Americans Turn to Gold Over Stocks

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newport1
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Americans Turn to Gold Over Stocks

Post by newport1 » Mon Sep 05, 2011 11:06 am

This is a good sign for equities.

According to a new Gallup poll, “Thirty-four percent of Americans say gold is the best long-term investment, more than say so about four other types of investments.

http://247wallst.com/2011/08/26/america ... er-stocks/

hsv_climber
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Post by hsv_climber » Mon Sep 05, 2011 11:16 am

Not yet.
It seems like there is more room for the gold bubble to go up and for stocks to go down.
We are not at "death of equities" and "gold can only go up" levels yet.

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duplicate thread

Post by baw703916 » Mon Sep 05, 2011 11:23 am

Most of my posts assume no behavioral errors.

Don Robins
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Post by Don Robins » Mon Sep 05, 2011 12:17 pm

hsv_climber wrote:Not yet.
It seems like there is more room for the gold bubble to go up and for stocks to go down.
We are not at "death of equities" and "gold can only go up" levels yet.
Gold is not in a bubble. Paper currencies are in a bubble.

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Post by nisiprius » Mon Sep 05, 2011 12:59 pm

Don Robins wrote:
hsv_climber wrote:Not yet.
It seems like there is more room for the gold bubble to go up and for stocks to go down.
We are not at "death of equities" and "gold can only go up" levels yet.
Gold is not in a bubble. Paper currencies are in a bubble.
I don't understand what you mean by this. It makes no sense to me.

If paper currencies were in a bubble, people would be excited about paper currencies, anxious to get more and more paper currency, selling everything they had in order to get paper money, we would be experiencing severe deflation, and paper currency would be more and more valuable every day. None of these things are happening.
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Re: Americans Turn to Gold Over Stocks

Post by CABob » Mon Sep 05, 2011 4:24 pm

newport1 wrote:According to a new Gallup poll, “Thirty-four percent of Americans say gold is the best long-term investment, more than say so about four other types of investments.
It sounds like all the advertising from companies selling gold is working.
Bob

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wander
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Post by wander » Mon Sep 05, 2011 4:31 pm

That means it's time to sell Gold. I remembered what happened when everyone was looking to buy a real estate for quick financial gain.

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Post by FredPeterson » Mon Sep 05, 2011 9:23 pm

wander wrote:That means it's time to sell Gold. I remembered what happened when everyone was looking to buy a real estate for quick financial gain.
There was a catalyst that caused the turn around in real estate and it wasn't because everyone was piling into the trade.

Whats the catalyst with the price of gold? A turning around economy? Stronger USD? Stronger foreign economies?


Oops, thats right...

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Post by john94549 » Mon Sep 05, 2011 10:08 pm

FredPeterson wrote:
wander wrote:That means it's time to sell Gold. I remembered what happened when everyone was looking to buy a real estate for quick financial gain.
There was a catalyst that caused the turn around in real estate and it wasn't because everyone was piling into the trade.

Whats the catalyst with the price of gold? A turning around economy? Stronger USD? Stronger foreign economies?


Oops, thats right...
Alchemy. "I believe in miracles . . .

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Post by Valuethinker » Tue Sep 06, 2011 3:22 am

FredPeterson wrote:
wander wrote:That means it's time to sell Gold. I remembered what happened when everyone was looking to buy a real estate for quick financial gain.
There was a catalyst that caused the turn around in real estate and it wasn't because everyone was piling into the trade.

Whats the catalyst with the price of gold? A turning around economy? Stronger USD? Stronger foreign economies?


Oops, thats right...
Remembering the dot com boom (2 things: the flotation of Lastminute.com and the Barrons article on dot coms running out of cash) it's seldom obvious as to why a bubble stops, when it stops. It just does.

Reading The Big Short, it was obvious to just about everyone on Wall Street by Q1 2008 that things were in big big trouble. But by then, there was no way out. The size of the Morgan Stanley writeoff for example. The actual crash did not hit until 9 months later.

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Post by jack1719 » Tue Sep 06, 2011 10:38 am

Not only are americans turning to gold over stocks but I think now over treasuries..

