"Beware the Hype on Gold"

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Taylor Larimore
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"Beware the Hype on Gold"

Post by Taylor Larimore » Tue Jul 28, 2020 10:09 am

Bogleheads:

Morningstar's Amy C. Arnott, CFA has written an excellent article about adding Gold (currently a top performer) to our portfolios. These are excerpts:
"Gold has a long history as a safe haven. Its price is largely independent of other asset classes, and it has also traditionally been used as a refuge against weakness in the dollar. It can also serve as a hedge against inflation and market volatility."

"There are two primary ways to invest in gold: buying the commodity directly (gold bullion) and buying shares in companies that mine and sell gold (gold equity)."

"The evidence for gold as an inflation hedge is relatively weak. Over the past 15 years, gold has had a very low correlation with inflation."

"I looked at five different 10-year periods starting in 1970, 1980, 1990, 2000, and 2010. Overall, adding gold improved returns in only two of the five periods. It reduced risk in every period but improved the Sharpe ratio only in the two periods where returns also improved."

"Gold is far from guaranteed to improve risk, return, or risk-adjusted returns in any given period. Instead, its track record is decidedly mixed."

"On balance, gold has a pretty reliable record as a safe haven in times of market turmoil. However, it’s better viewed as an insurance policy than as a core holding. Investors who decide to add gold to their portfolios should be wary of the current hype surrounding precious metals and be prepared for periodic dry spells."
Beware the Hype on Gold

Past performance does not forecast future performance.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: Gold is largely a rank speculation, for its price is based solely on market expectation. Gold provides no internal rate of return. Unlike stocks and bonds, gold provides none of the intrinsic value that is created for stocks by earning growth and dividend yields, and for bonds by interest payments."
Last edited by Taylor Larimore on Fri Jul 31, 2020 1:04 pm, edited 1 time in total.
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Re: "Beware the Hype on Gold"

Post by whodidntante » Tue Jul 28, 2020 10:30 am

I think it's because people are equity chickens, five year Treasury notes yield < .4%, and your favorite bond fund yields 1.31%.

Also, money printer go brrr. Some people are concerned about what happens because it already went brrr and some people are concerned about what happens if it keeps going brrr and some people are concerned what will happen when it stops going brrr and some people are concerned about all states of brrr'ness.

There is also a slight global pandemic and an influx of inexperienced investors that have been stimulated with money.

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Re: "Beware the Hype on Gold"

Post by magneto » Tue Jul 28, 2020 10:32 am

Timely post.

Have held Gold ETFs in past for the diversification benefits but could not sleep nights.
The question constantly turning over in the mind is if the price falls do we buy or sell?

If a value investor, rather than one of the momentum crowd, we know that with Stocks it makes some sense to buy on undue weakness, sell on undue strength. That probably is not the logic behind Gold.

Without an income Gold is only worth what someone else is prepared to pay for it, so purists would not call Gold an 'investment', merely a speculation.

Frustrating nevertheless to see Gold price surge.

Have a weighting to miners, incl Gold, which at least is rising in sympathy while also producing an income.
'There is a tide in the affairs of men ...', Brutus (Market Timer)

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Re: "Beware the Hype on Gold"

Post by vineviz » Tue Jul 28, 2020 11:00 am

magneto wrote:
Tue Jul 28, 2020 10:32 am

Frustrating nevertheless to see Gold price surge.
If your portfolio is well-diversified, there is no need to feel frustrated. The same factors driving gold up are doing the same for other, more productive, asset classes: ex-US stocks (especially emerging markets), small-cap value stocks, energy stocks, etc. are all up more than gold since the market bottom on 3/23.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: "Beware the Hype on Gold"

Post by steve321 » Tue Jul 28, 2020 11:01 am

Amy C. Arnott has not looked back over a very long period in history. My mentor Ray Dalio teaches that the long debt cycle lasts for about 70-100 years. We are currently at the end of such a cycle; therefore the situation is probably closest to the 1930's.
When the debt burden is very high, and you need to print a lot of money to service that debts, people eventually lose trust in the currency, and turn to gold.
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Re: "Beware the Hype on Gold"

Post by abuss368 » Tue Jul 28, 2020 11:01 am

Thanks for sharing Taylor! I do not plan to speculate with gold!
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Re: "Beware the Hype on Gold"

Post by Anon9001 » Tue Jul 28, 2020 11:04 am

If you are buying it now you are speculating on interest rates going lower. A reasonable speculation but ultimately not a good idea. If inflation goes up significantly they would have to raise interest rates on many of the Government bonds which would detract from the price of the Gold.

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Re: "Beware the Hype on Gold"

Post by columbia » Tue Jul 28, 2020 11:23 am

Anon9001 wrote:
Tue Jul 28, 2020 11:04 am
If you are buying it now you are speculating on interest rates going lower. A reasonable speculation but ultimately not a good idea. If inflation goes up significantly they would have to raise interest rates on many of the Government bonds which would detract from the price of the Gold.
Substitute LTT for gold and what is your outlook re:the above analysis?

(I don’t own either asset class.)
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Re: "Beware the Hype on Gold"

Post by Anon9001 » Tue Jul 28, 2020 11:26 am

columbia wrote:
Tue Jul 28, 2020 11:23 am
Anon9001 wrote:
Tue Jul 28, 2020 11:04 am
If you are buying it now you are speculating on interest rates going lower. A reasonable speculation but ultimately not a good idea. If inflation goes up significantly they would have to raise interest rates on many of the Government bonds which would detract from the price of the Gold.
Substitute LTT for gold and what is your outlook re:the above analysis?

(I don’t own either asset class.)
Both are speculations. Although it depends what country you are living in. Here the term premium is very high so I take advantage of that. If I was living in USA I would not invest in LTT's.

