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Blue chips such as Microsoft (MSFT), Mellon Bank (BK), CVS, and Exxon (XOM) - "world-dominating...
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Sunday, September 18, 2011, 9:04 AM ETBlue chips such as Microsoft (MSFT), Mellon Bank (BK), CVS, and Exxon (XOM) - "world-dominating ... well-financed and adaptive" - are catching the eye of Jim Grant, but Treasuries aren't. "People are flying for safety into a class of security denominated in the very paper money that others are flying from ... Somebody has not gotten the memo."
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Remind myself not to overlook the very first immutable law of productive investing:
Buy low; sell high.
In which case, in return for what do you sell gold?
All I can tell you is that the notion that fiat is about to vanish in months, years, or even decades is just nonsense, spouted by the fearmongers and those in whom they've instilled fear, to their gain, of course. There have been past crises, past defaults, and there will be more. The world keeps spinning, and paper currencies survive. We're not returning to trading bags of gold dust or bartering goods, survivalists notwithstanding.
Gold never, ever works as a peg for currencies because it bears little relationship to the function of economies, especially modern ones, and cannot be kept liquid enough at the exact times when liquidity is vital. It has always proven very deflationary, which is death to production and monetary velocity because people hoard gold (any currency) when prices are falling or they expect them to fall. (That's why people are not rushing out to buy houses, despite record affordability and record-low interest rates.) Gold has been abandoned as a monetary peg each and every time in history its been attempted, bar none.
Just to put things in perspective, the modern British Pound has existed since 1694; the modern Yen since 1871; the dollar since 1792. You think these are all about to disappear over Greece or some other manufactured event and accompanying media circus? Good luck.
The same rules of investing apply now, as have applied since time immemorial and will apply endlessly in the future. If you buy things at all-time record highs (e.g., gold, commodities, Treasuries, etc.), you stand a very good chance of underperforming and/or losing money, maybe a lot of it. Conversely, if you buy things unloved and selling at or near historic lows (e.g., banks, real estate, drugs, etc.) you stand an excellent chance of outperforming future market averages, and if you pick issues with substantial yields, you'll get paid handsomely to do it.
Now, this doesn't mean you have to plunge in whole-hog today, or only buy equities disproportionately and not diversify intelligently. It means you should be looking for opportunities, not hunkering down in nuclear bomb shelters. For those that do, by the time they pop their heads back up, the world will have left them behind, and a lot poorer, too.
So, hold some cash, hold some corporate bonds, buy some preferreds and look for depressed common stocks in firms with good performance histories and reasons to perform again. This will find you far happier in the future than looking back and kicking yourself for being blinded by fear at the hands of those that profit from it.
What you say is exactly why there will never be a real "gold standard". The reasons are many, but just simply from a physical persective, you would have to set the "official" gold price at something like $230,000 per ounce to cover all the worldwide currencies. Even just considering the gold in Fort Knox and backing the US dollar would need a price of (guesstimating) of around $75,000 per ounce.
Can you imagine trying to buy a Big Mac with .000000074 ounces of gold?
Second, the strength of the dollar (and to some extent, the economy) has been based, for decades, on seigniorage in an ever expanding global paper market. At the moment the dollar is getting its boost from Euro weakness but that, too, will eventually pass, particularly as emerging currencies gain acceptance and toxic assets unravel.
As the national debt mountain grows the likelihood of a surge in inflation increases. Now it appears we've reached a point where it's unavoidable. Just how large that may be can be guessed at from historical precedent (how much has it lost in the last decade?) or historical parallels (the German mark?) or even from arcane precedents such as the gold/debt ratio in the U.S.
Twice in the last sixty years gold reached a price equivalent to a 4:1 debt to gold ratio. Should it do so again the price would have to be so high it's shocking to even display.....unless, of course, sufficient inflation has occurred to have it appear "reasonable".
In fact, if you took your argument to another viewpoint, investing in over priced banks, drugs or electronic toys you may be missing the growth stories of the future, such as revolutions in energy, agriculture and such physical things a full 3/4's of the world needs.
Should we see an inflationary bout coupled with a currency crisis it will be PM's that hold value, not banks, and although I hold real estate I fear somewhat even for its future as in times of crisis it's a target, not even an asset. I speak from some bitter experience in that regard.
This momentous explosion in world events is far from over and may not even, in Churchill's famous words, be the end of the beginning.
OK, you buy all the expensive stuff, and I'll buy the cheap stuff, and we can compare performance records a few years from now.
http://bit.ly/pvlWQ9
When you consider how money supply functions, and that the world revolves upon M2 (sometimes M3, if it is reported), then to go a single system (M0) would be a gigantic scale of change. What you are suggesting would be World War III, because all the cross agreements, debts, obligations, and global trade will not simply roll over without a fight. In the extremely unlikely event this were to happen, carrying physical gold or silver would make you a target.
If you feel that strongly in this scenario, then you should become a subsistence farmer somewhere in the world, and go completely off the grid. In that case, gold and silver mean nothing.