If gold is in a bubble then treasuries are just as much(maybe more) in the same bubble..

If gold bubble collapes,then treasuries goes right along with gold ..americans are viewing both as equal "Safe havens" now..treasuries have lost alot of the shine as the safest place during a storm..gold is now equal or even above them.

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Re: Americans Turn to Gold Over Stocks

Post by woof755 » Tue Sep 06, 2011 11:33 am

newport1 wrote:This is a good sign for equities.

According to a new Gallup poll, “Thirty-four percent of Americans say gold is the best long-term investment, more than say so about four other types of investments.

http://247wallst.com/2011/08/26/america ... er-stocks/
Uh, sure...but 95% of Americans couldn't find their investing a-- with both hands.
"By singing in harmony from the same page of the same investing hymnal, the Diehards drown out market noise." | | --Jason Zweig, quoted in The Bogleheads' Guide to Investing

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Post by Don Robins » Tue Sep 06, 2011 11:38 pm

nisiprius wrote:
Don Robins wrote:
hsv_climber wrote:Not yet.
It seems like there is more room for the gold bubble to go up and for stocks to go down.
We are not at "death of equities" and "gold can only go up" levels yet.
Gold is not in a bubble. Paper currencies are in a bubble.
I don't understand what you mean by this. It makes no sense to me.

If paper currencies were in a bubble, people would be excited about paper currencies, anxious to get more and more paper currency, selling everything they had in order to get paper money, we would be experiencing severe deflation, and paper currency would be more and more valuable every day. None of these things are happening.
I guess it means how you define bubble. I define a bubble as an asset that is overvalued based on its inherent worth. IMHO, the dollar is definitely overvalued in relationship to the present state of financial conditions in the U.S. I strongly suspect that at some point this bubble will be reflected in high inflation. I hope I am wrong.
Regards,
Don

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Post by hazlitt777 » Tue Sep 06, 2011 11:45 pm

Americans shouldn't be turning to gold. They should have had it all along as an allocation in their portfolio, just like stocks and bonds. It shouldn't be such a big deal right now.

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Post by ftobin » Wed Sep 07, 2011 12:36 am

wander wrote:That means it's time to sell Gold. I remembered what happened when everyone was looking to buy a real estate for quick financial gain.
You wouldn't be the first: someone has been selling every time someone has bought some gold.

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Post by anonenigma » Wed Sep 07, 2011 12:47 am

Paul Krugman has an interesting (warning: wonkish) blog post on gold:

http://krugman.blogs.nytimes.com/2011/0 ... d-wonkish/

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Post by dave66 » Wed Sep 07, 2011 4:59 am

I recall friends of mine who didn't know enough about the internet to know how to attach a photo to an email... going to work for people with dot com start-ups for free, because they were "going to go public and get rich". One of them dragged me to a meeting of one of these groups, telling me I should join. When I talked to the head guy and asked him... "What is the site revenue going to be based on... ad or membership?" He looked at me like I was from Mars. Later he told my friend he didn't want me to be involved. Gee, wonder why. A year later the dot coms were done.

I remember friends who knew absolutely nothing about real estate and construction, buying ridiculously priced homes and thinking that because they watched some stupid TV show, that they would then "flip them" for an even more ridiculous amount of money. A year later... They were all stuck with a house nobody wanted.

I now have friends telling me I should drop everything and buy gold... Well, you can see where this is going.

By the time average people who previously knew nothing about something, start diving into it... That's usually a great reason not to follow.

Strangely enough, most of the people I've talked to don't seem to really be that motivated by gold, based on the price... It seems to be more of a 'dooms day' mindset, than anything else. They seem to think that gold is great, because as a couple of my friends told me... "It has actual value". In their minds, I guess this means that when the whole world falls apart and we're all hold up in our bunkers, then gold will "have real value", and nothing else will. I've said to them... OK, but... how bad are we talking here? Are we talking like... "Road Warrior" bad? Or "The Postman" bad? Because if that's the case, then what good would gold be? It's only as valuable as what somebody wants to pay for it, and if everything goes to crap, who the heck is going to give a darn about gold? There's a reason why the Indians left the stuff laying all over the place. Plus, if things are that bad, you're never going to see the gold anyway. If you want a doomsday investment... Build a giant gas tank in your backyard, and fill your garage with chocolate bars. :-)

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Post by Valuethinker » Wed Sep 07, 2011 8:16 am

dave66 wrote: OK, but... how bad are we talking here? Are we talking like... "Road Warrior" bad?)
And we have our answer, the movie (actually 'Mad Max II' but Mad Max I did so badly in America (they dubbed over Mel Gibson's accent)) -- it's all about Humungous and his baddies trying to grab control of a gasoline refinery.