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Re: "Beware the Hype on Gold"

Post by jason2459 » Tue Jul 28, 2020 11:30 am

columbia wrote:
Tue Jul 28, 2020 11:23 am
Anon9001 wrote:
Tue Jul 28, 2020 11:04 am
If you are buying it now you are speculating on interest rates going lower. A reasonable speculation but ultimately not a good idea. If inflation goes up significantly they would have to raise interest rates on many of the Government bonds which would detract from the price of the Gold.
Substitute LTT for gold and what is your outlook re:the above analysis?

(I don’t own either asset class.)
I would take short or long term treasuries over gold as an investment. Equal or Higher returns with much less volatility.

https://www.portfoliovisualizer.com/bac ... ion3_3=100

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Re: "Beware the Hype on Gold"

Post by nedsaid » Tue Jul 28, 2020 11:34 am

steve321 wrote:
Tue Jul 28, 2020 11:01 am
Amy C. Arnott has not looked back over a very long period in history. My mentor Ray Dalio teaches that the long debt cycle lasts for about 70-100 years. We are currently at the end of such a cycle; therefore the situation is probably closest to the 1930's.
When the debt burden is very high, and you need to print a lot of money to service that debts, people eventually lose trust in the currency, and turn to gold.
So what happened the last time? It became illegal to own gold. That didn't work out so well in the 1930s. Taylor Larimore probably remembers this.
A fool and his money are good for business.

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Re: "Beware the Hype on Gold"

Post by guyinlaw » Tue Jul 28, 2020 12:03 pm

In past, gold tended to signal underlying trend in CRB raw industrial spot price index (latter more volatile than former, but trends have coincided); however, they’ve been diverging for a while - @yardeni @LizAnnSonders on twitter
Does this chart imply this? - 1) no inflation showing yet. 2) Gold rise due to money printing 3) possible USD devaluation 4) people being "equity chicken" ( love the word used by whodidntante)

Image
https://www.yardeni.com/pub/crbrawind.pdf

Another chart from twitter - gold vs 10yr real yield. Seems to be someone trying curve fit?

Image

I remember my friend buying gold bars in ~2010. The same money invested in stocks would have been so much better. (12% CAGR for TSM vs 4.3% for Gold since 2010)

1. Gold is at all time high, bad time to add now.
2. I don't think any advisor would recommend more than 10% in gold

https://www.portfoliovisualizer.com/bac ... tion2_3=10
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: "Beware the Hype on Gold"

Post by Jags4186 » Tue Jul 28, 2020 12:07 pm

guyinlaw wrote:
Tue Jul 28, 2020 12:03 pm
1. Gold is at all time high, bad time to add now.
2. I don't think any advisor would recommend more than 10% in gold
While I don't necessarily disagree with your sentiment on gold, and I own no gold, I think both of those statements are wrong.

1) Something being at an all time high is not a reason not to buy. More often than not, stocks are at all time highs yet we preach here to continue to buy.
2) Any advisor who is a proponent of the Permanent Portfolio would recommend more than 10% in gold.

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Re: "Beware the Hype on Gold"

Post by guyinlaw » Tue Jul 28, 2020 1:02 pm

Jags4186 wrote:
Tue Jul 28, 2020 12:07 pm
guyinlaw wrote:
Tue Jul 28, 2020 12:03 pm
1. Gold is at all time high, bad time to add now.
2. I don't think any advisor would recommend more than 10% in gold
While I don't necessarily disagree with your sentiment on gold, and I own no gold, I think both of those statements are wrong.

1) Something being at an all time high is not a reason not to buy. More often than not, stocks are at all time highs yet we preach here to continue to buy.
2) Any advisor who is a proponent of the Permanent Portfolio would recommend more than 10% in gold.
Gold is very different from stocks. No earnings. And yes Permanent Portfolio recommends 25% in physical gold. If one plans to add gold, they should do it as a part of their asset allocation.
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: "Beware the Hype on Gold"

Post by Pete12 » Tue Jul 28, 2020 1:09 pm

Thank you Taylor, you are a steady ship in a sea of noise and fury!
My sincere good wishes,
Pete

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Re: "Beware the Hype on Gold"

Post by Anon9001 » Tue Jul 28, 2020 1:14 pm

jason2459 wrote:
Tue Jul 28, 2020 11:30 am
columbia wrote:
Tue Jul 28, 2020 11:23 am
Anon9001 wrote:
Tue Jul 28, 2020 11:04 am
If you are buying it now you are speculating on interest rates going lower. A reasonable speculation but ultimately not a good idea. If inflation goes up significantly they would have to raise interest rates on many of the Government bonds which would detract from the price of the Gold.
Substitute LTT for gold and what is your outlook re:the above analysis?

(I don’t own either asset class.)
I would take short or long term treasuries over gold as an investment. Equal or Higher returns with much less volatility.

https://www.portfoliovisualizer.com/bac ... ion3_3=100
The problems with back-testing is that you forget the yields were much higher back then for DM bonds. Now that they are 0% the only advantage they have is the less volatility compared to Gold although that might change with all the money printing they are doing.

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Re: "Beware the Hype on Gold"

Post by 7eight9 » Tue Jul 28, 2020 1:29 pm

Goldman Warns the Dollar's Grip on Global Markets Might Be Over
Recommends investors keep buying gold, boosting forecasts

Goldman Sachs Group Inc. put a spotlight on the suddenly growing concern over inflation in the U.S. by issuing a bold warning Tuesday that the dollar is in danger of losing its status as the world’s reserve currency.

With Congress closing in on another round of fiscal stimulus to shore up the pandemic-ravaged economy, and the Federal Reserve having already swelled its balance sheet by about $2.8 trillion this year, Goldman strategists cautioned that U.S. policy is triggering currency “debasement fears” that could end the dollar’s reign as the dominant force in global foreign-exchange markets.

“Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows,” wrote Goldman strategists including Jeffrey Currie. There are now, they said, “real concerns around the longevity of the U.S. dollar as a reserve currency.”

https://www.bloomberg.com/news/articles ... nd=premium
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Re: "Beware the Hype on Gold"

Post by CyclingDuo » Tue Jul 28, 2020 1:30 pm

nedsaid wrote:
Tue Jul 28, 2020 11:34 am
steve321 wrote:
Tue Jul 28, 2020 11:01 am
Amy C. Arnott has not looked back over a very long period in history. My mentor Ray Dalio teaches that the long debt cycle lasts for about 70-100 years. We are currently at the end of such a cycle; therefore the situation is probably closest to the 1930's.
When the debt burden is very high, and you need to print a lot of money to service that debts, people eventually lose trust in the currency, and turn to gold.
So what happened the last time? It became illegal to own gold. That didn't work out so well in the 1930s. Taylor Larimore probably remembers this.
Like every cycle, I watch gold like clockwork from my usual vantage point.

How so?

As the price of gold rises, the number of commercials on TV for gold coins picks up in volume as well as "noise" level (not that I would ever recommend to anyone to buy gold coins of all things). As retail mall space becomes available from some of the smaller store fronts that were forced to close up and move due to not being able to cover the rent or the store goes out of business during a recession, the guys dressed in bad Vegas shirts with open collars (or bad polo shirts) and gold chains around their necks, gold rings on their fingers set up shop in the local shopping malls in those now "cheap rent" spaces with a sign out front that they will "buy your gold". This goes on for a few months. And like clockwork, it all ends after a certain number of months with the temporary mall rentals for the Vegas shirt guys who pack up and shut down to go wherever they go until the next cycle (back to their pawn shops, jewelry stores, back to their holes, or move on to diamonds, etc...), and the commercials for gold coins start to dissipate on TV.

It's the Greater Fool Theory fairy dust that never seems to end in terms of ebbing and flowing, coming and going.

I'm in the Warren Buffett camp on gold. You can fondle it. You can look at it. You can sleep with it if you so desire. However, it doesn't produce anything and has no earnings - so is unworthy of being an investment.

CyclingDuo
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Re: "Beware the Hype on Gold"

Post by CyclingDuo » Tue Jul 28, 2020 1:34 pm

7eight9 wrote:
Tue Jul 28, 2020 1:29 pm
Goldman Warns the Dollar's Grip on Global Markets Might Be Over
Recommends investors keep buying gold, boosting forecasts

Goldman Sachs Group Inc. put a spotlight on the suddenly growing concern over inflation in the U.S. by issuing a bold warning Tuesday that the dollar is in danger of losing its status as the world’s reserve currency.

With Congress closing in on another round of fiscal stimulus to shore up the pandemic-ravaged economy, and the Federal Reserve having already swelled its balance sheet by about $2.8 trillion this year, Goldman strategists cautioned that U.S. policy is triggering currency “debasement fears” that could end the dollar’s reign as the dominant force in global foreign-exchange markets.

“Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows,” wrote Goldman strategists including Jeffrey Currie. There are now, they said, “real concerns around the longevity of the U.S. dollar as a reserve currency.”

https://www.bloomberg.com/news/articles ... nd=premium
In other words, an invitation to join in on the Greater Fool Theory while the mo-mo is there.

Ignore the noise, folks.
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Re: "Beware the Hype on Gold"

Post by Forester » Tue Jul 28, 2020 1:37 pm

I'll bump this thread after the face-ripping bond bear market of 2021-25 :beer

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Re: "Beware the Hype on Gold"

Post by Jeff Albertson » Tue Jul 28, 2020 1:42 pm

steve321 wrote:
Tue Jul 28, 2020 11:01 am
Amy C. Arnott has not looked back over a very long period in history. My mentor Ray Dalio teaches that the long debt cycle lasts for about 70-100 years. We are currently at the end of such a cycle; therefore the situation is probably closest to the 1930's.
When the debt burden is very high, and you need to print a lot of money to service that debts, people eventually lose trust in the currency, and turn to gold.
My mentor, Will Rogers, says:
"Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it."

OK, it's a joke, but it is also better advice than most of the stuff posted on Bogleheads these days.

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Re: "Beware the Hype on Gold"

Post by topper1296 » Tue Jul 28, 2020 1:55 pm

I think that gold has a place as part of a well diversified portfolio and as "portfolio insurance".

disclosure: 2% allocation in a gold ETF and own some silver coins.

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Re: "Beware the Hype on Gold"

Post by goodenyou » Tue Jul 28, 2020 1:58 pm

Here’s the best way to hedge the weakening U.S. dollar and buying gold isn’t the move

https://finance.yahoo.com/m/89db6e5c-d7 ... hedge.html

International is finally going to have it's day in the sun after many years?
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Re: "Beware the Hype on Gold"

Post by permport » Tue Jul 28, 2020 2:03 pm

Avoid gold at your peril.
Buy right and hold tight.

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Re: "Beware the Hype on Gold"

Post by unclescrooge » Tue Jul 28, 2020 2:47 pm

CyclingDuo wrote:
Tue Jul 28, 2020 1:30 pm
nedsaid wrote:
Tue Jul 28, 2020 11:34 am
steve321 wrote:
Tue Jul 28, 2020 11:01 am
Amy C. Arnott has not looked back over a very long period in history. My mentor Ray Dalio teaches that the long debt cycle lasts for about 70-100 years. We are currently at the end of such a cycle; therefore the situation is probably closest to the 1930's.
When the debt burden is very high, and you need to print a lot of money to service that debts, people eventually lose trust in the currency, and turn to gold.
So what happened the last time? It became illegal to own gold. That didn't work out so well in the 1930s. Taylor Larimore probably remembers this.
Like every cycle, I watch gold like clockwork from my usual vantage point.

How so?

As the price of gold rises, the number of commercials on TV for gold coins picks up in volume as well as "noise" level (not that I would ever recommend to anyone to buy gold coins of all things). As retail mall space becomes available from some of the smaller store fronts that were forced to close up and move due to not being able to cover the rent or the store goes out of business during a recession, the guys dressed in bad Vegas shirts with open collars (or bad polo shirts) and gold chains around their necks, gold rings on their fingers set up shop in the local shopping malls in those now "cheap rent" spaces with a sign out front that they will "buy your gold". This goes on for a few months. And like clockwork, it all ends after a certain number of months with the temporary mall rentals for the Vegas shirt guys who pack up and shut down to go wherever they go until the next cycle (back to their pawn shops, jewelry stores, back to their holes, or move on to diamonds, etc...), and the commercials for gold coins start to dissipate on TV.

