Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

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Scott 2
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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by Scott 2 » Tue Feb 12, 2019 11:54 am

The weird thing about gold is how many tons are hoarded by governments around the world. IMO it creates an artificial scarcity.

Mister Imperceptible
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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by Mister Imperceptible » Tue Feb 12, 2019 3:19 pm

@c_L

I do not think total collapse is imminent. If I did, I would not be working 50-60 hours a week in a cubicle, I would be prepping.

+1 to everything vexed87 and frihet said.

I think it’s significant that the “elites” are starting to sweat because as @suo said, people who have nothing to lose want to flip the board over, they are not content to lose and lose and lose. Hence all of the references to emerging populism in my original post. It is dawning on the elites that their QE-shell game cannot work ad infinitum. And as long as we are a society of children and not men who address our problems head on, the danger of extremism, both right and left, and accompanying violence is very real. Again, I think the Christopher Cole pieces are essential reading.

Regarding social contract, I am not breaking it. Lloyd Blankfein, Warren Buffett and the other vampire squids already broke it. I should work to earn my keep. But if you first take away my ability to save in cash by devaluing the currency, you force me to invest in stocks. And then because the stocks have no adherence to reality anymore because entitled Wall Street just bets on a bailout everytime, there are huge pent up pressures that lead to enormous drawdowns that require evermore intervention. Buffett and Blankfein benefit from the Cantillon effect by standing close to the source of the newly printed fun tickets, you do not. So by adhering to that system wholly, you are their slave.

I think a jubilee/reset is soon coming, and this will pulverize both stocks and bonds (in real terms, not necessarily nominal terms, but perhaps nominal terms too.) There are too many paper claims on goods and services and too few goods and services. Not just the debts, but Social Security and Medicare also. We had a full reset in the 1970’s, which allowed us to reload up on debt during another 40-year US Treasury bull market. We were perhaps on our way to a reset in the wake of 2007-2009 but the Fed kept the ball in the air long enough to reinflate asset prices. We’re probably at the end of not just a business cycle, but a secular cycle or super cycle. So I overweight gold investments and choose not to pay down my sub-4% fixed rate mortgage on my rental property. If we have a few more years to run, I will have a few more years to make 6 figures of funny money and will continue to convert them to gold investments, and my rental property will continue to appreciate. But I’m not rooting for an outcome, nor am I going to bank on gold going up alone, because at 46 and 15 percent, I have ample exposure. I think the next step for me is to intelligently use derivatives.

I just don’t think paper notes are going to cut it when milk and gasoline are over $10, $20, $30 a gallon. And that’s when there will be more danger of violence. The Russians and Chinese continue to load up on gold. It is worth wondering if the corrupt US leaders are dumping gold on the market to manipulate prices. Maybe not, but the Fed should be audited. Gold became gold receipts, then gold receipts became fun tickets, and people have been using fun tickets long enough that they forget the origin of money. When they pay $20 for a gallon of milk, they will remember.

But again, I could be wrong. If the first corner was “invest all your money in stock index funds, the stock market always goes up in the long run” and the second corner is “the stock market is a mechanism for price discovery, productivity growth and demographics are the long term drivers of the economy, and with growth and demographics slowing you should buy real assets and use derivatives to avoid risk asset price fluctuations and market meltdowns that are exacerbated by central banking” I am willing to listen to anyone who holds the third corner.
Mister Imperceptible wrote:
Thu Feb 01, 2018 2:04 pm
I’m an early accumulator who sees the value of index funds not in their infallibility, but in their so-called ability to capture average market returns while I focus on income and expenses. Active management seems like something I should get involved with as I get closer to or after FIRE.
lol

And if someone presses the shiny, jolly, candy-like red button.....I’ll try to buy some pigs I can lend you. :P

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by George the original one » Tue Feb 12, 2019 3:39 pm

Mister Imperceptible wrote:
Tue Feb 12, 2019 3:19 pm
There are too many paper claims on goods and services and too few goods and services. Not just the debts, but Social Security and Medicare also. We had a full reset in the 1970’s, which allowed us to reload up on debt during another 40-year US Treasury bull market.
Having lived through it, I'm not buying your thesis of a reset in the '70s.

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by Mister Imperceptible » Tue Feb 12, 2019 3:46 pm

George the original one wrote:
Tue Feb 12, 2019 3:39 pm
I’m listening, please explain sir.