If you take stock in "articles" being written, especially ones suggesting that the dollar will be replaced by some "basket," not backed by a single sovereign power --especially in this time of the Euro follies, and folks flocking to dollars-- then, I just don't know what to say. Believe as you wish, but the dollar isn't going anywhere, at least not in our investment lifetimes.
That various currencies have had moments backed by gold is meaningless, as they've all been radically modified in price pegs, then abandoned, because gold is simply unworkable as a fixed unit of exchange. One would think this had become apparent by now, but there are still folks who want to dance around the Golden Ox, like the scene out of the Ten Commandments.
I think the underlying basis for many suggesting a gold standard is that they have lost confidence in the system now in use. It's not so much that a failure might happen, but they want to be more confident. The trouble is that to really think it through and change everything is not a simple process. Most of them think it would be easy, quick, and painless, and they are flat wrong.
As for there not being enough gold, prices will change either goods will decrease or gold will increase to match what people value most. Less debt, more capital.
Gold and silver are money, paper's just paper and can be printed indefinitely. There's a reason ALL fiat currencies fail.
I have all I need in dividends, real estate and other stuff, much, much cheaper than today.
I'll protect that with PM's and let you take the flyers. Deal?
Gold is a CB's "currency of last resort". Always has been, likely always will be.
It doesn't make a whit of difference the price you originally may have paid; if you're long those entities, then, you're just as exposed to day's action as the guy who bought yesterday. If you think the future is precious metals, by all means, load up.
I've been taking "flyers" (depressed shares), as you call them, for more than fifteen years and have outperformed the markets by a wide margin. You expect this to all change; I don't.
Apparently, can't read:
Pound - 1694
Dollar - 1792
Yen - 1871
I know, I know. They're all failing next week.
You still fail to solve the problem of population growth and gold valuation. Go ahead and try to make a viable argument for a gold standard, but outside of very small countries with zero population growth, who do not also need global trade agreements, it is simply not possible to reverse engineer current systems to accommodate a gold standard.
You might dislike, or distrust, the current system, but you will simply not be able to change it without extreme strife, widespread war, and a return to a feudal system. I don't have to like central banks and the system of Money Supply, but that's what we have now, so I am spending more time profiting within that system, rather than working to change it. As pointed out by Machiavelli centuries ago, those who try to change a system will find it difficult to get support from those who benefit under the current system, and will lack support from those who might benefit under a new system, because the latter will not trust that it is possible to prosper under a new system.
Yes, and slaughtered by investments in equities and bonds over the long haul. Not even close. Since 1900, equities have outperfomed gold by over 400%, not including 111 years of dividends.
But, believe as you will.
And, so should you.
I rarely hedge with shorts or puts. I modulate allocations percentages between bonds, common, preferreds and cash, and I roll my big gainers (i.e., lower yields) into new "values," i.e., depressed prices, higher yields. It's worked for me for a long time though a lot of volatility. If something else works for you, that's fine, too.
I don't know if we'll be chatting here ten years from now, but I am going to bet you that during that period equities will outperform commodities, gold included.
No, I just work for myself, not a single other soul. Don't have employers, employees or even a job. I have been able to live quite nicely without any of the foregoing for the last sixteen years, so I must be doing something right, no?
Fiat currencies *enable* these things. Look at the inflation in the money supplies of the various countries during the world wars, that's why the US became the reserve currency, it was the one that was closest to backed by gold (however long that lasted...).
Fiat currencies *always* fail.
Isn't that what it is supposed to be about?
We've seen riots amongst the poor (relatively speaking - they are of course nowhere near as poor as the poor in the middle-east) in the UK, France and Italy within the last ten years with unemployment much lower than the US has now. What happens as the currency wars continue? Food prices go up. Do you expect this to be uneventful with employment as it is?
Why do you think that violence won't happen if things continue to get worse? Have you never seen riots in the US? The US is not made up of a special kind of person. When things go bad there are riots and violence just like anywhere else. You don't need to look back all that far too see that.
If you want to think the US will completely collapse into chaos, I doubt anyone will convince you otherwise. I tried to look through your comments, and I cannot find indication that you invest in anything. So I will leave you and your rhetoric alone. Adieu.
As is so often the case, the opinion is a snapshot of a trend that is over. The fact that most debts are denominated in dollars ensured it strength (probably inconvenient strength) for some time, now that things have gone south.
"Leper with the most fingers" . . .
Microsoft - Classic value trap investment
Mellon Bank - See Microsoft
Joe: Translation: We need suckers to keep taking the dollar.
- old jewelry (heritage)
- gold coins
- gold bars or even dust..
Finding over that gold will be paid ad the market only in case it is "good delivery" in a vault. The rest: coins, jewelry and bars will be discounted and you should be happy to be paid 40% of value.. it remind me of wars and crisis with people crying because for their gold they had to accept 10% value in order to eat...
The cost (insurance/fees of transactions/ delivery etc etc) are so high that in a certain way, you pay 120% and get back 80% value.
Well, there is no way to go safe...