It's the Greater Fool Theory fairy dust that never seems to end in terms of ebbing and flowing, coming and going.

I'm in the Warren Buffett camp on gold. You can fondle it. You can look at it. You can sleep with it if you so desire. However, it doesn't produce anything and has no earnings - so is unworthy of being an investment.

CyclingDuo
I was taking about this same thing last weekend. My buddy (with zero investing acumen) said gold was at an all time high and in a bubble.

I said it's not a bubble until we see We Buy Gold stores in every mall and late night commercials.

During the course of that discussion, he changed his mind and said he was going to buy gold on Monday. :oops:

I'm a big proponent of gold as a portfolio diversifier, but not for buying it just because you think it will head higher in the short term.

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Re: "Beware the Hype on Gold"

Post by guyinlaw » Tue Jul 28, 2020 3:16 pm

Forester wrote:
Tue Jul 28, 2020 1:37 pm
I'll bump this thread after the face-ripping bond bear market of 2021-25 :beer
Are you saying that interest rates will rise?

The current expectation is for interest rates to drop further.
Traders still betting that fed goes into negative territory with interest rates
Image
Time is your friend; impulse is your enemy. - John C. Bogle

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Re: "Beware the Hype on Gold"

Post by Forester » Tue Jul 28, 2020 3:24 pm

guyinlaw wrote:
Tue Jul 28, 2020 3:16 pm
Forester wrote:
Tue Jul 28, 2020 1:37 pm
I'll bump this thread after the face-ripping bond bear market of 2021-25 :beer
Are you saying that interest rates will rise?
Or rates could be locked with inflation permitted to run hot. A total bond market fund could suffer a deep real drawdown and most people would be sleeping at the wheel and accept it. Ultimately I don't know what will happen which is why I own gold, stocks & bonds. Owning gold is a sign of humility :beer

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Re: "Beware the Hype on Gold"

Post by Robot Monster » Tue Jul 28, 2020 3:46 pm

Forester wrote:
Tue Jul 28, 2020 3:24 pm
guyinlaw wrote:
Tue Jul 28, 2020 3:16 pm
Forester wrote:
Tue Jul 28, 2020 1:37 pm
I'll bump this thread after the face-ripping bond bear market of 2021-25 :beer
Are you saying that interest rates will rise?
Or rates could be locked with inflation permitted to run hot. A total bond market fund could suffer a deep real drawdown and most people would be sleeping at the wheel and accept it. Ultimately I don't know what will happen which is why I own gold, stocks & bonds. Owning gold is a sign of humility :beer
If the Fed lets inflation run hot (let's say 2.5%) I won't necessarily cry myself to sleep at night only because inflation has been below target for so long, it kinda evens out?
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

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Re: "Beware the Hype on Gold"

Post by Kevin K » Tue Jul 28, 2020 3:59 pm

One could easily (and as least as accurately) say "Beware the Hype on The Three Fund Portfolio," which is as much a sacred cow on these forums as gold is a favorite object of scorn.

To be clear, I have no personal attachment to the shiny metal, and I'm certainly not saying that jumping on the gold bug bandwagon at today's record prices is a wise idea. But to ignore the performance of numerous portfolios that intelligently include gold - not to mention their higher safe withdrawal rates, lower drawdowns and much lower start date sensitivity vs.Bogleheads classics like Three Fund and 60:40 - is foolish.

This article sheds some light for those open enough to pay attention to the data:

https://portfoliocharts.com/2019/08/20/ ... vestments/

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Re: "Beware the Hype on Gold"

Post by Forester » Tue Jul 28, 2020 8:26 pm

Robot Monster wrote:
Tue Jul 28, 2020 3:46 pm
Forester wrote:
Tue Jul 28, 2020 3:24 pm
guyinlaw wrote:
Tue Jul 28, 2020 3:16 pm
Forester wrote:
Tue Jul 28, 2020 1:37 pm
I'll bump this thread after the face-ripping bond bear market of 2021-25 :beer
Are you saying that interest rates will rise?
Or rates could be locked with inflation permitted to run hot. A total bond market fund could suffer a deep real drawdown and most people would be sleeping at the wheel and accept it. Ultimately I don't know what will happen which is why I own gold, stocks & bonds. Owning gold is a sign of humility :beer
If the Fed lets inflation run hot (let's say 2.5%) I won't necessarily cry myself to sleep at night only because inflation has been below target for so long, it kinda evens out?
The real US 10yr interest rate is allegedly/officially -0.92%. Negative real rates of 4% for a decade, alongside whatever might happen to large cap stocks, could seriously test the two/three fund portfolio - picture a "safe" portfolio which is 30% S&P 500 & 70% US govt bonds.

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Re: "Beware the Hype on Gold"

Post by 000 » Tue Jul 28, 2020 8:35 pm

Amy C. Arnott wrote: The evidence for gold as an inflation hedge is relatively weak. Over the past 15 years, gold has had a very low correlation with inflation.
There has been plenty of asset inflation over the past 15 years with which Gold has kept up.

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Re: "Beware the Hype on Gold"

Post by Silence Dogood » Tue Jul 28, 2020 8:52 pm

7eight9 wrote:
Tue Jul 28, 2020 1:29 pm
Goldman Warns the Dollar's Grip on Global Markets Might Be Over
Recommends investors keep buying gold, boosting forecasts

Goldman Sachs Group Inc. put a spotlight on the suddenly growing concern over inflation in the U.S. by issuing a bold warning Tuesday that the dollar is in danger of losing its status as the world’s reserve currency.