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by George the original one » Tue Feb 12, 2019 3:56 pm

In the context of a jubilee, debt is forgiven. What debt was forgiven in the '70s? And how did society and/or the marketplace change as a result?

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by George the original one » Tue Feb 12, 2019 4:05 pm

Scott 2 wrote:
Tue Feb 12, 2019 11:54 am
The weird thing about gold is how many tons are hoarded by governments around the world. IMO it creates an artificial scarcity.
During the '90s, price of gold sank due to Bank of England selling. It had an impact on price, probably cutting the market price in half. On the other hand, I suspect that a drop in production would be just as significant, just like "fear factor" can double the price. In the end, gold is just another commodity.

Image

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by Mister Imperceptible » Tue Feb 12, 2019 4:44 pm

If I have a $10,000 fixed-rate mortgage debt, and 100 ounces of gold worth $35 each ($3500 total) and now my 100 ounces of gold are worth $300 or $600 per ounce (bringing the value of my gold holdings to $30,000 or $60,000), my gold went from being 35% when compared to my mortgage debt to worth 300% or 600% of my previous mortgage debt. Meanwhile, wages only increased from $6,000 to $12,000. So while gold went up tenfold or twentyfold, wages only doubled.
So it was a jubilee for those with inflation-resistant assets....
not for everyone
. (Hence my pounding on the table about inflation-resistant assets given record deficits.)

The result was a marketplace that was inducive to stock investing. But given that real wages have not kept up with inflation this has not been so great for the Everyman, relatively speaking.

Am I incorrect?

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by Mister Imperceptible » Tue Feb 12, 2019 4:57 pm

I am not 100% confident in a meltdown so I am not selling the rental property I do have, and roll with 100% gold.

I am going to do both.

Daniel Amerman in 2011, at peak gold prices and with real estate prices bottoming:

“In my opinion, the best way to reconcile these two sides of contrarian investing - to bring together the need to buy low and sell high, while also meeting the need for liquid safety - is to say "both".

Gold and other precious metals have powerful advantages. There are some things they do that are better than any other investment alternative in the event of a currency or financial collapse. Having a significant holding of precious metals in a currency meltdown environment is simply irreplaceable.

Gold is not absolutely bound by 1980, and if the situation in 2012-2014 is far worse than the situation in the early 1980s, then we could see gold traveling an entirely different short term path, and it may still just be getting started compared to where it will go.

However, when we remove our gaze from the short-term, and we assume a return to history as we've seen over previous decades and centuries, then what the Gold / Housing ratio shows us is that gold is valued at an extremely high level, and real estate is remarkably cheap in comparison. To choose gold long-term while avoiding real estate long-term is to fight not only the averages but history itself - which by definition, has never worked.

So our solution is to not choose between the two assets but to purchase both kinds of contrarian assets with different objectives.

We choose precious metals to the extent that we are concerned about currency and financial system meltdown (although real estate has some powerful advantages as a precious metals complement in this situation as well).

If there isn't a currency meltdown - for someone attempting to build long-term value, then buying real estate at current prices is likely to be a far better source of long-term returns than gold, and likely to act as a much better inflation hedge.

The relative amount of assets devoted to each of these contrarian investments then depends on the individual investor's personal assessment of the likelihood of actual financial meltdown.”

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by jacob » Tue Feb 12, 2019 5:25 pm

Mister Imperceptible wrote:
Tue Feb 12, 2019 3:19 pm
But again, I could be wrong. If the first corner was “invest all your money in stock index funds, the stock market always goes up in the long run” and the second corner is “the stock market is a mechanism for price discovery, productivity growth and demographics are the long term drivers of the economy, and with growth and demographics slowing you should buy real assets and use derivatives to avoid risk asset price fluctuations and market meltdowns that are exacerbated by central banking” I am willing to listen to anyone who holds the third corner.
Financial markets are social convention and act as an information signaling system that determines how goods are distributed. Typically this means that for each transaction, goods flow one way and money flows the other way. This connection between the financial system and the economic system can be described by the [simplistic monetarist] equation M*V=P*Q. As a side-note there are also transactions that go from finance to finance (such as stock market trading or derivaties) and from the economy to the economy (such as bartering). The other system for distributing economic goods is called government. Communism is a system where government determines everything is called communism. Free market capitalism is completely controlled by money (finance).

