Rougement, this is a thought-provoking article. Surely you give hope that rises in US gasoline prices may not be as sudden or extreme as some people say. Indeed it seems clear to me from their actions that everyone from Washington to Saudi Arabia will do everything they can to ease the transition. However, I am just an average Joe on this subject but here are my thoughts.
1. I live in the USA, so my concern is for USA prices. As Davewmart points out above, the USA is not the world, but one of may oil buyers. 2. You fail to discuss the impact of the value of the US dollar, and the hard fact that Europeans have for decades been paying almost twice as much as in the USA for gasoline. Why? Evidently just because the US dollar is the reserve currency, which is eroding. I.e. even if the universal "value" of oil does not skyrocket, still maybe the US dollar falls we pay more, period...? 3. I am new to RSI usage, but so far find it referenced mainly for 15-20 day periods. You say EOG has an RSI about 67, but give no time frame. However I can only get up to a 66 reading for EOG by going to 3, 5 or 10 years. Which do you use? Is this a widely-accepted usage, or just your personal take? Either way, more power to you. But I just need to know what you are talking about in order to make apples-to-apples comparisons in checking what you are talking about, which I am doing now.
Basically I agree with you. As an investor, oil is overpriced, there are simply better values to be had. However, not as overpriced as silver and gold, and more of an essential commodity. Meanwhile as a human creature, not an investor, it makes basic sense to keep perhaps 10% of portfolio in each such commodity, buying the least-overvalued companies in that commodity. Therefore I hedge myself against the eventuality that just in case I am paying $6 per gallon at the pump next year, I am covered for it.
My current target is about 6% in lithium, 1% in platinum, 3% in SLW silver, 1% in gold-related, and at least 1% in each other energy source and basic commodity, if I can find an unusual value. Except I have decided not to do uranium because more than a few people are going to die horribly from it, one way or another, eventually. Currently looking seriously at CAM and will be studying the others you reference here.
Two weeks ago I over-bought with about 20% portfolio into lithium and platinum because they were such an obvious value. I made out well and now am returning to target. Or maybe next year. And eventually will come a time to sell even the silver. But not just yet, so long as every crazy on every block is pumping it skyward.
90% Of Green Energy Stocks Will Go Bankrupt... So Buy The Sector? [View article]
* Good point: a lot of investors are biased pro-green just because it's the right thing to do. Don't do that if you can't afford it.
* Ignored point: some states have solar subsidy programs that make local solar farms a sure-win investment, also support regional self-reliance which in turn supports national stability.
* Ignored point: every argument for ignoring alternative energy hinges on the assumption that the USA has plenty of gas, coal and oil for the next 50 years, some say 100 years. What about after? These people just don't care about the next generation, period.
What amazes me is that even the same people who say "hoard more gold" are saying "drill more oil."
This ubiquitous drill-baby-drill bias clearly demonstrates the power of fashion, greed and ideology to overcome reason. While it makes some sense to burn gas or coal, oil is uniquely critical to chemistry, plastics and military defense. The last thing we should be doing with oil is burning it. Even in pure financial terms, tomorrow's oil is worth far more than today's dollars. And however superlative our extraction technology may be today, it will surely be twice as efficient in 50 years. Every drop of native oil that we burn is incredibly stupid, and I can hardly respect the economic sense of anyone who does not see this.
Jobs-jobs-jobs? Sure this is the political priority, because very few people have the sense of investors. The ancient Hawaiians trapped fish, ate fish and lived well. The McCormick Reaper was invented in the 19th century. One farmer feeds 5,000. The computer multiplied productivity yet again. And yet somehow--here in century 21--we simply must drill more oil to get enough jobs...? Where does it end? Nowhere obviously until the human race starts exploring for brains half as much as exploring for gold and oil and stops living like stray cats.
There is every reason for everyone even China to care about America because it is a bastion of economic stability. However if we cared about this country half as much as those who made the Alaska and Louisiana purchases, we would be buying up foreign drilling rights, while locking up our native oil reserves for 50 years. China is doing the buying and planning, we are doing little more than squandering while whining that the squandering is never enough--led on of course by oil companies and their narrowly dedicated investors.
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
* This is a professionally written and independently thinking article which reminds me of a lady who wrote about Latin American debt in the 70's. Sorry can't remember her name.
* The stock market system is basically a slow-motion pyramid scheme which has almost destroyed the world every 50 years or so and then been modified to last another 50. Meanwhile in these "corrections" a lot of people starve and are thrown out of windows, and that is inevitably what enables the rest of us to survive and make money--for awhile.
* Meanwhile in the course of attaining a PhD in economics or investing, we are taught to look at this year and next year and maybe next decade, but never to join the big dots. So all these highly-trained people in a highly mathematical profession end up ignoring 1+1=2 in the big picture. And anyone who says anything different is brushed aside, just as a tribe of monkeys would brush aside any little monkey who suggests maybe they ought not to raid a pile of bananas in front of them.
* For example consumer spending (=not saving) and population growth (=unsustainability) are "good" for economies. No politician can stay in office who even thinks otherwise. Ronald Reagan became one of the most popular presidents in history, and to this day remains an icon no Republican or Democrat dares criticize, yet who mainly played chicken with the soviet union while putting the country on credit card debt headed for infinity.
* Is an appropriate response for "banks too big to fail" to increase the FDIC insurance limit from $125k to $250k? This is utterly irrational and yet this is what was done. If it remained $125 we could stimulate more bank diversity and if there is a crisis there is simply less to insure. As everyone knows there still would not be the capability to cover a WWIII style economic crisis--but at least we could give I.O.U.'s for half the money and hold the world together, maybe. Or so I used to think.
This "give everyone bank stock for their money" is more ingenious! So, 300 million people suddenly have bank stock to sell with nobody possibly to want to buy it. Guess what happens to the value of that stock? Duh. Politically unfeasible perhaps, assuming democracy survives rather than some Blade Runner style corporate feudalism. But, if we threaten to do that, and then maybe "compromise" by giving everyone 1/4 their money in cash, everyone gets on their knees and says thank you. So very clever.
* One topic is missing from this article: TIPS. US Treasury Bonds are no problem because inflation will make them worthless. If the government can so easily tax or "renegotiate" all FDIC deposits, perhaps that makes TIPS all the more secure because there will be no need to touch them. And a lot of those are in ETFs which the government might utilize to buy back its debt for pennies on the dollar. Hurrah! This is great news if you believe in the USA. Democracy and freedom can survive the ultimate economic crash, albeit somewhat diluted. Unless China decides simply to buy America for pennies on the dollar, with all the gold and oil rights they are buying. Meanwhile both "liberals" and "conservatives" in this country somehow think they are gaining "energy independenc" by burning away our native oil reserves. Ironically, even the same people who advocate gold-hoarding are saying we are not drilling away enough oil. Hmmm... not so good for America or Democracy. Maybe that's why half the people were Chinese in the Blade Runner film about 2019. But I digress...