With Congress closing in on another round of fiscal stimulus to shore up the pandemic-ravaged economy, and the Federal Reserve having already swelled its balance sheet by about $2.8 trillion this year, Goldman strategists cautioned that U.S. policy is triggering currency “debasement fears” that could end the dollar’s reign as the dominant force in global foreign-exchange markets.

“Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows,” wrote Goldman strategists including Jeffrey Currie. There are now, they said, “real concerns around the longevity of the U.S. dollar as a reserve currency.”

https://www.bloomberg.com/news/articles ... nd=premium
Hmmm...

Goldman-Sachs Compares Bitcoin to the Tulip Bubble

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abyan
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Re: "Beware the Hype on Gold"

Post by abyan » Tue Jul 28, 2020 9:15 pm

As I suspect most here know, As this battle over gold has been fought here before, Bernstein talks about owning a very small percentage of gold mining equities, say 1% to 5%, expecting a LONG period of underperformance, so that you can get the rebalancing benefit when it soars (and at the same time, if it underperforms you keep buying it when it’s low). Anyone who isn’t comfortable with buying something really cheap that stays really cheap for years and years, and then selling/rebalancing when it gets high, shouldn’t buy in. I’ve got 2% in a gold mining ETF (GDX) as I get kind of excited when I rebalance into something cheap. :-)

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Re: "Beware the Hype on Gold"

Post by JBTX » Tue Jul 28, 2020 9:31 pm

I generally hate the concept of owning gold or silver as investments. I philosophically agree with Warren Buffett, and whenever I dabble in them they always stink. Especially silver. Nonetheless is these crazy times in June I upped my stake now to a whopping 4% of the portfolio. Silver has increased about 50% and gold about 15%. I'll let them ride for now. Not enough to move the needle if they go back down, but if they go up they make me feel like I'm smart. That's gotta be worth something, amiright?!

Robot Monster
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Re: "Beware the Hype on Gold"

Post by Robot Monster » Tue Jul 28, 2020 9:33 pm

Forester wrote:
Tue Jul 28, 2020 8:26 pm
Robot Monster wrote:
Tue Jul 28, 2020 3:46 pm
Forester wrote:
Tue Jul 28, 2020 3:24 pm
guyinlaw wrote:
Tue Jul 28, 2020 3:16 pm
Forester wrote:
Tue Jul 28, 2020 1:37 pm
I'll bump this thread after the face-ripping bond bear market of 2021-25 :beer
Are you saying that interest rates will rise?
Or rates could be locked with inflation permitted to run hot. A total bond market fund could suffer a deep real drawdown and most people would be sleeping at the wheel and accept it. Ultimately I don't know what will happen which is why I own gold, stocks & bonds. Owning gold is a sign of humility :beer
If the Fed lets inflation run hot (let's say 2.5%) I won't necessarily cry myself to sleep at night only because inflation has been below target for so long, it kinda evens out?
The real US 10yr interest rate is allegedly/officially -0.92%. Negative real rates of 4% for a decade, alongside whatever might happen to large cap stocks, could seriously test the two/three fund portfolio - picture a "safe" portfolio which is 30% S&P 500 & 70% US govt bonds.
The 10yr yield is 0.58%, and inflation rates (going by the 10-year breakeven) is 1.51%, so it appears you are basically correct about what the real 10yr rate. How did you arrive at "negative real rates of 4% for a decade" though, as a likely future possibility? Do you think inflation is going to run hot, rates are going to go negative, or a combination, or...?
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

APX32
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Re: "Beware the Hype on Gold"

Post by APX32 » Tue Jul 28, 2020 10:06 pm

I contemplated going to as high as 25% gold and essentially build a permanent portfolio at the beginning of this year, but eventually settled at 10%. The recent run-up in gold along with the performance of my LTT holdings and all new contributions going to S&P 500 means my portfolio is very close to the all-time high achieved this past February. In fact, after today my gold position is around 13%, so I’ll be doing some selling tomorrow to rebalance.

As I answered in another thread, the current economic environment (and going forward) is favorable for gold so I’ll continue to hold it.
20% SPY | 12% GLD | 68% Cash

ronno2018
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Re: "Beware the Hype on Gold"

Post by ronno2018 » Tue Jul 28, 2020 10:18 pm

I decided to follow the personalcapital.com moderate portfolio 13 months ago and bought maybe 3% iShares IAU (gold) and 6% VNQ (real estate) for my "alternative" holdings.

So far VNQ has done poorly and gold has outperformed, but I just think gold is stupid and now I want to put the gains in something else because when the current crisis is over gold will drop.

I guess I am unconvinced about having gold, but my current IPS says keep doing it. LOL. :beer

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steve321
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Re: "Beware the Hype on Gold"

Post by steve321 » Wed Jul 29, 2020 12:01 am

Jeff Albertson wrote:
Tue Jul 28, 2020 1:42 pm
steve321 wrote:
Tue Jul 28, 2020 11:01 am
Amy C. Arnott has not looked back over a very long period in history. My mentor Ray Dalio teaches that the long debt cycle lasts for about 70-100 years. We are currently at the end of such a cycle; therefore the situation is probably closest to the 1930's.
When the debt burden is very high, and you need to print a lot of money to service that debts, people eventually lose trust in the currency, and turn to gold.
My mentor, Will Rogers, says:
"Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it."

OK, it's a joke, but it is also better advice than most of the stuff posted on Bogleheads these days.
Yes, sooner or later Mr Rogers will get it right on the subject of the bear market he's been predicting for about 10 years... More serious, I don't know whether you referred to my post above when you mentioned that you are not satisfied with the advice give on this forum. To be clear, I am not really trying to give advice to fellow investors here, my aim is to articulate transparently my understanding of the markets, based chiefly on what I learnt from my mentor Ray Dalio, so that these ideas can be debated and stress tested. And thoughtful disagreement/constructive criticism are most welcome. Cheers
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

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fredflinstone
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Re: "Beware the Hype on Gold"

Post by fredflinstone » Wed Jul 29, 2020 4:32 am

For the last half century, we've had a vigorous bull market in both equities and bonds. Many Bogleheads realize that bonds may not have much further to run, but there is still a strong presupposition here that the bull market in equities will continue. This is reflected in the large number of Bogleheads who have 60 percent, 70 percent, or even more of their assets invested in equities.

