patrick.net

"Holding gold for 40 years, even though 20 of those are good isn’t great. Sure we lost a decade in housing, but over the last 40 years, it’s probably been a fantastic investment. 40 years of stocks, again pretty good. 40 years is a long time. I’m guessing gold would have been the worst. of these."

You sure about that one? Gold was $35 an oz 40 years ago. It's gained 3200% since then. The Dow was 667 at around the same time.

thunderlips11 says

Nomo - CNBC, Money Magazine, Fidelity Investments, the Wall Street Journal, etc. etc. etc. are mostly interested in selling you stocks, the occasional bond, and other paper investments… NAR always pumps up Housing

I think that's the point. You obviously aren't going to go buy a house because the NAR says "it's a great time to buy", just as you shouldn't believe what a website says that's devoted to selling you gold...
thunderlips11 says

The Stock Market is like a teacher who throws out all your failing grades and only counts the passing ones

Not really--you are describing survivorship bias which is really more applicable to mutual funds. The S&P 500 does alter it's portfolio based on market cap, but it doesn't throw away the results of the delisted stocks. If Montgomery Ward was in the S&P 500 in 1970, the results for 1970 reflect the gain or loss of it. So, it doesn't throw out any failing grades.... Anyone can match the S&P 500 results simply by buying those stocks and adjusting their portfolio whenever the index does.

One point seems clear to me anyway.

Gold is a much better investment today than housing. The government is in hyperdrive manipulating the housing market higher. The government cannot continue like this and housing must fall in relation to gold.

thunderlips11 says

In the past 40 years, it’s about 2 good decades for gold, and 2 for stocks. 50%/50%. That’s a lot different than the dominant financial media’s take on stocks v. gold.

Its not an investment. Its speculation on price. Stocks can pay dividends which provide income stream during retirement which is why its wiser to hold stock. Whats the annual cash dividend from holding gold ?

thomas.wong87 says

thunderlips11 says

In the past 40 years, it’s about 2 good decades for gold, and 2 for stocks. 50%/50%. That’s a lot different than the dominant financial media’s take on stocks v. gold.

Its not an investment. Its speculation on price. Stocks can pay dividends which provide income stream during retirement which is why its wiser to hold stock. Whats the annual cash dividend from holding gold ?

At present all investments are so starved for yield that the dividend does not really matter. Gold will hold value with interests rates this low. It is the value of the dollar that is at risk. When interest rates get towards 20%, that is the time to sell gold and silver. And if the government keeps acting this recklessly I suspect we will get there.

thunderlips11 says

So If I brought the S&P 500, one of each stock, commission free, in 1970, and sold it in 2000, Montgomery Ward and NY Penn Central would have been part of it - and worth $0. They wouldn’t have been replaced by anything since you brought the 1970 index and held it for 30 years with no adjustment. No rotation - when a company fails, it’s $0 and replaced with nothing. Media reporting doesn’t take that into account.

They don't take it into account because it wasn't part of the index after it was sold. They are reporting the index. But, you can look at the Wilshire 5000 or other total stock market indexes if you want a more representative result of the entire market. Those numbers are readily available....

No problem-but after 1970 you no longer have the index then. You have a bunch of stocks that were in the index in 1970....

thunderlips11 says

Okay, so if I drop the Detroit Tigers from MLB every year their standings fall below .400, replace them with the best Minor League team, and then give the average performance of all teams in MLB, isn’t that a misleading statistic?

No. Because you don't use any minor league stats. You only use the stats of the new team once it enters the major league. So the stats of Detroit stay in the calculations for every year it was in the majors. Regardless of what the team names or city affiliations are, anything that takes place in the major leagues gets reported as major league stats.

Just like the S&P 500. It is billed as the top 500 companies--so as companies grow or shrink it is only natural that the index will adjust. It doesn't mean it will be the top 500 performing stocks--it never is. Just that it represents large cap stocks...

OK--not sure I understand how it relates to a failing grade, but you're right about not including fees. Although nowadays with $12.95 commissions, I'm not sure it will make a whole lot of difference in the returns. Taxes, however, now that's a different story.