A classic western, it really is.

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Post by Valuethinker » Wed Sep 07, 2011 8:24 am

dave66 wrote: I now have friends telling me I should drop everything and buy gold... Well, you can see where this is going.
)
Yes but.

See where my earlier post is going. Higher prices for gold actually cuts the supply, because it increases the reserves (value) of the big holders, the central banks. Bit like Smaug the dragon in The Hobbit.

The gold market is global, it's not just or even primarily US retail demand which is driving this. It's Germans afraid of what happens when the Euro collapses. It's all those flight to safety moves that can no longer simply bet on the Swiss Franc.

Watch the Norwegian Kronor go up this week. The world is running out of safe havens against competitive currency devaluation.

This means all of this can go on for a lot longer than fundamental value types like you and mean think is possible.

$3000 is definitely within reach. You watch. Wait til I decide to, precautionarily, buy some gold mining stocks.

(which btw look like quite a cheap way into the gold price. Beware, someone with knowledge said half the stocks with caps under $500m are probably pseudo fraudulent).

However as a portfolio, if you bought gold at maybe $450, you've made 4 times your money. If it goes to $3000 (and I think it may well do so) then, well, that's only another 50%.

The easy money is made. The mug has joined the poker game.

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Post by ofcmetz » Wed Sep 07, 2011 8:26 am

jack1719 wrote:Not only are americans turning to gold over stocks but I think now over treasuries..

If gold is in a bubble then treasuries are just as much(maybe more) in the same bubble..

If gold bubble collapes,then treasuries goes right along with gold ..americans are viewing both as equal "Safe havens" now..treasuries have lost alot of the shine as the safest place during a storm..gold is now equal or even above them.
I think there is much greater downside to gold than treasuries in the case of a bubble popping. With treasuries you could lose a little to inflation, but still get your principle back. If there is a gold bubble and it popped people could do much worse. Not to big of a deal if 10% or less of your portfolio is in gold and you are long term, but I wonder how many have sold it all and moved half or more into gold.
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Post by magellan » Wed Sep 07, 2011 8:28 am

anonenigma wrote:Paul Krugman has an interesting (warning: wonkish) blog post on gold:

http://krugman.blogs.nytimes.com/2011/0 ... d-wonkish/
Thanks for this link. That was the first explanation I've seen about the recent run up in gold that seriously explores gold's performance during a period when deflation fears seem to dominate over inflation fears.

Jim

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Post by MossySF » Wed Sep 07, 2011 8:41 am

Valuethinker wrote:See where my earlier post is going. Higher prices for gold actually cuts the supply, because it increases the reserves (value) of the big holders, the central banks. Bit like Smaug the dragon in The Hobbit.
That's what Gandalf was missing. He was good at politics, magic and war -- but he lacked the tools to manipulate the gold market to send Smaug to the poor lair.

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Post by Gumby » Wed Sep 07, 2011 9:02 am

For the record, many people have been saying that the gold is in a "bubble" for about 5 or 6 years now.

Here's a Bloomberg article about the so-called gold bubble in 2005:

http://www.bloomberg.com/apps/news?pid= ... world_news
Some analysts say the rally won't last long.

``Gold is the flavor of the month,'' said Leonard Kaplan, President of Prospector Asset Management, a money-management company in Evanston, Illinois. ``You've had a tech bubble. You've got a real estate bubble, and now you're going to get a precious metal bubble.''

Gold's 14-day relative-strength index, which measures the momentum of price movements, reached 84.5 today, the highest level this year. Some analysts say a reading above 70 means the price is poised to decline.
...That was six years ago.

