mainly cos there weren't too many of us by way of competition.
"I'm going in naked so to speak, because I don't think there is a defense unless I go all out and turn completely survivalist"
You see, I don't think it's all or nothing as you imply. It's not necessarily "financial apocaypse protection" that you need, but a full line of defense against the slow decline of the West in general v the Developing world in general for maybe 10 years at least. As an aside, I'm seeing more calls for trade protection and whilst vaguely understandable because of a manipulated Chinese currency perspective, this would lead to nothing but a speedier ossification of the developed economies. But it still wouldn't be as black-and-white as going survivalist. It's the areas of grey that can nibble away at wealth over time unless you've tried to cover as many angles as you can. I just think gold is an essential, unsubstitutable (?) part of one's non-survivalist armoury against the potential economic decline for the vaguely forseeable future of the country in which one lives.
Stevie b.,
ReplyDelete"I just think gold is an essential..."
I just don't share your belief, but that's okay. We'll just have to agree to disagree.
I will never see any individual investment as essential at any price. I believe that there are always alternatives, even if I thought hyperinflation was imminent (which I do not).
Mark - good enough, no hard feelings and time will tell!
ReplyDeleteStevie b.,
ReplyDeleteIf everyone here felt exactly the same way, it would probably be time to panic! ;)
I take some comfort that the inflation vs. deflation debate continues.
I was at the local mall yesterday and it was packed. I couldn't help but think most must think our problems are over. There wasn't even a hint of panic.
That's not quite true. We walked into two stores and a restaurant.
One was a game and toy store. We were asked if it was our first trip to the store. My friend said it wasn't. He was then asked, "This one?!" It was a vey odd follow up question. Further, he wasn't the only sales person to help us during our short visit (neither of us bought anything).
The second was Borders Books. They were handing out brochures to everyone who entered (neither of us bought anything).
Then there was the nicer restaurant. It was fairly empty and quiet. Granted, it was 3pm but then again it was a Saturday with a packed mall. Further, the mall's cheaper food court certainly wasn't empty. We'd just come from there.