The underlying stability of Western countries is taken as a given; those who believe otherwise are dismissed as cranks or preppers. This rose-colored view of the world has served Bogleheads extremely well as equities have ascended higher and higher. Here are the current price-earnings ratios of some of the largest companies in America:

Amazon.com: 143
Facebook: 36
Microsoft: 35
Visa: 35
Tesla:115
Mastercard: 39
NVIDIA: 36
Netflix: 82
Disney: 39

The market clearly assumes these companies will grow in perpetuity, even as major US cities burn nightly. It is hard to imagine these blue-chip companies will continue to grow if and when civil unrest expands.

Given this context, a portfolio that contains a healthy allocation to gold (which is likely to perform well in periods of economic or political stress) provides much better diversification than a portfolio that contains only stocks and bonds.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8

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Forester
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Re: "Beware the Hype on Gold"

Post by Forester » Wed Jul 29, 2020 5:20 am

Robot Monster wrote:
Tue Jul 28, 2020 9:33 pm
Forester wrote:
Tue Jul 28, 2020 8:26 pm
Robot Monster wrote:
Tue Jul 28, 2020 3:46 pm
Forester wrote:
Tue Jul 28, 2020 3:24 pm
guyinlaw wrote:
Tue Jul 28, 2020 3:16 pm


Are you saying that interest rates will rise?
Or rates could be locked with inflation permitted to run hot. A total bond market fund could suffer a deep real drawdown and most people would be sleeping at the wheel and accept it. Ultimately I don't know what will happen which is why I own gold, stocks & bonds. Owning gold is a sign of humility :beer
If the Fed lets inflation run hot (let's say 2.5%) I won't necessarily cry myself to sleep at night only because inflation has been below target for so long, it kinda evens out?
The real US 10yr interest rate is allegedly/officially -0.92%. Negative real rates of 4% for a decade, alongside whatever might happen to large cap stocks, could seriously test the two/three fund portfolio - picture a "safe" portfolio which is 30% S&P 500 & 70% US govt bonds.
The 10yr yield is 0.58%, and inflation rates (going by the 10-year breakeven) is 1.51%, so it appears you are basically correct about what the real 10yr rate. How did you arrive at "negative real rates of 4% for a decade" though, as a likely future possibility? Do you think inflation is going to run hot, rates are going to go negative, or a combination, or...?
Inflation above 4% would be a return to the late 1980s & early 1990s, when 1) govt budgets were better balanced 2) there was less appetite among citizens for extraordinary state intervention, versus 2020. It might be politically expedient for inflation to run hot, to allow for grand public projects & soft redistribution toward younger people.

I just don't know, hence I tilt toward precious metals, precious metal equities, and value stocks. What I might lose by lightening up on FAANG and the paper promises of Uncle Sam, I gain, if things turn sour (and I sleep easier at night).

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Re: "Beware the Hype on Gold"

Post by Valuethinker » Wed Jul 29, 2020 5:28 am

fredflinstone wrote:
Wed Jul 29, 2020 4:32 am
For the last half century, we've had a vigorous bull market in both equities and bonds. Many Bogleheads realize that bonds may not have much further to run, but there is still a strong presupposition here that the bull market in equities will continue. This is reflected in the large number of Bogleheads who have 60 percent, 70 percent, or even more of their assets invested in equities.

The underlying stability of Western countries is taken as a given; those who believe otherwise are dismissed as cranks or preppers. This rose-colored view of the world has served Bogleheads extremely well as equities have ascended higher and higher. Here are the current price-earnings ratios of some of the largest companies in America:

Amazon.com: 143
Facebook: 36
Microsoft: 35
Visa: 35
Tesla:115
Mastercard: 39
NVIDIA: 36
Netflix: 82
Disney: 39

The market clearly assumes these companies will grow in perpetuity, even as major US cities burn nightly. It is hard to imagine these blue-chip companies will continue to grow if and when civil unrest expands.

Given this context, a portfolio that contains a healthy allocation to gold (which is likely to perform well in periods of economic or political stress) provides much better diversification than a portfolio that contains only stocks and bonds.
It feels, as much as anything, as a "Nifty Fifty" market as in the early 70s. The "one decision" stocks. Polaroid, Kodak, DEC, IBM etc. I believe Cisco was actually in there somewhere, too.

If history repeats, these amazing companies with fantastic business models, will at some point de-rate (fall in PE ratios) back towards "normal" which I would hazard would be something like 20x-25x.

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fredflinstone
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Re: "Beware the Hype on Gold"

Post by fredflinstone » Wed Jul 29, 2020 6:31 am

Valuethinker wrote:
Wed Jul 29, 2020 5:28 am
fredflinstone wrote:
Wed Jul 29, 2020 4:32 am
For the last half century, we've had a vigorous bull market in both equities and bonds. Many Bogleheads realize that bonds may not have much further to run, but there is still a strong presupposition here that the bull market in equities will continue. This is reflected in the large number of Bogleheads who have 60 percent, 70 percent, or even more of their assets invested in equities.

The underlying stability of Western countries is taken as a given; those who believe otherwise are dismissed as cranks or preppers. This rose-colored view of the world has served Bogleheads extremely well as equities have ascended higher and higher. Here are the current price-earnings ratios of some of the largest companies in America:

Amazon.com: 143
Facebook: 36
Microsoft: 35
Visa: 35
Tesla:115
Mastercard: 39
NVIDIA: 36
Netflix: 82
Disney: 39

The market clearly assumes these companies will grow in perpetuity, even as major US cities burn nightly. It is hard to imagine these blue-chip companies will continue to grow if and when civil unrest expands.

Given this context, a portfolio that contains a healthy allocation to gold (which is likely to perform well in periods of economic or political stress) provides much better diversification than a portfolio that contains only stocks and bonds.
It feels, as much as anything, as a "Nifty Fifty" market as in the early 70s. The "one decision" stocks. Polaroid, Kodak, DEC, IBM etc. I believe Cisco was actually in there somewhere, too.