Look, the bottom line is that there is probably not ten humanoids reading this article who do not assume that there is a God-given necessity to have more housing starts each year and more billionaires and it all grow up to infinity. Regardless of how this contradicts reason, our ancestors were genetically programmed to think this way, or they might not have had so many babies and we might not be here but someone else who does have the necessary off-switch for reason. Inevitably then we end up with the human equivalent of the migration of lemmings or the arctic die-off of rabbits, just on a different cycle. We are not descended from monkeys, we are monkeys. We neuter our cats but do not control ourselves, and it is wrong to suggest any such controls. Why? Because we are not cats, we are rational beings who can contol ourselves. Aha, but isn't that somewhat self-contradictory?
The bottom line is that as long as we think that having stock markets and billionaires is infinitely more important than having dignity and security for every human being--as long as we prefer to periodically grind up and eat people (or at least their savings) in a massive recession every 50 years or so--well then how can we expect to get anything more than what we are asking for, one way or another?
Record VIX Options Volume And Large Purchases Of VIX Calls [View article]
This post is especially interesting in noting that low VIX means that, by very definition of what VIX is, options premiums are low-priced in general--but meanwhile the premiums on VIX-related options may become high due to the eagerness of call-buyers and wariness of call-writers--based on the knowledge of an inevitable rise in the VIX and limited downside.
I have some comments after browsing Mr. Wong's MAC articles: Moving Average: Holy Grail or Fairy Tale. http://bit.ly/VsKxIM
1. I did not thoroughly study Mr. Wong's series, but it seems somewhat less concerned with practical suggestions than with theoretically disproving the traditional buy-and-hold convention based on the "efficient market hypothesis." "For the record, it is not my intention to promote the MAC system as a trading tool. There are many trading systems used by active managers with proven track records. I use MAC as a demonstration to challenge the popular notion that no one can beat the markets in the long run."
2. Evidently, many investment professionals are opposed to trend-trading simply because no mathematician has presented a well-accepted hypothesis to explain it. I do not know anything about theoretical mathematics. However it seems to me an explanation for the validity of trend-trading can be based on three obvious facts.
(a) Recession prices always go down much faster than they go up. Therefore, unlike a dice game, certain major aspects of market behavior are consistent, asymettrical and not-random. If market behavior were random and symetrical, then on average, you would lose as much as you gain by leaving. However the consistently slow rebound relative to the downturn ensures that during large downturns, trend-following enables you to gain a lot by leaving and to return in good time for the rebound.
(b) The market may always be "efficient" in the long term but if so, this only strengthens the ability to capitilize on the fact that it always overreacts in the short term. This is another non-random pattern guaranteed by obvious human factors to remain consistent.
(c) The reason we can depend and capitalize on these two patterns is perhaps the same reason that a mathematician may have difficulty proving them mathematically: they are non-random and non-mathematical. The first pattern above is caused by physical laws related to the fact that it takes longer to put a box into a truck than for a box to fall off. Mathematically up = down but in practical reality up <> down. The second pattern above is caused by fear and greed and the fact that even people who are not governed by these emotions had better get out of their way.
3. Incidentally, if most humans were mathematical and not governed by destructive emotions then there would be no reason for the stock market to exist. On my home planet Vulcan, everybody buys bonds because nobody is illogical enough to create an edge from buying stocks. (Just kidding. I do not have the economic misfortune of being from Vulcan.)
4. Incidentally, I would also like to point out that combining stock + bond performance data totally invalidates that data for proving that MAC works or for determining what is the best MAC system.
Mr. Wong does not make this mistake.
However, another series of articles at Advisorperspectives.com promoting a slightly more complex MAC system has year-by-year and decade-by-decade performances, but only gives us the sum of performances of bonds during downtrends with stocks during uptrends. During 2001-2010, any MAC system that told you never to invest in stocks, and always to invest in long term US Treasuries, always would have outdone any MAC system that ever told you to buy any stocks. This does not mean this system is no good, but it does mean that there is no telling from the data provided.
Good points. The EMA can be done different ways, both standard and nonstandard. This in itself represents a group of possible "tweaks" which I have skipped over due to time constraints and my success with other methods.
Your perspective is interesting. Here is my perspective. MA-based trend-trading basically compares a short-term average (1-5 days) to a long-term average. If we are essentially working with comparisons between two things, does it make sense to add one of those things to the other before comparing? I tend to suspect it might be a bit better to remove the short term from the long term, which is the opposite of making the short-term and long-term MA's more alike as in the EMA. But I also have other theories that argue in favor of EMA. My to-do list includes systems that use the EMA for such reasons.
I like your idea of a "cyclical" component. But this might argue in favor of the SMA. As mentioned in this article, we can be more confident an SMA works if neighboring SMAs also give good results. But even after 40-year testing, the best result is sometimes not in the center of the best group, and sometimes near the edge of a cliff after which results are much poorer. So I have assumed the center is the best bet, even though past results are not best because of random chance. However your "cyclical" theory suggests there might be more than chance operating, especially in a 40-year study. Anyway I compromise between what is the best and what is the center. If there is a "cyclical" effect, it seems to me that this would strengthen such a choice.
Also perhaps what we call "cyclical" is really a random effect of volatility, which forms a pattern but which is not a straight line like the SMA. For each volatility measure, there might be an averaging formula which best matches the pattern. This would not be linear like the SMA, but probably not the EMA either. The ideal MA formula might have a bell-shaped or a wave pattern. But this is on the level of Black-Sholes and a Nobel prize, and I have other parameters that are simpler and are more likely to pan out.
Anyway, I have tested every fifth SMA from 20 to 500 on the 40-year S&P. With no slippage leeway, there are peak results at about SMA-180 and SMA-280. For obvious reasons, if you merely add -0.2% per trade for slippage, there are no longer acceptable results around 180-200 and the peak at 280 moves to about 300. I would certainly like to see the results if anybody cares to do a similar series of tests using various EMAs to see if they are any better.
There is quite possibly an EMA which is better than my basic suggestion of using the 300-day SMA on the S&P!
Thank you all for the kindly comments. Yes, the "Tweaked SMA" is my personal method for optimizing SMA-based trend-trading. I will post detailed results eventually, and free signals if people are interested. Also feel free to "Send Message" in my profile, especially if you have collaborative possibilities.
But I think it is best for everyone either to invent their own signals or to combine the well-chosen signals of others, which generally reduces trading and improves results. (Buy + sell = hold.) Share your resulting signals but do not tell others what you are combining. There is no telling what effect this might have if picked up by a few institutionals. Individuality is best for the individual and the market.
Nonetheless I am also trying to develop good-enough guidelines such as the 300-day SMA for the S&P, which everyone can test and use alone or in combination, and which often turns out more reliable and with less hindsight bias than algorithms.
Some people will charge fees for trading signals, while offering no evidence of 40-year testing on the S&P, the most basic litmus test. Or conversely, I have a book by an institutional advisor which unconditionally recommends the 200-day SMA for every ETF. This is based on one 80-year study by another institutional advisor, and for which much less than book-possible details are provided and which seems flawed. My 40-year studies clearly suggest that SMA-300 is twice as good as SMA-200 for the S&P, and that you cannot apply one parameter to all ETFs. This also may exemplify the reasons that 90% of long-short funds have embarrassing performance records. More details are in my previous article, "The Best & Less of Long-Short Investing." http://seekingalpha.co...
