The Black Swan

[ssullivan]

Thank you, everyone for having this discussion. I'm learning... (special thanks to Tao Jones for sharing his thoughts)

[noreault]

There is little to no intrinsic value of gold. It all depends on what people are willing to trade for it. No interest by people, no interest in trade. This is what accounts for, at times the widely fluctuating value of the gold. The title of the post should be instructive to all that are claiming gold will always have value. The Black Swan is something that is completely unanticipated.

[anotherT34C]

Actually, gold has lots of intrinsic value. It's a wonderful conductor, and I really wish you $$-heads would stop trying to use it as an exchange currency.

p.s. In grad school, I worked in a lab where we regularly turned gold into lead (RHIC facility). If only...

[chris_gee]

Gold does not always act as a store of value against inflation. It is not appropriate to take the 1980 high and adjust it for inflation since to reach a target, since that acknowledges that for the last 38 years it has lagged despite rises in the last few years.
The value assigned to it has to be put in a context of the time. At times it has been the basis or peg for other currenies. It also is seen as safe in times of uncertainty and of inflation particularly where interest rates are low compared to inflation.
To ensure that it is genuine, and actually available when you want to resell it as opposed to gold linked paper or funds it has to be held in an approved facility as a numbered bar. That costs 2% pa.
At the moment the price seems to be rising albeit with sharp swings reflecting speculation. Some reasons include concern about inflation, and negative real interest rates. Stocks on average in most countries have fallen 20%. Property is falling. In these circumstances gold may hold or increase on nominal value better than other things. That may not apply in other future times eg if interest rates become positive in real terms after tax, which does not seem likely in the US in the near future.
If one is paying 6.5% on a boat loan, then ignoring any tax deduction if that applies then one has to earn 6.5% x 3/2 (assumed tax) plus whatever risk premium applies to pay this money. In other words 10% riskfree. I don't know of such an investment.
The first rule then is to pay off debt.
How one might invest at the moment which is a time of uncertainty volatility and risk, depends on a number of things, particularly how much you have, time horizon, tolerance of risk, and your age.
There is a difficulty for most even if they are well informed, in chopping and changing. However it is highly desirable to be able to cut one's losses which will inevitably occur.
My bias at the moment would be towards cash or Government bonds other than US, and in the longer term towards solid tangible assets, commodities, oil, some gold and in due course property, utilities, and exporters. One might use specialist etfs. Diversity is required and one can expect some losers, but preservation of capital not only against risk, currency change, but also inflation is required. There is a risk of loss but it is relative performance that counts plus the liquidity to take advantage of overselling which will occur.
I doubt that we are at anything other than a temporary bottom.
I also doubt that there is a way to make easy money without the other side of the coin easy losses.

[Maren]

What if gold loses favor, like so many other things do? (railroad companies, tech companies, real estate, oil, etc... etc...)

Isn't gold just as risky as anything else because it's simply some arbitrary element that's "in favor" and has been for quite some time?

Sorry... I'm a bit dense, but my mind works by analyzing every possible angle then coming up with one that seems to fit.

Sully,

What I am about to say is predicated on your having between the low five figures or better which you can invest for a few years without any great heartache.

As you’ve read TaoJones advocates preserving purchasing power mainly by using gold as a hedge for inflation. My view is somewhat similar. I suggest commodities as a whole, not just gold, in addition to real estate and ETFs (or more specifically, options on the ETFs) mirroring the broad markets.

But most people don’t trade commodities and most people that do lose to those that do well. Same goes for the equities market and, judging on results the real estate market, real estate too.

In your case I would find one or more superior traders and give the money to them to manage. That way you can concentrate on what you like and do well. You will still have to educate yourself on things like risk, what is out there, and how to compare dissimilar investment programs.

If you are up for it, here are a few terms to throw into wikipedia, investopedia or google:

Sharpe, Sortino, Sterling, MAR, and Calmar ratios; Correlation of Asset Classes; Modern Portfolio Theory.

Hope that helps.

