Financial topics

[vincecate]

At bottom, the simplest and most basic reason not to get in any PGM at this time is this: everyone is talking about it. That's the #1 rule for PGM and for investing in general. You can forget everything else, but you have to remember, when everyone is talking about it, it's time to bail out. The top has been reached and possibly even passed.

This is very easy to test. Simply search for counter examples. Find the person who made money (and didn't lose it) in houses or stocks or bonds or anything of the sort, AFTER everyone wanted in because that was the place to put your money. You can't find more than a very few who actually got out with a whole skin, while it's dead easy to find hundreds that lost everything because they followed the herd. The herd is always too late.

When a currency fails the price of gold in that currency never peaks, it just keeps going up. So there are over 100 cases where some paper money failed and gold never came back down in that currency. So if the dollar/yen/pound/euro is going to fail (get hyperinflation) then we won't see the price of gold in that money every go back down. So the exception to your rule is when a currency fails. This exception happens alot. Average unbacked paper money fails in like 28 years. The US has gone 40 with unbacked paper money. It is not clear how one should calculate the odds of the dollar failing, but I am sure it is much higher than the average person believes.

And an anticdote just because. I buy and sell gold. I have more than 100 times as many people selling gold to me as buying from me. The buyers are the more successful businessmen. When I get more buyers than sellers I will agree we are in a bubble, but it does not look close to that yet from my experience. Others can reasonably ignore this one data point, but I think about it...

[Higgenbotham]

It might be worthwhile to collect some phrases that people were using at the top of the stock (2000) and real estate (2006) bubbles and make some comparisons to what people are saying about gold and silver this year.

Stocks in 2000
Stocks return more than any asset class over time.
It's a new era.
People just don't get it.
He gets it.
Dow 100,000.

Real estate in 2006
Real estate always goes up.
Real estate always goes up because there are more and more people.
Land is the only thing you can't make more of.
Everyone needs a place to live.
Baby Boomer retirements will drive real estate prices higher until 2012.

Are there similarities between these "nuggets of wisdom" and what people are saying about gold today? Do there need to be? What are the commonplace statements being made about gold today, if any?

Two that I've heard from people on the street this year:
There will be a QE3, a QE4, a QE5, a QE6 and on and on to infinity.
There's going to be hyperinflation like Weimar Germany.

I don't see these sentiments being expressed as pervasively as they were at the top of the Nasdaq and real estate bubbles but I'm not sure that's necessary because gold is a much smaller part of the economy than tech or real estate.

[John]

I used to think that history would blame Greenspan or Bernanke for the
coming financial crisis. But now I think that it's going to be blamed
on Europe.

John

[OLD1953]

At bottom, the simplest and most basic reason not to get in any PGM at this time is this: everyone is talking about it. That's the #1 rule for PGM and for investing in general. You can forget everything else, but you have to remember, when everyone is talking about it, it's time to bail out. The top has been reached and possibly even passed.

This is very easy to test. Simply search for counter examples. Find the person who made money (and didn't lose it) in houses or stocks or bonds or anything of the sort, AFTER everyone wanted in because that was the place to put your money. You can't find more than a very few who actually got out with a whole skin, while it's dead easy to find hundreds that lost everything because they followed the herd. The herd is always too late.

When a currency fails the price of gold in that currency never peaks, it just keeps going up. So there are over 100 cases where some paper money failed and gold never came back down in that currency. So if the dollar/yen/pound/euro is going to fail (get hyperinflation) then we won't see the price of gold in that money every go back down. So the exception to your rule is when a currency fails. This exception happens alot. Average unbacked paper money fails in like 28 years. The US has gone 40 with unbacked paper money. It is not clear how one should calculate the odds of the dollar failing, but I am sure it is much higher than the average person believes.

And an anticdote just because. I buy and sell gold. I have more than 100 times as many people selling gold to me as buying from me. The buyers are the more successful businessmen. When I get more buyers than sellers I will agree we are in a bubble, but it does not look close to that yet from my experience. Others can reasonably ignore this one data point, but I think about it...

I'd have to say the sellers are recognizing an opportunity to realize either gains or preserving capital. I've got silver and a bit of gold, but I bought mine at very low prices and quit buying when silver passed 12$ an ounce.

As for gold in hyperinflations, the rule still holds. By the time everyone is talking about preserving money, it's too late for it to do them any good - either gold is illegal to hold, the price is too high, or there is none available for sale because nobody will accept paper for it. I

[richard5za]

But now I think that it's going to be blamedon Europe.

Dear John,
Its still early days. I suspect that both Europe and North America will be blamed and others including Japan. Those chasing unfettered capitalsim.
There's no doubt that the lack of effective regulatory has created massive financial distortions and fraud and that leaders have been irresponsible in their spending. There can be no sustained growth until the banks and the financial system have been reformed.
I am not at all clear what the political outcome will eventually be - I suspect that democracy may be the victim when all is said and done.
Richard

[RDRUNR]

and is a well know biased gold bull.