So yes, my "tweaked SMA" results are intended to be an example of the best results we are likely to get. But I am disappointed. The "post recession potential" of SLYG is 80% but as you can see above, I only get 50% long-term. This is much better than Buy&Hold but not what it might be. Also, half of the reason for doing these tests was to use SLYG to make up for the lower results that trend-trading causes during such times as 2010-2012. This has not panned out. I am confident that I can improve on this. I have several parameters that I have not even developed. Eventually, I hope to achieve a formula that if volatility = x then optimal SMA-method = y. But it will take substantial testing.
There is a chance that results might be improved simply by using the S&P as a general indicator. I.e., do not sell anything until the S&P goes down. I doubt that this is best, but the results might be surprising. Contrary to ubiquitous beliefs, trend-trading does not significantly improve the odds of being correct about market direction, but works mainly by restraining our panic attacks to below the point where they become costly.
So, later I "ought to" post results for trend-trading SLYG based on the trends of the S&P. But this might take awhile. My time is limited and I cannot yet afford secretaries who think slower and work faster. My primary goal here was to determine whether perhaps it might be worthwhile to risk the -95% long-term loss potential of leveraged ETFs. The answer is no. Leveraged ETFs probably would not be worthwhile even if there were zero added risk. Thank you all for your encouragement.
Thank you for encouraging us to remain aware of certain economic basics. I would just like to say I am instinctively hesitant towards completely accepting any perspective that uses the term "consumer confidence." I feel this term was invented by Wall Street economists who don't seem to realize that sometimes a lot of people just don't have any money.
Building a Portfolio With No Stocks [View article]
Mr. Fitzgerald: I recently came to the same conclusion that bonds are under-rated but it is still best to have some stocks. I was glad to receive some pointers from someone with much more experience and knowledge than myself. I am also reading "Bonds Now" which advocates all-bond portfolios. This seems to depend on the assumption that nobody can pick stocks better than mutual fund managers who are struggling to average 10%. Meanwhile however, I am currently compiling a composite "buy" list based on the best "value investing" newsletters and other sources, with a long-term average of 16% to 20% annual return over the worst decade since 1940.
Mr. 427: I agree even more with you. All-bonds are a viable option. I recently realized that "a few" global bond funds are achieving over 10% averages over 10 years with little volatility. Global bond funds also hedge against dollar devaluation and seem in many ways better than gold. And seems you were way ahead of the curve. So happy to learn from your actual experience that "maybe" I am not imagining things. I already have some of your picks and will be looking closely at the rest.
I do agree with Mr. Fitzgerald that the bond fund investor must be prepared to accept every bit of volatility as with stocks. This is a vital point that is often glossed-over.
However I disagree with him and most people who seem to assume that volatility = risk. If you are twice as certain of the rebound, then 20% volatility in bonds = 10% volatility in stocks. And if the rebound does not depend much on competitiveness, sales, and investor enthusiasm--but mainly on interest and default rates--then I think I am more than reasonable to say bonds are twice as sure of rebounding.
The Blackjack player relishes volatility. When nothing but bad cards have come out, it's just time to double down. Volatility in stocks vs. bonds is like volatility on an ice-coated highway vs. a Coney Island roller-coaster. Whoopee.
So I would very much like for someone to correct me if perhaps Mr. 427 and I are missing something here? Because if we are correct, then 10%-12% annually can be achieved quite assuredly in bonds and is much better than "maybe" making 14%. Also quite seriously, I believe stocks are inevitably turning the environment and the economy into a poker chip, and had better be made illegal.
The only reason that I still do stocks is that bonds are still just I.O.U.'s dependent on the global economy and numerous laws that could change with necessity. Nobody knows what the future will bring--except that with every 10 jobs being replaced by 1 computer or sweatshop it isn't pretty.
Therefore I insist on keeping about 1/4 of portfolio as inflation-protected T-TIPS and about 1/4 in monetary metals and essential commodities. This reduces my average growth expectation from 12% to 6%--unless I also add about 1/4 portfolio in high-yield stocks. This isn't much added risk, if any. As Mr. Fitzgerald says, stocks are a diversification which to a point means reduced risk. For the past 10 years stocks have done more terribly than ever while bonds have done well. Suppose the next 10 years is the reverse?
Miscellaneous points:
GLD. Maybe again I am missing something, but I don't understand why people give emphasis to GLD when for US citizens there are gold and silver mines, processors and mutual funds that do not have a 28% "collectibles" tax rate. If you think global infrastructure might collapse then you are slightly better off with Swiss ETFs. And only seriously safer with a safe deposit box full of metal, and just as well off with membership in a subsistence farming coop.
MOO. I have to defend Mr. Fitzgerald here. Just as a gold-mining company can be considered gold, a commodity-based stock fund need not be considered a stock.
However MOO and PCRDX are just now emerging to their pre-crash levels. These might not qualify for my standards of gold-like commodities with "certain" ever-growing necessity vs. supply, such as oil and gas. If digressing into areas with "theoretically" increasing necessity, then I find better risk-benefit ratio in the biotech index.
HIGH-DIVIDEND PREFERRED STOCKS. With 8-12% total returns in bond funds, I don't see any reason for preferred stocks. I might however consider utility preferred stocks in the category of assured-growth essential commodities. Also very possibly I am missing something here. So I will be following "Five Plus Investor" who specializes in this field.
Junk Bond Funds Still Offer Very Attractive Yields [View article]
I recently ordered 6 books about bonds and bond funds because I am totally intrigued and also totally confused. Looking at MSN.com, JNK started on 5/12/2008 at $45.96. On 12/31/2008 it was $32.39 = -29.5% for 2008 on my calculator. MSN says -30.15%, which looks right, close enough. However... for 12/31/2009 it was $38.81 = +19.8%. But MSN Performance page says +50.46%...? Then for 12/31/2010 it was $39.71 = +2.3%. And the visual chart line is also very level which does not indicate to me any profit. But MSN Performance says +13.99%...? Well there is NAV return and MKT return. After reading the definitions I am still not all that clear on the difference but in any case, the figures for both are often similar and always equally non-correlated to anything I can figure out. Then glancing at the chart since inception, I see a line that has never found its way back to the level where it began. Yet again on the performance page the cumulative NAV is supposed to be 31.56%, it seems...? Meanwhile I do own a zero coupon fund with a very consistent appreciation of about 6% annually and a global bond fund with an almost as consistent return of 12% annually and whose lines almost always go uphill. So I am completely baffled by the attraction of all the many other bond funds with chart lines that wiggle like an etch-a-sketch and end up with +8% at best. (The VWEHX fund also mentioned here is also one of those.) I surmise that if (unlike myself) you understand these thingies then maybe you can buy and sell at the right times for a lot of profit...? But... then that theory goes out the window when Mr. Morris here says he holds them long-term and is quite happy with his returns...? But how can a fund produce returns if its line is always trending downhill? Am I supposed to look at it in a mirror? Anyway I hope you are all very amused by my confusion. I hope that I will be amused myself after I read all those books. I just thought I would leave this little record about what can happen in the mind of someone who knows little about bonds when he reads an article about bonds. If there is an article somewhere that clears up this confusion for bond newbies, then I would suggest that it be referenced in every article about bond funds.
