Seeking Alpha

Blue chips such as Microsoft (MSFT), Mellon Bank (BK), CVS, and Exxon (XOM) - "world-dominating...

Blue 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."
Comments (41)
  • Memo to self: Find time to read through this history of banking site. Try to predict timing on coming debt-fuelled collapse in currencies and entry point for gold/silver.
    18 Sep 2011, 10:13 AM Reply Like
  • Addendum to memo:


    Remind myself not to overlook the very first immutable law of productive investing:


    Buy low; sell high.
    18 Sep 2011, 10:31 AM Reply Like
  • Good advice for stocks Tack but, after reading these debt stories a shiver runs down the spine. Is there any "top" for gold or is fiat doomed to vanish?


    In which case, in return for what do you sell gold?
    18 Sep 2011, 12:06 PM Reply Like
  • Vuke:


    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.
    18 Sep 2011, 12:33 PM Reply Like
  • Tack:


    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?
    18 Sep 2011, 03:19 PM Reply Like
  • Tack, it's hard to disagree with such a well structured argument but, consider a couple of things that may undermine it. First, few are considering a total collapse of the dollar. There are just too many conveniences to paper to see it disappear entirely.


    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.
    18 Sep 2011, 03:48 PM Reply Like
  • Vuke:


    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.
    18 Sep 2011, 03:59 PM Reply Like
  • Tack: Both the Pound Sterling and the Dollar were backed by precious metals for most of their histories. All fiats collapse eventually if history is any guide. Already, there have been many articles speculating on the replacement of the dollar as a reserve currency and whether that involves a currency backed by a basket of currencies or commodities or something else is open to debate, but one thing is certain the dollar is not invincible and we may be revisiting Bretton Woods sooner that you think.
    18 Sep 2011, 04:12 PM Reply Like
  • On a monetary basis, gold or silver as currencies are only M0.



    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.
    18 Sep 2011, 04:15 PM Reply Like
  • Geoff:


    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.
    18 Sep 2011, 04:17 PM Reply Like
  • If the population of the world remained stable, then the limited supply of gold could function. However, it seems that factor is conveniently ignored by people who want to go back to a gold standard. There is simply not enough gold in the world. Also, the holdings of physical gold by various sovereigns would skew the balance of trade beyond the current commodity based system. Adjustments would be radical, difficult, and very likely lead to conflicts.


    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.
    18 Sep 2011, 04:24 PM Reply Like
  • Can anyone who says fiat's going nowhere name a currency that has lasted 100 years?


    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.
    18 Sep 2011, 04:59 PM Reply Like
  • If you have population growth, and that growth is greater than new gold being mined, then you must redistribute gold as the population increases. This is fundamentally how money supply functions now, in that it easily accounts for population growth. At the current rate, gold mining is way behind population growth on an annual basis. Try solving that problem.
    18 Sep 2011, 05:22 PM Reply Like
  • Tack:


    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?
    18 Sep 2011, 05:58 PM Reply Like
  • Gold is almost infinitely fungible if it backs currency. Why, in Heaven's name, do you think there's 8,300 tonnes in storage and other CB's are buying? Please, HerrHansa, read Kindleberger's excellent book on CB thinking. "Manias, Panics and Crashes".


    Gold is a CB's "currency of last resort". Always has been, likely always will be.
    18 Sep 2011, 06:10 PM Reply Like
  • Vuke:


    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.
    18 Sep 2011, 06:33 PM Reply Like
  • LPWG:


    Apparently, can't read:


    Pound - 1694
    Dollar - 1792
    Yen - 1871


    I know, I know. They're all failing next week.
    18 Sep 2011, 06:35 PM Reply Like
  • Gold is a one way currency hedge. In the event of a currency collapse, it could be used to accumulate another stable currency. However, if one of the major world currencies collapses, do you really think such a tactic would work?


    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.
    18 Sep 2011, 06:36 PM Reply Like
  • Vuke:


    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.
    18 Sep 2011, 06:37 PM Reply Like
  • Tack, I took the ``flyers`` at pennies long ago. They`re now dollars and better. I`d like to hang onto those gains.