Key point in the above is "social convention". When you talk about gold, you're implicitly presuming that it will fit into the same social convention as money in the sense that people will use it as a signalling system. There are, however, no physical laws that say that this is so. Gold is not like guns in the sense that you can coerce a response ... and not like food in the sense that you need to consume it to live. IOW, there's not physical law based natural demand for it. It's a convention. It's indivisible, persistent, and standardized ... but so are cigarettes, sugar, or cans of tuna.

The problem with that convention is that the current convention upon which civilization is built is willing to throw a lot of energy and resources towards preserving it. See e.g. the QEs. Gold is an alternative ... but it is not the only alternative just because people used it historically. Therein lies my problem with it.

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by Dream of Freedom » Tue Feb 12, 2019 8:06 pm

Gold should outperform in a downturn. The problem is that it is hard to know when one will happen. Your portfolio revolves around 2 highly concentrated bets, gold and a house. That is kind of risky. Certainly there are other things that you could diversify into that would be crash resistant like utilities or healthcare stocks.

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by Mister Imperceptible » Tue Feb 12, 2019 8:22 pm

Well it might be obvious by my selections of gold and real estate and my interest in derivatives but I am philosophically inclined toward a risk barbell. Real estate + gold is a sort of Rothschild strategy. Those f*ckers preserve wealth forever. The ideas of Mandelbrot/Taleb were interesting to me, and again I point toward Christopher Cole’s Artemis writings. I do not think the “intermediate risk/reward profile” is accurate for stocks, even the defensive ones. I do not think it is appreciated the level of risk that exists in equities compared to the reward you are being offered for taking that risk. And I think that is true now more than ever.

Maybe it is just how I am. I am very sensitive to drawdowns. I hate the idea that I have a big chunk of my net worth floating out there, and it is dependent on what the Federal Reserve does. I want my portfolio to be independent of the central bank. I cannot stand reading financial news articles, and Jim Cramer and his types are whining and bitching about what Jerome Powell is doing. I want those people to get bent. Seriously, get hit by a bus or fall off a cliff tomorrow, the world does not revolve around you.

But if it is calculated, I will not mind having 5-10% of my portfolio blowing up every now and then if I can make it back and then some when I win on options.

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by Mister Imperceptible » Tue Feb 12, 2019 9:42 pm

I can also acknowledge that gold for me has no immediate utility. But given that UBI is gaining steam as an idea and many in my millennial cohort unblinkingly approve of AOC’s Green New Deal which includes free housing, free healthcare, and free vacations for those unwilling to work, yeah, suddenly the shiny pet rocks have utility in that AOC and her followers cannot get their grubby little hands on them.

And if the Green New Deal goes thru, then I can adopt an r-strategy regarding procreation. I can spit enough Shakespeare that there will soon be 30-50 Mister Imperceptible Juniors running around causing havoc, and all of them will be UBI-eligible! :lol: :lol: :lol:

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by vexed87 » Wed Feb 13, 2019 8:12 am

@jacob, if you are bartering with your neighbour, angling for that tinned pea soup they don't like, or their disused carpentry tools with 1oz coins, you are probably not thinking big enough.

You are quite right to highlight the risk of gold not being accepted by other parties as it has no inherent value. However, precedent for gold as currency is impressive, more so than other form of tertiary wealth. Correct me if I am mistaken, but we largely abandoned gold because supply cannot grow as quickly as the economy, it created deflationary forces on the monetary system, so had to be abandoned which could be artificially inflated when needed. That's only an issue in a highly complex society dependant on growth of economic interaction for perpetuation of its social conventions. As the growth paradigm is abandoned, either as growth slows, halts or goes negative and social complexity reduces, gold may again become a feasible as money. But yeah, there are no guarantees.

There's a chance I might not see positive return in the long term, even after defying the odds and making it through the bottleneck. But what options do we really have for holding truly durable means of exchange? I'd sooner accept gold than bitcoins in the receiving end of an exchange for big ticket items. Other than kings and warlords taking and redistributing land, how else will it change hands? If private property is abolished, and all land returns to the commons and we revert to a mutual reciprocity economy I'll have less need for money anyway, but if some medium for exchange is retained, then I'd be putting greater odds on it being gold, but yes, we could be using nuke cola bottlecaps instead... :roll:

New emerging cultures form out of the wreckage of the old. Often superficially appearing incredibly novel, but if you peer beneath the surface, there are echos of the myths of the cultures past. With this in mind, I'm pretty confident big ticket items will continue to change hands, what better than gold in the absence of a centralised financial system? As I say, I expect markets to continue even as complexity reduces, it's just that those markets won't work their way into every aspect of life as they do today. If social complexity warrants the survival of some cities, they will still require commodity markets like the old corn or cloths exchanges of the 19th century, I'd be hopeful of finding a greater fool amongst them.I'm not betting here on the extremes of the spectrum, but somewhere in the middle, and gold may be useful there. If we revert to the stone age, I admit, all bets are off. Gold won't be much good for anything BUT jewelry.