1. John Overstreet has admitted in the comments that there might be something to some of the comments raised about gold manipulation. I would look forward to a new article by John addressing those possibilities. 2. My bottom line: every major gold bug newsletter tracked by the Hulbert Financial Digest did terribly for 2001-2010 in spite of their gold. I subscribed to some hoping they could give me some tips about which mines and when etc. But soon realized if they are so clueless about general investing how can they be trusted to know anything about gold except gold is good, buy gold? 3. If there is manipulation, so that is one more thing manipulated. "Insider trading" for equities is supposed to tell a lot. Sometimes yes, sometimes no. Even when we have such information, not everyone can make use of it. If you really know what you are talking about, good for you. But I certainly have no way of knowing that you know. I am curious but seriously, I have other things to do. 4. There is one reason for Northwestern hemispherelings to hold gold above other investments. That is, it is the only investment whose value can survive two things: a shifting of the earth's crust and one's own stupidity. After a lifetime of savings we can make bad investments and leave nothing to our grandchildren. For both those benefits, you do not buy GLD. Instead you hold small increments in several safety deposit boxes in several bank locations. And make sure your account is deemed active once a year and the bank personnel does not handle your key. 5. Otherwise for Northwestern hemispherelings you do not make more from being savvy with gold than with value investing or any of innumerable savvy speculations. I do like any kind of oil and high-value mining stock because like a good basketball they bounce well, giving me confidence to buy low sell high. And meanwhile there is a lot of stuff in the ground there, as opposed to betting that Blackberry will or will not bounce back to trounce the Ipod or some Korean will trounce them both, etc., etc. 6. Less-stable economies are quite different. Riots or tsunamis break out, you break out Euro 50's or US$50's to help get on the taxi or the plane, or to help others afford malaria medication or etc. Western cash is compact and effective. But the way things are heading, someday they might not work. Slightly more clunky gold or silver bracelets will then work better. Don't leave home without a few. 7. Myth: other precious materials are better than gold. I believe diamonds are soon to plummet after the patent runs out for Moissanites which are not imitations but man-made twin sisters. Nobody will want a teeny diamond ring when they can get a huge moissanite made in China or Korea. Just one example of innumerable materials whose values might go way up but way down. Gold is not much different from them in its instability and combination of scientific and aesthetic uses except the added tradition as money. Gold = money = relative added stability = the big difference. 8. Myth: gold will save you in a great depression. Not if you sell it during the depression, when everyone else is selling theirs--unless it's a rare inflationary depression. What you need to add is lots of dogfood to survive the depression without selling the gold. That's the ticket. 9. Please name me one gold bug who is saying, "Disaster! China is buying Fort Knox!" --but who is NOT saying, "Disaster! We are not allowing enough oil to be drilled! We need to drill away more of our native oil!"
My friends, oil = black gold with a big difference. When you buy gold, you do not burn it away forever. And there are many forms of energy. But only oil is also chemistry, construction and national defense. The future of America does not depend on who has more oil right now. The future depends on who is The Last Man Standing with native oil reserves. China is buying up those reserves all over the world. Americans both 'liberal' and 'conservative' are instead focused on so-called "energy independence" by burning up our native assets asap. That is like saying the faster you spend your life savings the more "independent" you are. So I do not spend much time thinking about gold nor do I trust Gold Bugs to have much sense of reason.
So I personally do suggest 1/5 portfolio in physical gold--but at least 2/5 in individually-traded TIPS, which are market-inverse and do you far better most of the time. http://bit.ly/XWUYq0
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
Re: "...brokerages and money market accounts are FAR safer than banks... The problem is that people in general assume the risk of cash is low relative to other types of investments and forget that the risk of cash is a continuous 5%+/year drain..."
Matt, you certainly have a valid point but let us qualify that please...
1. I know a number of elderly people who are struggling to hold a job because they lost most of their retirement savings in the market in 2008 and could not afford to await the rebound while paying their bills. 2. During 2008, it was the government that bailed out financial corporations, not the other way around. So don't tell me it is somehow safer to trust in the solvency of corporations than in the government. 3. The 2008 bailouts were not popular, and next time around will be less popular, and with good reason. And with no bailouts of the too-big-to-fails, then the whole system of SIPC and the stock market will collapse like dominoes. 4. Also, if the FDIC uses the dirty tricks expressed in this article, there will be a clean sweep of all politicians. So it is possible for FDIC to collapse but there will be serious reluctance at least. Whereas if SIPC-insured money-market accounts collapse, everyone will say so what, you knew the risk.
I claim no in-depth banking knowledge but if the allegations of this article are true, the only secure investment seems to be individually-purchased US Treasury TIPS. (Not TIPs ETFs of course.) Maintain a ladder, trade the ladder, and you have minimal taxes plus market gain potential, with no loss potential. Also some (not much but some) automatic inflation-protection in case of an inflationary recession.
Gold? Don't kid yourself. This only helps in an inflationary recession, and most gains will be taken by taxes if not confiscation. I recommend physical gold for dire emergencies and bequeathing to grandchildren, but that is about it. Gold will rebound like no investment, but during the crash is the time to buy it, not to rely on it.
Although of course it is quite true that we also need to make market investments. "Inflation is invisible taxation." And the more we invest, the more inflation, and the more need to invest. Have you never thought to question the sanity behind economists always complaining about the "slowing RATE of growth"? Why should a sane system need any GROWTH at all? But not only do we rely on GROWTH, but a high RATE of growth = exponential = unsustainable = pyramid scheme. We admit it boldly, we learn it in universities, an none of us monkeys even thinks to question the obvious. Here we are in century 21, and somehow cannot even feed ourselves without a pyramid scheme economy that must end in disaster or at least repeated disasters.
Ancient Hawaiians were much more evolved. They had infallible methods for trapping fish, went to the traps to eat, then went dancing and surfing. Their only glitch was the lack of birth control methods, which they solved by a little routine headhunting. This part of their system was perhaps equal, certainly no worse, in comparison to our two world wars, our 50 or so ongoing regional wars, and our routine stock market crashes = global economic cannibalism.
The 2 Best Options Strategies, According To Academia [View article]
I fail to understand the exact method of the Synthetic Stock and Long Call strategies in the 1996-2006 study. I have emailed the author, Professor Doran, as follows. I also invite anyone here please to reply if you can. http://bit.ly/10Lte4x
I fail to understand, how is it that the 1-yr OTM Long-Call strategy (and evidently the Long-Call component of the Synthetic Stock strategy) avoids losing -100% during the 2001-2002 crash? If I read correctly, for long strategies studied, "options are always held to expiration." (p. 6) Therefore, any 1-yr OTM S&P Long-Call must expire worthless during 2001-2002--I would assume?