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Post by fishndoc » Wed Sep 07, 2011 9:26 am

Gold, tulip bulb, even jewelry... it's all the same to me.

IMHO: If I can't live on or grow food on IT (or find someone else willing to pay me to do so), depend on IT to pay me interest, or share in the profit IT makes from producing goods or services, then IT is speculation, not an investment.
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Post by hsv_climber » Wed Sep 07, 2011 9:40 am

Gumby, you need to read a bit more about bubbles.

For example, tulip mania has lasted several decades before turning into complete bubble in the last 3 years and bursting in Feb. 1637.

In modern age we've got so used to 24 hr. information cycle and fast speeds that don't realize that bubbles typically last years and/or decades.

Like Valuethinker posted, gold can easily go to $3,000 before bursting to flames.

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Post by Gumby » Wed Sep 07, 2011 9:44 am

fishndoc wrote:Gold, tulip bulb, even jewelry... it's all the same to me.

IMHO: If I can't live on or grow food on IT (or find someone else willing to pay me to do so), depend on IT to pay me interest, or share in the profit IT makes from producing goods or services, then IT is speculation, not an investment.
So, by that logic, TIPS at a negative yield is what?

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Post by Gumby » Wed Sep 07, 2011 9:50 am

hsv_climber wrote:Gumby, you need to read a bit more about bubbles.
Thanks.. Perhaps you too.

http://www.slate.com/?id=2103985&

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Post by hsv_climber » Wed Sep 07, 2011 9:54 am

Gumby wrote:
hsv_climber wrote:Gumby, you need to read a bit more about bubbles.
Thanks.. Perhaps you too.

http://www.slate.com/?id=2103985&
What is your point?

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Post by Gumby » Wed Sep 07, 2011 9:56 am

hsv_climber wrote:
Gumby wrote:
hsv_climber wrote:Gumby, you need to read a bit more about bubbles.
Thanks.. Perhaps you too.

http://www.slate.com/?id=2103985&
What is your point?
The point is that Tulip mania is a poor example of a typical bubble. There's not enough data to draw any meaningful conclusions about how bubbles work and what influences them or makes them pop.

Here's how gold works. The US Dollar is the #1 currency in the world. Dollars are accepted everywhere, and are held everywhere. They are very safe and are relatively stable. Gold is the #2 currency in the world. When people all over the world get nervous about holding dollars (whether it be from the devaluing of the dollar, a currency crisis, a debt crisis, wars or civil unrest, etc) people exchange those dollars for more gold. That's really all there is to it. Some of its rational, some of its not. But, that's what generally happens. If more and more people continue to get nervous about the state of the global economy, and the dollar, the price of gold will go up. If things turn around and get better, the price will go down.

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Post by tludwig23 » Wed Sep 07, 2011 10:39 am

Gumby wrote:
fishndoc wrote:Gold, tulip bulb, even jewelry... it's all the same to me.

IMHO: If I can't live on or grow food on IT (or find someone else willing to pay me to do so), depend on IT to pay me interest, or share in the profit IT makes from producing goods or services, then IT is speculation, not an investment.
So, by that logic, TIPS at a negative yield is what?
Insurance against unexpected inflation mostly, but "IT" does pay you interest.
That's what I do: I drink, and I know things. --Tyrion Lannister

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Post by Gumby » Wed Sep 07, 2011 11:18 am

tludwig23 wrote:
Gumby wrote:
fishndoc wrote:Gold, tulip bulb, even jewelry... it's all the same to me.

IMHO: If I can't live on or grow food on IT (or find someone else willing to pay me to do so), depend on IT to pay me interest, or share in the profit IT makes from producing goods or services, then IT is speculation, not an investment.
So, by that logic, TIPS at a negative yield is what?
Insurance against unexpected inflation mostly, but "IT" does pay you interest.
Gold is also used as an insurance against inflation. TIPS with a negative yield cannot create income over time. By definition, TIPS with a negative yield are not an investment either.

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Post by Valuethinker » Wed Sep 07, 2011 11:29 am

hsv_climber wrote:Gumby, you need to read a bit more about bubbles.