Even if I have no opportunity to trade my coins before I kick the bucket, I will at least be able to pass them on to my heir(s), hoping one day they may be of some value to DD or her own heirs. In the end, I own a modest amount of gold knowing that it will be community that makes life worth living, not Scrooge McDuck sized stacks of gold. It's just that that gold may buy me some essential resource at a critical/opportune time. I'm just not sure exactly what/when that will be. I can see why others would avoid gold coins with a barge pole, as the above seems absurd with the systems and mental frameworks most people carry around with them, hell it even sounds cooky to me, but, well, the implications of AGW (and various other predicaments) resulting in a collapse in market economy seems surreal, but it is (imo) inevitable, we are just not sure of the timescales/ferocity.

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by George the original one » Wed Feb 13, 2019 10:49 am

Mister Imperceptible wrote:
Tue Feb 12, 2019 4:57 pm
Daniel Amerman in 2011, at peak gold prices and with real estate prices bottoming:
[…]
“Gold and other precious metals have powerful advantages. There are some things they do that are better than any other investment alternative in the event of a currency or financial collapse.
Beware anyone who attributes special powers to gold. Gold does nothing because it is an inanimate lump. It is people and their interpretation of gold that grants power.

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by Mister Imperceptible » Wed Feb 13, 2019 10:52 am

True, but I am inclined to listen to Taleb when he says “if it has lasted 5 years, expect it to last another 5 years. If it has lasted 5,000 years, expect it to last another 5,000 years.”

I am not that smart, but what is more is that I do not think those who are smarter than me are that smart.

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by George the original one » Wed Feb 13, 2019 11:14 am

vexed87 wrote:
Wed Feb 13, 2019 8:12 am
but, well, the implications of AGW (and various other predicaments) resulting in a collapse in market economy seems surreal, but it is (imo) inevitable, we are just not sure of the timescales/ferocity.
You can get some measure of what happens during a collapse of market economies when you look at countries with high import tariffs because non-local things become very expensive. For instance, if no local equivalent is available, then the item/service becomes solely a luxury with the associated mark-up that only a luxury item can demand. Brazil is one country that has those characteristics.

In the Pacific Northwest, we'll be screwed if relying on fossil fuels and unrecycled metals. We'll make do with electricity, having a surplus in the spring and a shortage at the end of summer, so A/C brownouts will be common. On the other hand, lumber & dairy & grains & livestock will be plentiful, especially if one lives near a commercially navigable waterway.

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by George the original one » Wed Feb 13, 2019 11:19 am

You know, for alternative commodities, I suspect illegal drugs are as good as gold, provided the shelf life is long enough. Drugs have a lot in common with gold, too: prone to government seizure, portable, dividable, can be assayed, etc.

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by daylen » Wed Feb 13, 2019 12:00 pm

Top investments for the end of the world:
- opioids
- barbiturates
- vodka
- golden carpentry tools
- golden ak-47
- golden bullets
- precision scales
- lentils

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by Clarice » Wed Feb 13, 2019 5:52 pm

@daylen:

It's a nice list, but why risk illegality at the end of the world? Police are going to be hungry and become predatory. From personal experience (not with the end of the world, but with the end of the Soviet Union), let me tell you... :lol: you are definitely missing cigarettes from your list. You also seem to forget about women - I would add some small bottles of high-quality perfume - it worked before. :lol: I would also add some luxury canned goods - crabs, caviar. And some basic foodstuff. Why limit yourself to lentils? :)

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Re: Slightly Unhinged Investing Thoughts at the Corner of the Corner of Dr. Fisker’s Mountain

Post by Jason » Wed Feb 13, 2019 8:01 pm

I went to an end of the world seminar and they said you will need gold and saran wrap. And an extra room in case Jesus wants to stay with you.

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