Although I am a beginner with options, my extensive research on long-short equity investing concurs with the finding that 1-yr long-calls and put-writes must be highly advantaged. The results for the SS strategy, that combines these two, implies a long-term leverage that doubles the expectation for the S&P, while only multiplying the maximum drawdown by about 1.5. (Judging by figure 2 on page 34.) My own calculations concur that a similar expectation should be possible.
Obviously however, this is a dangerous strategy, and there is something about the exact method that I do not properly understand. Any comments would be appreciated.
The Best And Less Of Long-Short Equity Investing [View article]
UPDATE. New suggestions for portfolio allocation. Most investors are either timid or motivated. If motivated, they don't need suggestions. The average investor is timid and needs to keep any do-it-yourself (DIY) small and simple. With this understanding, for the average investor I now suggest...
* 1/10 of total portfolio in DIY buy-and-hold index ETFs. * 1/10 of total portfolio in DIY trend-trading the same ETFs--based either on the 300-day SMA of the S&P-500--or subscribing to trend-trading signals which might be better, if substantial long-term backtesting is provided, and which includes slippage allowance. * If total portolio is small, I would suggest focusing on an S&P-600 small-cap ETF with low overhead and substantial volume. * For additional equity investing, seek out long-short mutual funds that usually equal or better the S&P. * Do not neglect to maintain a ladder of directly-purchased TIPS. This is much safer than any other investment, including FDIC deposits. (But avoid TIPS ETFs. These are not safe at all, but totally subject to market whims.)
The 2 Best Options Strategies, According To Academia [View article]
Thank you for the empirical data on options strategies! I have been searching for data like this for several weeks.
Of most interest to me is the graph on page 34 of the 2006 study: "Synthetic Stock Portfolio Returns by Time to Maturity." If I understand correctly, this shows that 1-year call-buying can successfully create 2x leverage. However the 2001-2002 downturn seems disproportionately increased from about -40% to -60%.
Several respectable options tutorials imply that call-buying is equivalent to 10x or so leverage and that option leverage is better than margin leverage. It seems that options are feasible for creating leverage, but 2x is the best you can expect. Option leveraging also seems likely to be more stressful and less controllable than using margin or otherwise borrowing if you can do so at 2% interest.
Why I'm Selling Oil Stocks [View article]
1. I live in the USA, so my concern is for USA prices. As Davewmart points out above, the USA is not the world, but one of may oil buyers.
2. You fail to discuss the impact of the value of the US dollar, and the hard fact that Europeans have for decades been paying almost twice as much as in the USA for gasoline. Why? Evidently just because the US dollar is the reserve currency, which is eroding. I.e. even if the universal "value" of oil does not skyrocket, still maybe the US dollar falls we pay more, period...?
3. I am new to RSI usage, but so far find it referenced mainly for 15-20 day periods. You say EOG has an RSI about 67, but give no time frame. However I can only get up to a 66 reading for EOG by going to 3, 5 or 10 years. Which do you use? Is this a widely-accepted usage, or just your personal take? Either way, more power to you. But I just need to know what you are talking about in order to make apples-to-apples comparisons in checking what you are talking about, which I am doing now.
Basically I agree with you. As an investor, oil is overpriced, there are simply better values to be had. However, not as overpriced as silver and gold, and more of an essential commodity. Meanwhile as a human creature, not an investor, it makes basic sense to keep perhaps 10% of portfolio in each such commodity, buying the least-overvalued companies in that commodity. Therefore I hedge myself against the eventuality that just in case I am paying $6 per gallon at the pump next year, I am covered for it.
My current target is about 6% in lithium, 1% in platinum, 3% in SLW silver, 1% in gold-related, and at least 1% in each other energy source and basic commodity, if I can find an unusual value. Except I have decided not to do uranium because more than a few people are going to die horribly from it, one way or another, eventually. Currently looking seriously at CAM and will be studying the others you reference here.
Two weeks ago I over-bought with about 20% portfolio into lithium and platinum because they were such an obvious value. I made out well and now am returning to target. Or maybe next year. And eventually will come a time to sell even the silver. But not just yet, so long as every crazy on every block is pumping it skyward.
90% Of Green Energy Stocks Will Go Bankrupt... So Buy The Sector? [View article]
* Ignored point: some states have solar subsidy programs that make local solar farms a sure-win investment, also support regional self-reliance which in turn supports national stability.
* Ignored point: every argument for ignoring alternative energy hinges on the assumption that the USA has plenty of gas, coal and oil for the next 50 years, some say 100 years. What about after? These people just don't care about the next generation, period.
What amazes me is that even the same people who say "hoard more gold" are saying "drill more oil."
This ubiquitous drill-baby-drill bias clearly demonstrates the power of fashion, greed and ideology to overcome reason. While it makes some sense to burn gas or coal, oil is uniquely critical to chemistry, plastics and military defense. The last thing we should be doing with oil is burning it. Even in pure financial terms, tomorrow's oil is worth far more than today's dollars. And however superlative our extraction technology may be today, it will surely be twice as efficient in 50 years. Every drop of native oil that we burn is incredibly stupid, and I can hardly respect the economic sense of anyone who does not see this.
Jobs-jobs-jobs? Sure this is the political priority, because very few people have the sense of investors. The ancient Hawaiians trapped fish, ate fish and lived well. The McCormick Reaper was invented in the 19th century. One farmer feeds 5,000. The computer multiplied productivity yet again. And yet somehow--here in century 21--we simply must drill more oil to get enough jobs...? Where does it end? Nowhere obviously until the human race starts exploring for brains half as much as exploring for gold and oil and stops living like stray cats.
There is every reason for everyone even China to care about America because it is a bastion of economic stability. However if we cared about this country half as much as those who made the Alaska and Louisiana purchases, we would be buying up foreign drilling rights, while locking up our native oil reserves for 50 years. China is doing the buying and planning, we are doing little more than squandering while whining that the squandering is never enough--led on of course by oil companies and their narrowly dedicated investors.
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
* The stock market system is basically a slow-motion pyramid scheme which has almost destroyed the world every 50 years or so and then been modified to last another 50. Meanwhile in these "corrections" a lot of people starve and are thrown out of windows, and that is inevitably what enables the rest of us to survive and make money--for awhile.
* Meanwhile in the course of attaining a PhD in economics or investing, we are taught to look at this year and next year and maybe next
decade, but never to join the big dots. So all these highly-trained people in a highly mathematical profession end up ignoring 1+1=2 in the big picture. And anyone who says anything different is brushed aside, just as a tribe of monkeys would brush aside any little monkey who suggests maybe they ought not to raid a pile of bananas in front of them.
* For example consumer spending (=not saving) and population growth (=unsustainability) are "good" for economies. No politician can stay in office who even thinks otherwise. Ronald Reagan became one of the most popular presidents in history, and to this day remains an icon no Republican or Democrat dares criticize, yet who mainly played chicken with the soviet union while putting the country on credit card debt headed for infinity.