For example, tulip mania has lasted several decades before turning into complete bubble in the last 3 years and bursting in Feb. 1637.

In modern age we've got so used to 24 hr. information cycle and fast speeds that don't realize that bubbles typically last years and/or decades.

Like Valuethinker posted, gold can easily go to $3,000 before bursting to flames.
based on historic multiples, US housing probably overvalued since the late 1990s. I don't think prices have yet retracked to 1996 but they could do.

UK housing prices are (still) 40% above their historic norm of 3.5 times price to average household income. And that's after a financial crisis, a nasty recession and the second or third biggest bank bailout.

If you want fundamentals, then the marginal price of production of a new ounce of gold is somewhere between $700 and $1000 an ounce. There's your floor.

But most commodities are consumed post production. Gold is not. Something like 3/4 of all the gold even mined is still out there in the form of bullion, coins or jewelry.

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Post by Valuethinker » Wed Sep 07, 2011 11:32 am

ofcmetz wrote:
jack1719 wrote:Not only are americans turning to gold over stocks but I think now over treasuries..

If gold is in a bubble then treasuries are just as much(maybe more) in the same bubble..

If gold bubble collapes,then treasuries goes right along with gold ..americans are viewing both as equal "Safe havens" now..treasuries have lost alot of the shine as the safest place during a storm..gold is now equal or even above them.
I think there is much greater downside to gold than treasuries in the case of a bubble popping. With treasuries you could lose a little to inflation, but still get your principle back. If there is a gold bubble and it popped people could do much worse. Not to big of a deal if 10% or less of your portfolio is in gold and you are long term, but I wonder how many have sold it all and moved half or more into gold.
If inflation went to say 20%, even 10%, then that might not be true.

10 years at 10% and you'd get roughly 1/3 your money back. 30 years at 10% and you'd get roughly 1/16th of your money back.

the low coupon yields on T Bonds now mean that the intervening income wouldn't protect you much. Most of the value in a new 10 year T Bond right now is in the final redemption payment.

However if say we returned to 'normal service' ie US T Bond at 5% Yield to Maturity (we can but hope) then your analysis is correct.

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Post by fishndoc » Wed Sep 07, 2011 11:42 am

Gumby wrote:
fishndoc wrote:Gold, tulip bulb, even jewelry... it's all the same to me.

IMHO: If I can't live on or grow food on IT (or find someone else willing to pay me to do so), depend on IT to pay me interest, or share in the profit IT makes from producing goods or services, then IT is speculation, not an investment.
So, by that logic, TIPS at a negative yield is what?
TIPS is a bond that pays less (slightly) than inflation. But, it does pay interest, and the return is guaranteed, dismal as it is.

My point is, anything that doesn't pay interest or have earnings, or at least the potential of earnings, is an "investment" that depends purely on speculation for its value and potential return.
Yes, equities have a large speculative component, at least over the short run. Same for real estate, and even bonds to some degree. But there are earnings there, and over the long term that is what is important.
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle

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Post by plnelson » Wed Sep 07, 2011 11:48 am

fishndoc wrote:Gold, tulip bulb, even jewelry... it's all the same to me.

IMHO: If I can't live on or grow food on IT (or find someone else willing to pay me to do so), depend on IT to pay me interest, or share in the profit IT makes from producing goods or services, then IT is speculation, not an investment.
That just means it's not a "good" investment; it doesn't mean it's not an investment. The common use of "investment" is something one buys with the expectation (or hope) of making some money off it. Commodities, artwork, shares, condominiums, business real estate, etc have all been used as investments.

Word meanings are descriptive, not prescriptive - we don't get to invent our own language.

Keep in mind that when you buy a share on the stock exchange you are not "sharing in the profit". The price goes up and down based on market psychology, and there's no reason to assume that this will reflect profits. Buying stocks (or gold or real estate) is just sophisticated gambling without the free drinks and topless showgirls of Las Vegas. All of us are just placing bets on markets or a company's share price.