Picking gold prices when they're at their lows, is like picking stock prices when they're at their lows and comparing with them at their highs. Pick gold in the late 1970's and compare it with gold prices in 2000. Then compare stocks for that time period.

Picking microsoft when it was in the 1980's price range would be great, better if you picked it at it's very lowest low. Using the gains on that stock to compare with it's current trading, would show great results too. Way better than gold.

Gold is great if you pick it up at the lows. Today it's not at the lows, it's at all time highs. Saying now is a great time to buy, is like saying look at gold in late 70's when it was $800 oz! When it was $35oz it was good. By $800oz? A gain of 50% from 1980-2010 is horrible investment!

With any investment, you should watch it. Even if it's gold. If you're watching a stock tank, you shouldn't be involved in it. You should change your investments at that point. Granted holding gold is much easier, as there aren't any options with it. It can't go to 0. There is only "gold", not 9000 stocks to pick from. You have no options other than to buy or sell it. Once you do that, you're "out" of that game, and need to invest somewhere else. Sell a stock and you can jump right back in with another stock.

One reason I say buying a house is good for most people as a retirement investment, is that it won't go to 0. Like gold. It's done pretty well over the past few thousand years, like gold. It doesn't require major money management skills to keep it from going to 0, like gold.

Bonuses for owning land? It pays "dividends" after 30 years -- no rent, gold doesn't. Once you sell all of your gold, you're done, you're rent payment still needs to go out every month though. It can't be liquidated easily, gold can be. Why is that good? Well the sheer number of cons and get rich schemes are shut down when you can't get to that money easily. (That barrier has been brought down a bit with all the re-financing available, but it's still a small wall to climb over for most people.)

"Picking gold prices when they’re at their lows, is like picking stock prices when they’re at their lows and comparing with them at their highs."

You're the one who said 40 years ago. You picked the low.

"Saying now is a great time to buy, is like saying look at gold in late 70’s when it was $800 oz! "

Adjusted for inflation, gold would have to be over $2000 for you to compare it to it's price at $800.

"By $800oz? A gain of 50% from 1980-2010 is horrible investment! "

You had about a 12 minute window to buy gold at it's high in 1980. Funny how you scream about picking the lows when you are fixated on a 1980's price that required interest rates at 20% to stop the price increases. The Fed isn't in a position to do that again. You are just rehashing the same arguments that were debunked tirelessly on the old patrick.net boards when gold was hovering around $700. The fundamentals haven't changed. Some of us cleaned up with Gold and Silver. Others constantly said it's too early to buy gold. Others continually mocked us. What I know is this. Anyone who took a large position in gold well before this economic collapse never lost a dime and is still up a few 100%.

I find it laughable that Gold can hit $1220 a year after the worst deleveraging we've seen in our lifetimes and people still refuse to believe it's a good asset to own. Tell me...what's performed better?

Granted, picking the highs and lows is impossible. But if you retire at a low, and you own gold or stocks, you could be screwed. With a property, you're still int he same position, either paying for a mortgage, or done with it. If you needed to pull a bunch of gold/stocks out for 5-10 years at a "low", you could really diminish your savings.

I'm not fixated on any specific time, but it should be figured in.

Anyone who took a position in cash and then bought back in when the stock market hit bottom, made a real killing.

Gold could keep going up, but since it's not really tied to a currency it's really about supply and demand. If people become "comfortable" with the economy, they'll dump gold. If they stay worried, they'll continue pushing prices further.

I'm not planning on holding gold for 40 years. I'm waiting until I hear no more of this "Gold can't eat it, can't use it" talk. Then I'll sell. I would imagine it is going to take a price well north of $2000 for that to happen.

There's nothing in the economy for people to be comfortable with. The US government is already hitting the crossroad in which their tax revenues are collapsing. What's their response? Increase the size of government by 100%. It's on a few years at best before they 100% rely on the printing press to cover their debts and pay for their spending. There will be no phony recovery. The American consumer is fully exhausted.

Btw...I didn't just buy gold. I bought Silver & Mining stocks last November as well. I also bought into petroleum heavily in December near the bottom. I'm sure at least one person from the old board would vouch for me.