* Is an appropriate response for "banks too big to fail" to increase the FDIC insurance limit from $125k to $250k? This is utterly irrational and yet this is what was done. If it remained $125 we could stimulate more bank diversity and if there is a crisis there is simply less to insure. As everyone knows there still would not be the capability to cover a WWIII style economic crisis--but at least we could give I.O.U.'s for half the money and hold the world together, maybe. Or so I used to think.
This "give everyone bank stock for their money" is more ingenious! So, 300 million people suddenly have bank stock to sell with nobody possibly to want to buy it. Guess what happens to the value of that stock? Duh. Politically unfeasible perhaps, assuming democracy survives rather than some Blade Runner style corporate feudalism. But, if we threaten to do that, and then maybe "compromise" by giving everyone 1/4 their money in cash, everyone gets on their knees and says thank you. So very clever.
* One topic is missing from this article: TIPS. US Treasury Bonds are no problem because inflation will make them worthless. If the government can so easily tax or "renegotiate" all FDIC deposits, perhaps that makes TIPS all the more secure because there will be no need to touch them. And a lot of those are in ETFs which the government might utilize to buy back its debt for pennies on the dollar. Hurrah! This is great news if you believe in the USA. Democracy and freedom can survive the ultimate economic crash, albeit somewhat diluted. Unless China decides simply to buy America for pennies on the dollar, with all the gold and oil rights they are buying. Meanwhile both "liberals" and "conservatives" in this country somehow think they are gaining "energy independenc" by burning away our native oil reserves. Ironically, even the same people who advocate gold-hoarding are saying we are not drilling away enough oil. Hmmm... not so good for America or Democracy. Maybe that's why half the people were Chinese in the Blade Runner film about 2019. But I digress...
Look, the bottom line is that there is probably not ten humanoids reading this article who do not assume that there is a God-given necessity to have more housing starts each year and more billionaires and it all grow up to infinity. Regardless of how this contradicts reason, our ancestors were genetically programmed to think this way, or they might not have had so many babies and we might not be here but someone else who does have the necessary off-switch for reason. Inevitably then we end up with the human equivalent of the migration of lemmings or the arctic die-off of rabbits, just on a different cycle. We are not descended from monkeys, we are monkeys. We neuter our cats but do not control ourselves, and it is wrong to suggest any such controls. Why? Because we are not cats, we are rational beings who can contol ourselves. Aha, but isn't that somewhat self-contradictory?
The bottom line is that as long as we think that having stock markets and billionaires is infinitely more important than having dignity and security for every human being--as long as we prefer to periodically grind up and eat people (or at least their savings) in a massive recession every 50 years or so--well then how can we expect to get anything more than what we are asking for, one way or another?
Record VIX Options Volume And Large Purchases Of VIX Calls [View article]
Trend-Trading SLYG Beats Leveraged ETFs [View article]
1. I did not thoroughly study Mr. Wong's series, but it seems somewhat less concerned with practical suggestions than with theoretically disproving the traditional buy-and-hold convention based on the "efficient market hypothesis." "For the record, it is not my intention to promote the MAC system as a trading tool. There are many trading systems used by active managers with proven track records. I use MAC as a demonstration to challenge the popular notion that no one can beat the markets in the long run."
2. Evidently, many investment professionals are opposed to trend-trading simply because no mathematician has presented a well-accepted hypothesis to explain it. I do not know anything about theoretical mathematics. However it seems to me an explanation for the validity of trend-trading can be based on three obvious facts.
(a) Recession prices always go down much faster than they go up. Therefore, unlike a dice game, certain major aspects of market behavior are consistent, asymettrical and not-random. If market behavior were random and symetrical, then on average, you would lose as much as you gain by leaving. However the consistently slow rebound relative to the downturn ensures that during large downturns, trend-following enables you to gain a lot by leaving and to return in good time for the rebound.
(b) The market may always be "efficient" in the long term but if so, this only strengthens the ability to capitilize on the fact that it always overreacts in the short term. This is another non-random pattern guaranteed by obvious human factors to remain consistent.
(c) The reason we can depend and capitalize on these two patterns is perhaps the same reason that a mathematician may have difficulty proving them mathematically: they are non-random and non-mathematical. The first pattern above is caused by physical laws related to the fact that it takes longer to put a box into a truck than for a box to fall off. Mathematically up = down but in practical reality up <> down. The second pattern above is caused by fear and greed and the fact that even people who are not governed by these emotions had better get out of their way.
3. Incidentally, if most humans were mathematical and not governed by destructive emotions then there would be no reason for the stock market to exist. On my home planet Vulcan, everybody buys bonds because nobody is illogical enough to create an edge from buying stocks. (Just kidding. I do not have the economic misfortune of being from Vulcan.)
4. Incidentally, I would also like to point out that combining stock + bond performance data totally invalidates that data for proving that MAC works or for determining what is the best MAC system.
Mr. Wong does not make this mistake.
However, another series of articles at Advisorperspectives.com promoting a slightly more complex MAC system has year-by-year and decade-by-decade performances, but only gives us the sum of performances of bonds during downtrends with stocks during uptrends. During 2001-2010, any MAC system that told you never to invest in stocks, and always to invest in long term US Treasuries, always would have outdone any MAC system that ever told you to buy any stocks. This does not mean this system is no good, but it does mean that there is no telling from the data provided.
Trend-Trading SLYG Beats Leveraged ETFs [View article]
Your perspective is interesting. Here is my perspective. MA-based trend-trading basically compares a short-term average (1-5 days) to a long-term average. If we are essentially working with comparisons between two things, does it make sense to add one of those things to the other before comparing? I tend to suspect it might be a bit better to remove the short term from the long term, which is the opposite of making the short-term and long-term MA's more alike as in the EMA. But I also have other theories that argue in favor of EMA. My to-do list includes systems that use the EMA for such reasons.
I like your idea of a "cyclical" component. But this might argue in favor of the SMA. As mentioned in this article, we can be more confident an SMA works if neighboring SMAs also give good results. But even after 40-year testing, the best result is sometimes not in the center of the best group, and sometimes near the edge of a cliff after which results are much poorer. So I have assumed the center is the best bet, even though past results are not best because of random chance. However your "cyclical" theory suggests there might be more than chance operating, especially in a 40-year study. Anyway I compromise between what is the best and what is the center. If there is a "cyclical" effect, it seems to me that this would strengthen such a choice.
Also perhaps what we call "cyclical" is really a random effect of volatility, which forms a pattern but which is not a straight line like the SMA. For each volatility measure, there might be an averaging formula which best matches the pattern. This would not be linear like the SMA, but probably not the EMA either. The ideal MA formula might have a bell-shaped or a wave pattern. But this is on the level of Black-Sholes and a Nobel prize, and I have other parameters that are simpler and are more likely to pan out.
Anyway, I have tested every fifth SMA from 20 to 500 on the 40-year S&P. With no slippage leeway, there are peak results at about SMA-180 and SMA-280. For obvious reasons, if you merely add -0.2% per trade for slippage, there are no longer acceptable results around 180-200 and the peak at 280 moves to about 300. I would certainly like to see the results if anybody cares to do a similar series of tests using various EMAs to see if they are any better.
There is quite possibly an EMA which is better than my basic suggestion of using the 300-day SMA on the S&P!