If history repeats, these amazing companies with fantastic business models, will at some point de-rate (fall in PE ratios) back towards "normal" which I would hazard would be something like 20x-25x.
Auto loan delinquencies hit an eight-year high in January 2020. That was BEFORE the coronavirus pandemic hit the US:
https://www.americanbanker.com/news/aut ... -year-high

But government stimulus money seems to have solved the problem. For now anyway:
https://wolfstreet.com/2020/07/13/subpr ... lus-money/

Going forward, keep an eye on mortgage delinquencies, auto loan delinquencies, mall mortgage delinquencies.

Early-stage mortgage delinquencies hit 21-year high
https://money.yahoo.com/earlystage-mort ... 12193.html

CMBS Delinquency Rate Surges for the Third Month; Nears All-Time High
https://info.trepp.com/hubfs/Trepp%20Ju ... Report.pdf

"Printer goes Brr" has kept the bubble aloft so far. I suspect that will continue to be the strategy for the foreseeable future. I'm glad I own gold.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8

Robot Monster
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Re: "Beware the Hype on Gold"

Post by Robot Monster » Wed Jul 29, 2020 6:50 am

Forester wrote:
Wed Jul 29, 2020 5:20 am
Robot Monster wrote:
Tue Jul 28, 2020 9:33 pm
Forester wrote:
Tue Jul 28, 2020 8:26 pm
Robot Monster wrote:
Tue Jul 28, 2020 3:46 pm
Forester wrote:
Tue Jul 28, 2020 3:24 pm


Or rates could be locked with inflation permitted to run hot. A total bond market fund could suffer a deep real drawdown and most people would be sleeping at the wheel and accept it. Ultimately I don't know what will happen which is why I own gold, stocks & bonds. Owning gold is a sign of humility :beer
If the Fed lets inflation run hot (let's say 2.5%) I won't necessarily cry myself to sleep at night only because inflation has been below target for so long, it kinda evens out?
The real US 10yr interest rate is allegedly/officially -0.92%. Negative real rates of 4% for a decade, alongside whatever might happen to large cap stocks, could seriously test the two/three fund portfolio - picture a "safe" portfolio which is 30% S&P 500 & 70% US govt bonds.
The 10yr yield is 0.58%, and inflation rates (going by the 10-year breakeven) is 1.51%, so it appears you are basically correct about what the real 10yr rate. How did you arrive at "negative real rates of 4% for a decade" though, as a likely future possibility? Do you think inflation is going to run hot, rates are going to go negative, or a combination, or...?
Inflation above 4% would be a return to the late 1980s & early 1990s, when 1) govt budgets were better balanced 2) there was less appetite among citizens for extraordinary state intervention, versus 2020. It might be politically expedient for inflation to run hot, to allow for grand public projects & soft redistribution toward younger people.

I just don't know, hence I tilt toward precious metals, precious metal equities, and value stocks. What I might lose by lightening up on FAANG and the paper promises of Uncle Sam, I gain, if things turn sour (and I sleep easier at night).
It would be quite extraordinary for the Fed to allow inflation to overshoot its 2% target that much, and not raise rates. I've heard about the idea the Fed could allow inflation to run somewhat above target, like 2.5%, but 4%, for a decade no less, without raising rates, seems highly unlikely. Right now the Fed isn't worried about inflation, and inflation has struggled and struggled to even peak its head above 2%. If it was at 4%, seems a game changer.

I suppose we cannot rule out the unlikely, however. If the Fed did allow inflation to run that hot, and kept rates at zero, gold could very well have a monster rally. Gold is insurance against this.
Last edited by Robot Monster on Wed Jul 29, 2020 7:00 am, edited 1 time in total.
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

columbia
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Re: "Beware the Hype on Gold"

Post by columbia » Wed Jul 29, 2020 7:00 am

FWIW, from Ben Carlson:

What If We Get Inflation But Interest Rates Don’t Rise?
https://awealthofcommonsense.com/2020/0 ... dont-rise/
If you leave your head in the sand for too long, you might get run over by a Jeep.

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CyclingDuo
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Re: "Beware the Hype on Gold"

Post by CyclingDuo » Wed Jul 29, 2020 10:05 am

permport wrote:
Tue Jul 28, 2020 2:03 pm
Avoid gold at your peril.
I do. It's one of the most environmentally destructive industries on the face of the planet. I grew up in the Black Hills where it has been and still is absolutely devastating to the region. I'm perfectly happy making money other ways and using other alternatives for portfolio insurance than having anything to do with gold.

CyclingDuo
"Everywhere is within walking distance if you have the time." ~ Steven Wright

cheezit
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Re: "Beware the Hype on Gold"

Post by cheezit » Wed Jul 29, 2020 10:34 am

fredflinstone wrote:
Wed Jul 29, 2020 4:32 am
For the last half century, we've had a vigorous bull market in both equities and bonds. Many Bogleheads realize that bonds may not have much further to run, but there is still a strong presupposition here that the bull market in equities will continue. This is reflected in the large number of Bogleheads who have 60 percent, 70 percent, or even more of their assets invested in equities.

The underlying stability of Western countries is taken as a given; those who believe otherwise are dismissed as cranks or preppers. This rose-colored view of the world has served Bogleheads extremely well as equities have ascended higher and higher. Here are the current price-earnings ratios of some of the largest companies in America:

Amazon.com: 143
Facebook: 36
Microsoft: 35
Visa: 35
Tesla:115
Mastercard: 39
NVIDIA: 36
Netflix: 82
Disney: 39

The market clearly assumes these companies will grow in perpetuity, even as major US cities burn nightly. It is hard to imagine these blue-chip companies will continue to grow if and when civil unrest expands.