    And, so should you.
    18 Sep 2011, 06:57 PM Reply Like
  • Personally would rather have 21 barrels of oil in my backyard than 1 oz. of gold. Which would cost me about the same fiat currency right now.
    18 Sep 2011, 06:58 PM Reply Like
  • Tack, we`re discussing the next decade, not the past.
    18 Sep 2011, 06:59 PM Reply Like
  • Tack: Do you work for the Fed?
    18 Sep 2011, 07:26 PM Reply Like
  • Vuke:


    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.
    18 Sep 2011, 07:52 PM Reply Like
  • Vuke:


    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.
    18 Sep 2011, 07:54 PM Reply Like
  • Geoff:


    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?
    18 Sep 2011, 07:57 PM Reply Like
  • Indeed. I've been doing the same, but only for the past five years.
    18 Sep 2011, 08:11 PM Reply Like
  • What is it that makes you think we're not going to have extreme strife and widespread war if things carry on as they are?


    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.
    18 Sep 2011, 10:02 PM Reply Like
  • When I look at developed economies, even official unemployment levels around 20% do not cause massive civil unrest. Take a look at North Africa and the Middle East. Much of the current unrest started with high food prices and high unemployment. There is still a long way to get to those levels in the developed world. The chances of those actions repeating in the developed world are quite low, though Greece provides some view of how that might appear. I think the chances of political violence in the US are far greater than massive food protests. Besides, if I truly believed the possibility was very high, then I would be somewhere else in the world, living on a subsistence farm so I have enough food. If you do believe in a dooms day scenario, then I suggest you liquidate your assets, figure out somewhere else to go, and leave the developed world completely.
    18 Sep 2011, 10:10 PM Reply Like
  • Tack, I've no doubt with carefully selected equities you would win. But while you crouch over a computer, read news releases at night, bark at your broker and sweat the soft spots I'll be lounging on a warm beach, cracking fresh coconuts and exploring caves without a concern on my mind. Fiat can fall where it may, inflation can roar but I'll be out of the chains that bind so many and, with full confidance, that come what may, my reserves in PM's will see me through.


    Isn't that what it is supposed to be about?
    18 Sep 2011, 10:54 PM Reply Like
  • You can't believe the US Govt's statistics on unemployment for reasons that are long understood by anyone who has even slightly questioned them. Shadowstats are far more likely to be closer to reality.


    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?
    18 Sep 2011, 11:49 PM Reply Like
  • Absolutely. There has been a very slight improvement from 2008 and 2009 until now. Obviously some people are not happy at the extremely slow pace of change, though even at the worst of times I felt a complete collapse was extremely unlikely. It appears that you disagree, though I have to wonder why you are still on an internet forum, and why you are not holed up in the south Pacific or some third world country. Look at any failed country, perhaps even Somalia, and I wonder how you can imagine it could become like that in the US or Europe.
    19 Sep 2011, 12:23 AM Reply Like
  • I never said I was in the US.


    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.
    19 Sep 2011, 02:23 AM Reply Like
  • False logic. Just because there have been riots, food lines, and the Great Depression, does not automatically mean with any certainty these are all going to happen again on a mass scale. I have seen far worse than you could possibly imagine, though not in the US.


    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.
    19 Sep 2011, 02:45 AM Reply Like
  • If you couldn't find it it's because you haven't looked hard enough, they're there, though admittedly I don't have reason to talk about them too often. I really hope you're right and I'm wrong, but I think you're just overestimating people and ignoring even recent history. Bye.
    19 Sep 2011, 02:56 AM Reply Like
  • …and, given the recent sudden spike in the $US, that someone is Jim Grant!
    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" . . .
    18 Sep 2011, 12:30 PM Reply Like
  • Gold is a protection against extreme outcomes - Jean-Marie Eveillard


    Microsoft - Classic value trap investment


    Mellon Bank - See Microsoft
    18 Sep 2011, 04:37 PM Reply Like
  • As long as we have the strongest military and economy the dollar would continue being the reserve currency, which eliminates the absurdity of having a gold standard. We need continuous growth in the money supply to facilitate increasing living standards.
    18 Sep 2011, 05:59 PM Reply Like
  • >>We need continuous growth in the money supply to facilitate increasing living standards. <<


    Joe: Translation: We need suckers to keep taking the dollar.
    18 Sep 2011, 06:38 PM Reply Like
  • Yesterday I tried to figure out, what will be having:
    - 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...
    19 Sep 2011, 09:45 AM Reply Like
  • 514602, you are being silly. 60% discount on a good coin? Never heard of it. Generally, the worst you'll get from a reputable buyer is spot.
    19 Sep 2011, 03:40 PM Reply Like
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