Trend-Trading SLYG Beats Leveraged ETFs [View article]
But I think it is best for everyone either to invent their own signals or to combine the well-chosen signals of others, which generally reduces trading and improves results. (Buy + sell = hold.) Share your resulting signals but do not tell others what you are combining. There is no telling what effect this might have if picked up by a few institutionals. Individuality is best for the individual and the market.
Nonetheless I am also trying to develop good-enough guidelines such as the 300-day SMA for the S&P, which everyone can test and use alone or in combination, and which often turns out more reliable and with less hindsight bias than algorithms.
Some people will charge fees for trading signals, while offering no evidence of 40-year testing on the S&P, the most basic litmus test. Or conversely, I have a book by an institutional advisor which unconditionally recommends the 200-day SMA for every ETF. This is based on one 80-year study by another institutional advisor, and for which much less than book-possible details are provided and which seems flawed. My 40-year studies clearly suggest that SMA-300 is twice as good as SMA-200 for the S&P, and that you cannot apply one parameter to all ETFs. This also may exemplify the reasons that 90% of long-short funds have embarrassing performance records. More details are in my previous article, "The Best & Less of Long-Short Investing." http://seekingalpha.co...
So yes, my "tweaked SMA" results are intended to be an example of the best results we are likely to get. But I am disappointed. The "post recession potential" of SLYG is 80% but as you can see above, I only get 50% long-term. This is much better than Buy&Hold but not what it might be. Also, half of the reason for doing these tests was to use SLYG to make up for the lower results that trend-trading causes during such times as 2010-2012. This has not panned out. I am confident that I can improve on this. I have several parameters that I have not even developed. Eventually, I hope to achieve a formula that if volatility = x then optimal SMA-method = y. But it will take substantial testing.
There is a chance that results might be improved simply by using the S&P as a general indicator. I.e., do not sell anything until the S&P goes down. I doubt that this is best, but the results might be surprising. Contrary to ubiquitous beliefs, trend-trading does not significantly improve the odds of being correct about market direction, but works mainly by restraining our panic attacks to below the point where they become costly.
So, later I "ought to" post results for trend-trading SLYG based on the trends of the S&P. But this might take awhile. My time is limited and I cannot yet afford secretaries who think slower and work faster. My primary goal here was to determine whether perhaps it might be worthwhile to risk the -95% long-term loss potential of leveraged ETFs. The answer is no. Leveraged ETFs probably would not be worthwhile even if there were zero added risk. Thank you all for your encouragement.
Keep Your Eye on Consumer Spending [View article]
Building a Portfolio With No Stocks [View article]
Mr. 427: I agree even more with you. All-bonds are a viable option. I recently realized that "a few" global bond funds are achieving over 10% averages over 10 years with little volatility. Global bond funds also hedge against dollar devaluation and seem in many ways better than gold. And seems you were way ahead of the curve. So happy to learn from your actual experience that "maybe" I am not imagining things. I already have some of your picks and will be looking closely at the rest.
I do agree with Mr. Fitzgerald that the bond fund investor must be prepared to accept every bit of volatility as with stocks. This is a vital point that is often glossed-over.
However I disagree with him and most people who seem to assume that volatility = risk. If you are twice as certain of the rebound, then 20% volatility in bonds = 10% volatility in stocks. And if the rebound does not depend much on competitiveness, sales, and investor enthusiasm--but mainly on interest and default rates--then I think I am more than reasonable to say bonds are twice as sure of rebounding.
The Blackjack player relishes volatility. When nothing but bad cards have come out, it's just time to double down. Volatility in stocks vs. bonds is like volatility on an ice-coated highway vs. a Coney Island roller-coaster. Whoopee.
So I would very much like for someone to correct me if perhaps Mr. 427 and I are missing something here? Because if we are correct, then 10%-12% annually can be achieved quite assuredly in bonds and is much better than "maybe" making 14%. Also quite seriously, I believe stocks are inevitably turning the environment and the economy into a poker chip, and had better be made illegal.
The only reason that I still do stocks is that bonds are still just I.O.U.'s dependent on the global economy and numerous laws that could change with necessity. Nobody knows what the future will bring--except that with every 10 jobs being replaced by 1 computer or sweatshop it isn't pretty.
Therefore I insist on keeping about 1/4 of portfolio as inflation-protected T-TIPS and about 1/4 in monetary metals and essential commodities. This reduces my average growth expectation from 12% to 6%--unless I also add about 1/4 portfolio in high-yield stocks. This isn't much added risk, if any. As Mr. Fitzgerald says, stocks are a diversification which to a point means reduced risk. For the past 10 years stocks have done more terribly than ever while bonds have done well. Suppose the next 10 years is the reverse?
Miscellaneous points:
GLD. Maybe again I am missing something, but I don't understand why people give emphasis to GLD when for US citizens there are gold and silver mines, processors and mutual funds that do not have a 28% "collectibles" tax rate. If you think global infrastructure might collapse then you are slightly better off with Swiss ETFs. And only seriously safer with a safe deposit box full of metal, and just as well off with membership in a subsistence farming coop.
MOO. I have to defend Mr. Fitzgerald here. Just as a gold-mining company can be considered gold, a commodity-based stock fund need not be considered a stock.
However MOO and PCRDX are just now emerging to their pre-crash levels. These might not qualify for my standards of gold-like commodities with "certain" ever-growing necessity vs. supply, such as oil and gas. If digressing into areas with "theoretically" increasing necessity, then I find better risk-benefit ratio in the biotech index.
HIGH-DIVIDEND PREFERRED STOCKS. With 8-12% total returns in bond funds, I don't see any reason for preferred stocks. I might however consider utility preferred stocks in the category of assured-growth essential commodities. Also very possibly I am missing something here. So I will be following "Five Plus Investor" who specializes in this field.
Junk Bond Funds Still Offer Very Attractive Yields [View article]
Gold: A Bright Shining Lie? [View article]
1. John Overstreet has admitted in the comments that there might be something to some of the comments raised about gold manipulation. I would look forward to a new article by John addressing those possibilities.
2. My bottom line: every major gold bug newsletter tracked by the Hulbert Financial Digest did terribly for 2001-2010 in spite of their gold. I subscribed to some hoping they could give me some tips about which mines and when etc. But soon realized if they are so clueless about general investing how can they be trusted to know anything about gold except gold is good, buy gold?
3. If there is manipulation, so that is one more thing manipulated. "Insider trading" for equities is supposed to tell a lot. Sometimes yes, sometimes no. Even when we have such information, not everyone can make use of it. If you really know what you are talking about, good for you. But I certainly have no way of knowing that you know. I am curious but seriously, I have other things to do.
4. There is one reason for Northwestern hemispherelings to hold gold above other investments. That is, it is the only investment whose value can survive two things: a shifting of the earth's crust and one's own stupidity. After a lifetime of savings we can make bad investments and leave nothing to our grandchildren. For both those benefits, you do not buy GLD. Instead you hold small increments in several safety deposit boxes in several bank locations. And make sure your account is deemed active once a year and the bank personnel does not handle your key.