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Post by fishndoc » Wed Sep 07, 2011 12:16 pm

plnelson wrote:
fishndoc wrote:Gold, tulip bulb, even jewelry... it's all the same to me.

IMHO: If I can't live on or grow food on IT (or find someone else willing to pay me to do so), depend on IT to pay me interest, or share in the profit IT makes from producing goods or services, then IT is speculation, not an investment.
That just means it's not a "good" investment; it doesn't mean it's not an investment. The common use of "investment" is something one buys with the expectation (or hope) of making some money off it. Commodities, artwork, shares, condominiums, business real estate, etc have all been used as investments.

Word meanings are descriptive, not prescriptive - we don't get to invent our own language.

Keep in mind that when you buy a share on the stock exchange you are not "sharing in the profit". The price goes up and down based on market psychology, and there's no reason to assume that this will reflect profits. Buying stocks (or gold or real estate) is just sophisticated gambling without the free drinks and topless showgirls of Las Vegas. All of us are just placing bets on markets or a company's share price.
Some of us invest like Buffett (or at least try to),
and some of us "invest" like Cramer. :lol:

Lots of paths to Dublin, some are just shorter and more certain than others...
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle

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Post by Gumby » Wed Sep 07, 2011 12:19 pm

fishndoc wrote:TIPS is a bond that pays less (slightly) than inflation. But, it does pay interest, and the return is guaranteed, dismal as it is.
Huh? The current yield on 5yr TIPS is negative. There is no "return" when the yield is negative on TIPS. No wealth is created from the interest payment. That hardly sounds like an investment by your own definition.

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Post by Valuethinker » Wed Sep 07, 2011 12:25 pm

Gumby wrote:
fishndoc wrote:TIPS is a bond that pays less (slightly) than inflation. But, it does pay interest, and the return is guaranteed, dismal as it is.
Huh? There is no "return" when the yield is negative on TIPS. No wealth is created from the interest payment.
The real yield is negative. There is still a nominal return-- coupon is still positive.

Also the real yield is derived from the comparable nominal bond yield.

So if there is unexpected inflation, you will get a positive real return ie if inflation exceeds the breakeven inflation rate.

The real yield of TIPS only reflects expected inflation post purchase, not unexpected inflation.

Lastly of course TIPS are unique. They pay back at $100. So therefore if there is significant deflation post issue you get 1). a coupon 2). $100 back-- a positive real return and a positive nominal return.

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Post by hsv_climber » Wed Sep 07, 2011 12:31 pm

Coupon on the latest auction on a widely <un>popular 5-year TIPS was 0.125% for a real yield of -0.825% (Price was 106.8525).

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Post by Valuethinker » Wed Sep 07, 2011 12:34 pm

plnelson wrote: The price goes up and down based on market psychology, and there's no reason to assume that this will reflect profits. Buying stocks (or gold or real estate) is just sophisticated gambling without the free drinks and topless showgirls of Las Vegas. All of us are just placing bets on markets or a company's share price.
A series of inappropriate analogies:

- when you buy a stock you buy a legal entitlement to the free cash flow generated by that company. Eventually that cash flow will be 1. paid out as dividend or share buyback 2. the Board will get sacked after a hostile takeover or friendly LBO and shareholders get cashed out.

MSFT paid no dividend for decades, and now pays a chunky yield. So does Intel. So some day will Apple.

- real estate pays a rental yield. That's why investors own real estate

- gold has a negative expected return because gold bullion has a significant storage cost. However empirically gold functions as a diversifier in portfolios-- normally doing well when other assets do badly-- like now. See 'The Most Patient Investment' by William Bernstein.

In effect with gold you put up with long periods where it detracts from performance because there are periods of spectacular performance, usually arising from politico-economic uncertainty. It is the traditional safe asset/ flight to safety.

In addition current supply situation in gold means that new gold production costs c. $700-1000/ oz, putting a long term floor on the price *if* demand is sustained.

The problem is whilst it was smart to recognize this, ignore conventional wisdom and buy gold at $400, it's less clear that having gone up 4.5x, it can now go over $9,000.

My own view is time to run, whilst real interest rates are negative which is probably true for an extended period. We are in the modern rerun of the 30s, but no General Tojo or Corporal Hitler-- yet. No FDR either.