[chris_gee]

I think just rereading the thread that the advice of many to pay off debt is the best. With all due respect Sully has limited funds and seemingly investment knowledge. Like many others he hopes for a better return. However while views differ many professional investors have lost money recently often while saying the problem is contained so it seems fair to say that risk is high.
I would forget some of the fancy mathematical terms referred to. As many have found to their cost those mathematical systems underestimated risk at a time when the flush of money meant the quest for a higher return reduced the risk premium.
Say 20,000 on the boat saves you !300 nett pa. You may make after costs and tax at the unlikely outside 2000, or lose 5000 or more. Take away the 1300 interest you pay and your profit is 700 pa through to a loss of 6300.
We are not talking 20 years here but a short time span of significant instability.
That is not to say that over a longer term he may choose to invest in appreciating assets not a depreciating one. Investopedia.com has some educational material.

[Zach]

Just thought I'd take a moment to thank Tao Jones for his early detective work.

2 weeks and the government has kicked in nearly a trillion dollars. Wonder what else is in store...

[Pelagic]

Originally Posted by Zach

Just thought I'd take a moment to thank Tao Jones for his early detective work.

2 weeks and the government has kicked in nearly a trillion dollars. Wonder what else is in store...

I imagine ....higher taxes and a new set of trade agreements that still favor the multi-nationals

[anotherT34C]

Yep, he nailed it alright. I thought we'd see bailouts, but simply called something else (like "temporary liquidity backstop"). Instead, we (the taxpayers) seem to now be in the business of holding mortgages (SM,FM) and issuing insurance (AIG).

Boy am I glad we don't have a national health plan...

[Ex-Calif]

The Dow is up 4% yesterday (my time). To quote my economics professor, "large swings in the markets are the results of animal spirits playing games." After the largest drop "since the great depression" we've had the largest gain in 6 years.

No one knows what is going on. We have a large government backstopping a large economy. Thats the way it works. Can anyone say "Savings and Loan" crisis. Taxpayers will pay - is that any different than history?

My advice is to get fully in the market as soon as the news says it's the biggest single day drop since last Thursday or whatever it was.

Invest in companies that build stuff you can identify. Do not invest in paper - money, insurance, real estate trusts, bank dirivitives or anything you don't understand.

Invest in economies - Asia is still going to grow at 7-9% for as long as 700,000,000 Chinese don't have cars, microwaves and indoor plumbing.

The United States will grow at the rate of population growth + a bit. We are a renewing economy. Look around. We don't need anything - we just replace that which breaks down, wear out or has a cool upgrade. BTW - That's huge business.

Spread your risk, look for long term 5-7% growth, go back to work and don't worry so much.

[Roy M]

Ben Franklin had it right. Be frugal. Pay off debt. Make money where and when you can. Then, follow your dreams. He DID want to go to sea when he was young, and he made these decisions while returning by sea from London as a young man. It's a good thing, though,that he chose another course. He made it possible for a number of us to free ourselves to go over the horizon.

[lolanreg@smartc]

This all seems like a lot of trouble for everybody round the world. The USA goes to war over a bunch of lies,I'm told that they owe lots of dough all over the world to pay for it, more than can be paid back,they organise to blast everthing possible then put their "friends" in to restore the systems at huge profits paid by you poor taxpayers. now this, when are you guys going to wake up, get real. Why not help the real people that have defaulted on their loans for their houses? Wouldn't cost as much as much as what they're doing now. I think they're still paying the fat cats. Time will tell. Meanwhile go sailing far from all this ********.

[Ex-Calif]

Originally Posted by lolanreg@smartc

This all seems like a lot of trouble for everybody round the world. The USA goes to war over a bunch of lies,I'm told that they owe lots of dough all over the world to pay for it, more than can be paid back,they organise to blast everthing possible then put their "friends" in to restore the systems at huge profits paid by you poor taxpayers. now this, when are you guys going to wake up, get real.

Let's make sure we stick to economics and not politics.

Originally Posted by lolanreg@smartc

Meanwhile go sailing far from all this ********.

Now that's the best idea I've heard all day!

[San Juan Sailor]

If you want to watch something very sobering about all of this go to "Zeitgeist The Movie"

[Chief Engineer]

Don't try to catch a falling knife.

With greed of the investment companies they should be allowed to fail...not have the feds bail them out.

Heck the fire and police pension fund here lost $6,000,000 dollars last year.
Legg-Mason....the manager....said it under-performed.....no, you chose to invest in high risk loans and lost.

And people who bought homes out of their means to pay...we have to bail them out...Tuff Ta-tas.