5. Otherwise for Northwestern hemispherelings you do not make more from being savvy with gold than with value investing or any of innumerable savvy speculations. I do like any kind of oil and high-value mining stock because like a good basketball they bounce well, giving me confidence to buy low sell high. And meanwhile there is a lot of stuff in the ground there, as opposed to betting that Blackberry will or will not bounce back to trounce the Ipod or some Korean will trounce them both, etc., etc.
6. Less-stable economies are quite different. Riots or tsunamis break out, you break out Euro 50's or US$50's to help get on the taxi or the plane, or to help others afford malaria medication or etc. Western cash is compact and effective. But the way things are heading, someday they might not work. Slightly more clunky gold or silver bracelets will then work better. Don't leave home without a few.
7. Myth: other precious materials are better than gold. I believe diamonds are soon to plummet after the patent runs out for Moissanites which are not imitations but man-made twin sisters. Nobody will want a teeny diamond ring when they can get a huge moissanite made in China or Korea. Just one example of innumerable materials whose values might go way up but way down. Gold is not much different from them in its instability and combination of scientific and aesthetic uses except the added tradition as money. Gold = money = relative added stability = the big difference.
8. Myth: gold will save you in a great depression. Not if you sell it during the depression, when everyone else is selling theirs--unless it's a rare inflationary depression. What you need to add is lots of dogfood to survive the depression without selling the gold. That's the ticket.
9. Please name me one gold bug who is saying, "Disaster! China is buying Fort Knox!" --but who is NOT saying, "Disaster! We are not allowing enough oil to be drilled! We need to drill away more of our native oil!"
My friends, oil = black gold with a big difference. When you buy gold, you do not burn it away forever. And there are many forms of energy. But only oil is also chemistry, construction and national defense. The future of America does not depend on who has more oil right now. The future depends on who is The Last Man Standing with native oil reserves. China is buying up those reserves all over the world. Americans both 'liberal' and 'conservative' are instead focused on so-called "energy independence" by burning up our native assets asap. That is like saying the faster you spend your life savings the more "independent" you are. So I do not spend much time thinking about gold nor do I trust Gold Bugs to have much sense of reason.
So I personally do suggest 1/5 portfolio in physical gold--but at least 2/5 in individually-traded TIPS, which are market-inverse and do you far better most of the time. http://bit.ly/XWUYq0
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors [View article]
Matt, you certainly have a valid point but let us qualify that please...
1. I know a number of elderly people who are struggling to hold a job because they lost most of their retirement savings in the market in 2008 and could not afford to await the rebound while paying their bills.
2. During 2008, it was the government that bailed out financial corporations, not the other way around. So don't tell me it is somehow safer to trust in the solvency of corporations than in the government.
3. The 2008 bailouts were not popular, and next time around will be less popular, and with good reason. And with no bailouts of the too-big-to-fails, then the whole system of SIPC and the stock market will collapse like dominoes.
4. Also, if the FDIC uses the dirty tricks expressed in this article, there will be a clean sweep of all politicians. So it is possible for FDIC to collapse but there will be serious reluctance at least. Whereas if SIPC-insured money-market accounts collapse, everyone will say so what, you knew the risk.
I claim no in-depth banking knowledge but if the allegations of this article are true, the only secure investment seems to be individually-purchased US Treasury TIPS. (Not TIPs ETFs of course.) Maintain a ladder, trade the ladder, and you have minimal taxes plus market gain potential, with no loss potential. Also some (not much but some) automatic inflation-protection in case of an inflationary recession.
Gold? Don't kid yourself. This only helps in an inflationary recession, and most gains will be taken by taxes if not confiscation. I recommend physical gold for dire emergencies and bequeathing to grandchildren, but that is about it. Gold will rebound like no investment, but during the crash is the time to buy it, not to rely on it.
Although of course it is quite true that we also need to make market investments. "Inflation is invisible taxation." And the more we invest, the more inflation, and the more need to invest. Have you never thought to question the sanity behind economists always complaining about the "slowing RATE of growth"? Why should a sane system need any GROWTH at all? But not only do we rely on GROWTH, but a high RATE of growth = exponential = unsustainable = pyramid scheme. We admit it boldly, we learn it in universities, an none of us monkeys even thinks to question the obvious. Here we are in century 21, and somehow cannot even feed ourselves without a pyramid scheme economy that must end in disaster or at least repeated disasters.
Ancient Hawaiians were much more evolved. They had infallible methods for trapping fish, went to the traps to eat, then went dancing and surfing. Their only glitch was the lack of birth control methods, which they solved by a little routine headhunting. This part of their system was perhaps equal, certainly no worse, in comparison to our two world wars, our 50 or so ongoing regional wars, and our routine stock market crashes = global economic cannibalism.
The 2 Best Options Strategies, According To Academia [View article]
http://bit.ly/10Lte4x
I fail to understand, how is it that the 1-yr OTM Long-Call strategy (and evidently the Long-Call component of the Synthetic Stock strategy) avoids losing -100% during the 2001-2002 crash? If I read correctly, for long strategies studied, "options are always held to expiration." (p. 6) Therefore, any 1-yr OTM S&P Long-Call must expire worthless during 2001-2002--I would assume?
Although I am a beginner with options, my extensive research on long-short equity investing concurs with the finding that 1-yr long-calls and put-writes must be highly advantaged. The results for the SS strategy, that combines these two, implies a long-term leverage that doubles the expectation for the S&P, while only multiplying the maximum drawdown by about 1.5. (Judging by figure 2 on page 34.) My own calculations concur that a similar expectation should be possible.
Obviously however, this is a dangerous strategy, and there is something about the exact method that I do not properly understand. Any comments would be appreciated.
The Best And Less Of Long-Short Equity Investing [View article]
* 1/10 of total portfolio in DIY buy-and-hold index ETFs.
* 1/10 of total portfolio in DIY trend-trading the same ETFs--based either on the 300-day SMA of the S&P-500--or subscribing to trend-trading signals which might be better, if substantial long-term backtesting is provided, and which includes slippage allowance.
* If total portolio is small, I would suggest focusing on an S&P-600 small-cap ETF with low overhead and substantial volume.
* For additional equity investing, seek out long-short mutual funds that usually equal or better the S&P.
* Do not neglect to maintain a ladder of directly-purchased TIPS. This is much safer than any other investment, including FDIC deposits. (But avoid TIPS ETFs. These are not safe at all, but totally subject to market whims.)
The 2 Best Options Strategies, According To Academia [View article]
Of most interest to me is the graph on page 34 of the 2006 study: "Synthetic Stock Portfolio Returns by Time to Maturity." If I understand correctly, this shows that 1-year call-buying can successfully create 2x leverage. However the 2001-2002 downturn seems disproportionately increased from about -40% to -60%.
Several respectable options tutorials imply that call-buying is equivalent to 10x or so leverage and that option leverage is better than margin leverage. It seems that options are feasible for creating leverage, but 2x is the best you can expect. Option leveraging also seems likely to be more stressful and less controllable than using margin or otherwise borrowing if you can do so at 2% interest.