Given this context, a portfolio that contains a healthy allocation to gold (which is likely to perform well in periods of economic or political stress) provides much better diversification than a portfolio that contains only stocks and bonds.
How well did gold perform during the period of economic an political stress known as the Great Depression? Hint: the government scapegoated people who held gold as greedy hoarders and blamed them for a lack of liquidity and credit in the economy, seized all privately-held gold, gave restitution in USD, then immediately devalued the USD by 40%.

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Location: New York

Re: "Beware the Hype on Gold"

Post by Robot Monster » Wed Jul 29, 2020 10:36 am

columbia wrote:
Wed Jul 29, 2020 7:00 am
FWIW, from Ben Carlson:

What If We Get Inflation But Interest Rates Don’t Rise?
https://awealthofcommonsense.com/2020/0 ... dont-rise/
I was curious how the Fed could let inflation run explosively hot during '47 and '51. Well, doing a quick search I find:

Independence and insulation from political pressures are essential to the ability of a nation’s central bank to conduct monetary policy (Federal Reserve Bank of Richmond 2013). During World War II and its aftermath the Federal Reserve did not enjoy such independence. In 1951, however, the Treasury Department and the Fed reached an agreement now known as the Treasury-Federal Reserve Accord. This accord effected the “liberation of monetary policy” and laid the foundation for the modern Federal Reserve.
https://www.federalreservehistory.org/e ... fed_accord

So, seems the Fed underwent a sea change in '51, and that the Fed of today isn't the Fed of old.

Can't help thinking Carlson not supplying this information as context in his article is irresponsible.
Investors often exhibit a tendency to evaluate the performance of their portfolio over very short horizons (e.g. days) even when their actual investment time horizon is quite long (e.g. decades).

cheezit
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Re: "Beware the Hype on Gold"

Post by cheezit » Wed Jul 29, 2020 10:56 am

Robot Monster wrote:
Wed Jul 29, 2020 10:36 am
columbia wrote:
Wed Jul 29, 2020 7:00 am
FWIW, from Ben Carlson:

What If We Get Inflation But Interest Rates Don’t Rise?
https://awealthofcommonsense.com/2020/0 ... dont-rise/
I was curious how the Fed could let inflation run explosively hot during '47 and '51. Well, doing a quick search I find:

Independence and insulation from political pressures are essential to the ability of a nation’s central bank to conduct monetary policy (Federal Reserve Bank of Richmond 2013). During World War II and its aftermath the Federal Reserve did not enjoy such independence. In 1951, however, the Treasury Department and the Fed reached an agreement now known as the Treasury-Federal Reserve Accord. This accord effected the “liberation of monetary policy” and laid the foundation for the modern Federal Reserve.
https://www.federalreservehistory.org/e ... fed_accord

So, seems the Fed underwent a sea change in '51, and that the Fed of today isn't the Fed of old.

Can't help thinking Carlson not supplying this information as context in his article is irresponsible.
There was also a change in approaches between the "stop and go" tactics which the Fed used during the '60s and '70s before monetarism was well-known, and the "shock" approach introduced by Volcker. Arguably there was another shift introduced by Greenspan. I don't think we can project future Fed actions even in similar circumstances with any confidence.

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unclescrooge
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Re: "Beware the Hype on Gold"

Post by unclescrooge » Wed Jul 29, 2020 11:12 am

cheezit wrote:
Wed Jul 29, 2020 10:34 am
fredflinstone wrote:
Wed Jul 29, 2020 4:32 am
For the last half century, we've had a vigorous bull market in both equities and bonds. Many Bogleheads realize that bonds may not have much further to run, but there is still a strong presupposition here that the bull market in equities will continue. This is reflected in the large number of Bogleheads who have 60 percent, 70 percent, or even more of their assets invested in equities.

The underlying stability of Western countries is taken as a given; those who believe otherwise are dismissed as cranks or preppers. This rose-colored view of the world has served Bogleheads extremely well as equities have ascended higher and higher. Here are the current price-earnings ratios of some of the largest companies in America:

Amazon.com: 143
Facebook: 36
Microsoft: 35
Visa: 35
Tesla:115
Mastercard: 39
NVIDIA: 36
Netflix: 82
Disney: 39

The market clearly assumes these companies will grow in perpetuity, even as major US cities burn nightly. It is hard to imagine these blue-chip companies will continue to grow if and when civil unrest expands.

Given this context, a portfolio that contains a healthy allocation to gold (which is likely to perform well in periods of economic or political stress) provides much better diversification than a portfolio that contains only stocks and bonds.
How well did gold perform during the period of economic an political stress known as the Great Depression? Hint: the government scapegoated people who held gold as greedy hoarders and blamed them for a lack of liquidity and credit in the economy, seized all privately-held gold, gave restitution in USD, then immediately devalued the USD by 40%.
That's because the dollar was backed by gold. I think we've moved away from that problem.

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Re: "Beware the Hype on Gold"

Post by sean.mcgrath » Wed Jul 29, 2020 11:13 am

Kevin K wrote:
Tue Jul 28, 2020 3:59 pm
One could easily (and as least as accurately) say "Beware the Hype on The Three Fund Portfolio," which is as much a sacred cow on these forums as gold is a favorite object of scorn.

To be clear, I have no personal attachment to the shiny metal, and I'm certainly not saying that jumping on the gold bug bandwagon at today's record prices is a wise idea. But to ignore the performance of numerous portfolios that intelligently include gold - not to mention their higher safe withdrawal rates, lower drawdowns and much lower start date sensitivity vs.Bogleheads classics like Three Fund and 60:40 - is foolish.

This article sheds some light for those open enough to pay attention to the data:

https://portfoliocharts.com/2019/08/20/ ... vestments/
I wonder whether "pay attention to the data" is the right way to characterize an analysis that only goes back to 1970 or so. Another potential interpretation of the "What makes these portfolios special?" is cherr picking successful asset classes of that time period, like LTT.

I'm not saying that there aren't portfolios that have better risk/return than the three fund, but I'd like to see either a much longer data series and confidence statistics, or a bit of a conceptual framework about how the pieces are chosen.

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