We are not yet in the blow off, and $3000 per oz is in the offing. But you are like the guy who walked up 100 floors, joining the elevator for the last 10 floors.

The Euro probably has to complete its death dive before gold peaks.

Expect volatility though. Prices of $1500 an oz on the way to $3000+.

The gold mining stocks may offer a cheap route into the gold price. The market is not valuing these stocks on sustained pricing over $1800 per oz.
Last edited by Valuethinker on Wed Sep 07, 2011 12:37 pm, edited 1 time in total.

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Post by Valuethinker » Wed Sep 07, 2011 12:36 pm

fishndoc wrote:
Gumby wrote:
fishndoc wrote:Gold, tulip bulb, even jewelry... it's all the same to me.

IMHO: If I can't live on or grow food on IT (or find someone else willing to pay me to do so), depend on IT to pay me interest, or share in the profit IT makes from producing goods or services, then IT is speculation, not an investment.
So, by that logic, TIPS at a negative yield is what?
TIPS is a bond that pays less (slightly) than inflation. But, it does pay interest, and the return is guaranteed, dismal as it is.t.
To be pedantic, the return is guaranteed if *each* coupon can be reinvested at the same real rate of return.

The nominal return is of course not guaranteed but (see below) it could only be negative if you bought the TIP way above par, and had significant deflation pre redemption (say you bought at 136, you could lose $36).

If there is deflation, the TIPS, if priced near par at purchase, will oddly do rather well-- that's unique to TIPS over other Real Return Bonds.

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Post by tludwig23 » Wed Sep 07, 2011 12:54 pm

Gumby wrote:
tludwig23 wrote:
Gumby wrote:
fishndoc wrote:Gold, tulip bulb, even jewelry... it's all the same to me.

IMHO: If I can't live on or grow food on IT (or find someone else willing to pay me to do so), depend on IT to pay me interest, or share in the profit IT makes from producing goods or services, then IT is speculation, not an investment.
So, by that logic, TIPS at a negative yield is what?
Insurance against unexpected inflation mostly, but "IT" does pay you interest.
Gold is also used as an insurance against inflation. TIPS with a negative yield cannot create income over time. By definition, TIPS with a negative yield are not an investment either.
True, gold is also used as insurance. However, if I buy $10,000 in gold today, it may be worth much more, or much less than $10,000 in ten years, whether or not there was inflation. Thus it really isn't very good insurance, however it MAY be a good investment.

If I buy a 10-year, $10,000 TIPS bond today, I may have to pay $10,800 for it, but I can guarantee that it will be worth $10,000 (in 2011 dollars) in 10 years. So as insurance, it is actually insurance. There is little potential upside, but little potential downside (unless forced to sell before maturity). Better insurance, but certainly not an investment which will yield much.
That's what I do: I drink, and I know things. --Tyrion Lannister

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Post by Gumby » Wed Sep 07, 2011 1:12 pm

tludwig23 wrote:True, gold is also used as insurance. However, if I buy $10,000 in gold today, it may be worth much more, or much less than $10,000 in ten years, whether or not there was inflation. Thus it really isn't very good insurance, however it MAY be a good investment.

If I buy a 10-year, $10,000 TIPS bond today, I may have to pay $10,800 for it, but I can guarantee that it will be worth $10,000 (in 2011 dollars) in 10 years. So as insurance, it is actually insurance. There is little potential upside, but little potential downside (unless forced to sell before maturity). Better insurance, but certainly not an investment which will yield much.
http://online.wsj.com/article/SB1000142 ... nal_report

Quote from the article:
Ms. Lester’s group identified another set of circumstances that could lead to losses in TIPS: interest rates rising but inflation falling. Between July 1980 and July 1981, interest rates rose to about 15% from 10% while the CPI fell to 10% from 14%. The result: a“perfect storm” that could have sent TIPS down by about 20%.
Sounds very speculative to me.