Just wondering? Do you resent people making money out of gold? As a matter of sentiment or logic?

Neither.

In today's world, you have a lot of greed, fear and fraud. People recommend X investment not because it's good, but because they have a position in it. Everyone needs to do their due dilligence and look beyond that. For the past 3 years now, gold is such a case. Those who "invested in it" seem to be stricken with "Gold fever" (a real issue) and are blinded by the solid historical facts that GOLD IS NOT A SAFE HAVEN.

More people have lost holding gold than won. Just look at the Klondike Gold Rush or the 80s Gold Rush or even the Spanish Silver rush. Yes, less than 1% actually made anything, 95% lost and 4% lost so much they died.

Gold is already down more than $350oz in a month. That's a fact. People who bought at $1650oz+ are not, as you say "people making money out of gold" they are losing their shirts.

Be honest with yourself, you are a gold investor, your interest is having gold go up in value for your own gains. It has very little to do with helping others over yourself.

Case and point made.

[richard5za]

Be honest with yourself, you are a gold investor, your interest is having gold go up in value for your own gains. It has very little to do with helping others over yourself.Case and point made.

I have been investing since 1967 which was when I first opened a stock brokers account. Over the years I have mostly not been invested in gold. At different times I have been invested in general equities, real estate, quality antiques, and other items, and in all my investments I have done it for my own gains. That is the nature of investing.
I have made more money out of general equities and real estate (property) than out of gold
As a point of morality I would not invest in things that do harm to others; for instance I would never buy and sell cocaine.
Over the years I have been a good investor and in my retirement have a very priveledged financial status for which I am very grateful.
As regards helping others I have done that all my adult life in different ways, giving money, giving time, and giving skills.
Greed has nothing to do with gold. Gold is just one vehicle for human selfishness which manifests itself as greed. Greed can be fully present in almost every human activity. The root cause of all wrong in the world is selfishness / self centredness. Gold cannot be evil in itself.
As regard my current investments in gold and gold miners, I was fortuneate enough to identify an opportunity in gold investing some years ago and have made some very good money. And at some stage I suspect that the gold bull will be over, and I hope to have enough skill to be out into cash before the peak is reached.
But more people lose more money in general equities than is lost in gold. For instance the Dow peaked at 14142 (approx) in 2007 and in my estimation will bottom at below 5000 (if not much lower) There will be hardship as a result - just think of the pension investments in general equities that are too big to sell out and will go the whole way down. The stock market sell off in general equities will be world wide with global hardship.
You make the point that some people bought gold above $ 1900 and now its in the mid $ 1600 range. Well, firstly even a novice investor always buys on stop losses. You set the loss point and they should have been sold and out into cash without too much damage at the recent sell off. (If they didn't set a stop loss then thats called 'school fees' and no doubt they will next time) But what you don't know, and cannot know, is where the gold price is going. Perhaps it has already peaked, perhaps its going to peak at $ 6000 or even $ 26000 and the gold investors will make a fortune! Lets see

Think about it - you did not make a cogent case.

[jdcpapa]

I used to think that history would blame Greenspan or Bernanke for the
coming financial crisis. But now I think that it's going to be blamed
on Europe.

John

Good morning,

My best guess is that it will be blamed on societies fiscal exploitation and irresponsibility; the root source of which is greed. There is plenty of "finger pointing" to go around. I am also inclined to believe that the financial crisis is "the here and now".

Regards,

[vincecate]

As for gold in hyperinflations, the rule still holds. By the time everyone is talking about preserving money, it's too late for it to do them any good - either gold is illegal to hold, the price is too high, or there is none available for sale because nobody will accept paper for it.

You seem to view hyperinflation as a binary change but that is not correct. Hyperinflation is the transition period where people no longer like the money as a store of value but still use it as a medium of exchange. This can go on for years. Also, making other forms of money, like gold, illegal does not stop people from using them. What usually seems to happen is that the "black market" uses some more stable money and does well. Eventually the black market grows so big that the government needs to tax it to get money and so legalizes it. At this point the demand for the old money may drop to zero or near zero, but this is the end of hyperinflation. Again, it usually takes some time to get to the end point.

[vincecate]

Two that I've heard from people on the street this year:
There will be a QE3, a QE4, a QE5, a QE6 and on and on to infinity.
There's going to be hyperinflation like Weimar Germany.

I don't see these sentiments being expressed as pervasively as they were at the top of the Nasdaq and real estate bubbles but I'm not sure that's necessary because gold is a much smaller part of the economy than tech or real estate.

When they are expressed pervasively the 30 bond interest rate will NOT be below 4%. There are those of us who think hyperinflation is coming but we are still clearly in the minority.

Are you claiming there will not be a QE3? Seems like foreigners have stopped buying Treasuries. The taxes only cover about half of the Federal government expenses. If the Fed does not buy Treasuries, who else will be doing so in the volume needed? What kind of person thinks that 4% for 30 years is a good deal on US dollars that they are printing like crazy?

http://www.treasury.gov/resource-center ... ts/mfh.txt