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Post by hsv_climber » Wed Sep 07, 2011 1:17 pm

Gumby wrote:
tludwig23 wrote:True, gold is also used as insurance. However, if I buy $10,000 in gold today, it may be worth much more, or much less than $10,000 in ten years, whether or not there was inflation. Thus it really isn't very good insurance, however it MAY be a good investment.

If I buy a 10-year, $10,000 TIPS bond today, I may have to pay $10,800 for it, but I can guarantee that it will be worth $10,000 (in 2011 dollars) in 10 years. So as insurance, it is actually insurance. There is little potential upside, but little potential downside (unless forced to sell before maturity). Better insurance, but certainly not an investment which will yield much.
http://online.wsj.com/article/SB1000142 ... nal_report

Quote from the article:
Ms. Lester’s group identified another set of circumstances that could lead to losses in TIPS: interest rates rising but inflation falling. Between July 1980 and July 1981, interest rates rose to about 15% from 10% while the CPI fell to 10% from 14%. The result: a“perfect storm” that could have sent TIPS down by about 20%.
Sounds very speculative to me.
:lol:

Gumby, maybe it is time to learn and/or read wiki rather than continue to make a fool of yourself?

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Post by Gumby » Wed Sep 07, 2011 1:22 pm

hsv_climber wrote:Gumby, maybe it is time to learn and/or read wiki rather than continue to make a fool of yourself?
How so? Are you suggesting that you can't lose money with TIPS?

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Post by hsv_climber » Wed Sep 07, 2011 1:25 pm

Gumby wrote:
hsv_climber wrote:Gumby, maybe it is time to learn and/or read wiki rather than continue to make a fool of yourself?
How so? Are you suggesting that you can't lose money with TIPS?
Read the quote that I've highlighted above and feel free to ask questions if you don't understand anything.
But please stop with the nonsense of posting some internet links where it seems like you don't understand the meaning of the article.

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Post by tludwig23 » Wed Sep 07, 2011 1:33 pm

hsv_climber wrote:
Gumby wrote:
hsv_climber wrote:Gumby, maybe it is time to learn and/or read wiki rather than continue to make a fool of yourself?
How so? Are you suggesting that you can't lose money with TIPS?
Read the quote that I've highlighted above and feel free to ask questions if you don't understand anything.
But please stop with the nonsense of posting some internet links where it seems like you don't understand the meaning of the article.
+1. I am not suggesting, but actually stating, that you cannot lose money (in real dollars) in TIPS held to term, except any premium over the face value paid on purchase. If you sell them prior to maturity, obviously anything can happen.

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Post by Gumby » Wed Sep 07, 2011 1:33 pm

Ah... Thanks for clarifying. So IF I hold the TIPS to maturity (a big IF), at worst it might be defined as a poor investment.

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Post by tludwig23 » Wed Sep 07, 2011 1:41 pm

Gumby wrote:Ah... Thanks for clarifying. So IF I hold the TIPS to maturity (a big IF), at worst it might be defined as a poor investment.
Yep. Unless there was a large amount of unexpected inflation, in which case your investment might be poor in real terms, but might be quite good, relative to other investments, in nominal terms.

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Post by hazlitt777 » Wed Sep 07, 2011 10:14 pm

fishndoc wrote:Gold, tulip bulb, even jewelry... it's all the same to me.

IMHO: If I can't live on or grow food on IT (or find someone else willing to pay me to do so), depend on IT to pay me interest, or share in the profit IT makes from producing goods or services, then IT is speculation, not an investment.
I really don't think we should compare tulip bulbs to gold and jewelry. Their "performance" is so radically different, they are totally in different ball parks. But I know you were speaking tongue in cheek.

You make a valid point but to be consistent you should drop your speculative faith in the fiat dollar not just your potential "speculative" faith in the ancient monetary commodity which is gold.

I would ask everyone to reflect on this line: "If I can't depend on IT to pay me interest,..." If we could really know what the dollar IS, then we could know what interest IS. The fact of the matter is that people are buying gold because they don't know what the dollar is anymore, nor the interest it pays which are just more dollars. We are monetizing and monetizing, printing and printing.

So if you want to be consistent and avoid speculating as you define it Doc, then get rid of most of your dollars and bonds and buy/hold only land and companies.

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