Pkennedy,
I think your post is right on the marko ( pun intended ) In my opinion, I think Gold is in for a serious dip in the short term. So many ads and salespitches while it is spiking is going to intrigue alot of sheep to come and buy. Then the big holders dump for profits and the sheep are left holding a bag which they dump too late. I own some gold but I am not buying any right now. All the ads talking about $2000.00 an ounce are a bit far-fetched in the short run. In the long run - probably at $2000.00 some day.

"Full of crap" qualifies as impolite.

Don't make me delete stuff. I don't like to, but I will if that's what it takes to keep things civil.

elvis says

I disagree for the stated reason above: Government can print unlimited amounts of money (having nothing to do with goods and services)…but can’t “print” unlimited amounts of gold.

No, but the government can BORROW money which would then allow it to spend more than it has. At some point that money has to be paid back which would require that the govt then raise taxes. So at the end of the day, its citizen's purchasing power has been reduced, same as with inflation. I agree that this way makes it more "real" to the citizens and they might be more watchful of government spending but you're naive if you think a gold standard will stop the govt from deficit spending.

"I agree that this way makes it more “real” to the citizens and they might be more watchful of government spending but you’re naive if you think a gold standard will stop the govt from deficit spending."

Gold standards effectively did squash deficit spending because governments weren't able to politically justify their tax increases without getting ousted from office. Through inflation and an unofficial abandonment of the gold standard (printing money), they were able to run deficits without increasing taxes. The only problem is, whenever they attempted this, they kept the price of gold fixed to the currency (basically price fixing) and the public (or marketplace) makes a huge run on gold because you can buy it with devalued currency. It already happened twice last century. In 1971, the US stopped playing the price fixing game and simply ended the convertibility between the dollar and its gold reserves.

By and large, the gold standard is history's greatest and most effective example of a restriction on government spending. On the other side of the coin, fiat money has always been histories greatest and most disastrous example of putting no limit on government spending. No civilization has discovered a better way to keep governments in check than gold and silver. Our experiment with Ben Bernanke is going to end very very badly.

In 1944 at Bretton Woods, the U.S. Dollar was declared to be the world's reserve currency for the rest of the civilized world. Unlike the other currencies, the U.S. Dollar was backed by GOLD, which in effect also kept the world's currencies on the gold standard. Any foreign country that held gold was able to exchange (at any Federal Reserve branch, or, at the U.S. Treasury) the stated amount of gold for U.S. Dollars. Nixon closed the gold window in 1971 which basically took the world's currencies, and of course the U.S. Dollar off of what remained of the gold standard. We now have purely a fiat paper money currency backed by a promise to pay a promise based on a promise. Sound confusing? It's meant to be. Without the gold standard, governments are allowed to inflate (print) the currency in order to provide for what appears to be free services to the people and hence increase their popularity and power with the people. Unfortunately, indiscriminate printng of money always leads to the same end; the destruction of the currency. This is exactly what Adolph Hitler did when he practiced inflationary economics, i.e., spending money he didn't have, to create jobs via massive public works programs such as the building of the Autobahn. Study this period of German history and you'll see this is exactly what our government has been doing since FDR. If that doesn't frighten you, nothing will.

RayAmerica says

If that doesn’t frighten you, nothing will.

It doesn't frighten me. Because you don't understand how the world markets work.

tatupu I guess I need to "understand" that printing an endless supply of paper money is the road to lasting prosperity. Now I understand how the world markets work. LOL

RayAmerica says

tatupu I guess I need to “understand” that printing an endless supply of paper money is the road to lasting prosperity. Now I understand how the world markets work. LOL

Huh, I don't remember saying that "printing an endless supply of paper money is the road to lasting prosperity". Because it's obviously not. Adding liquidity to an economy undergoing a credit crunch, however, does seem to be prudent.

Please save the scare tactics for somewhere else...

tatupu "Adding liquidity to an economy undergoing a credit crunch, however, does seem to be prudent.

Please save the scare tactics for somewhere else…"

What you don't realize is that we are in the mess we're in because of EXCESS credit (easy money policies) which undermined the entire economic system. Adding credit into a credit bubble is not the answer. By the way, I'm not using "scare tactics" as you claim, but simply stating my opinions seasoned with facts. Save your accusations of scare tactics for someone else.

RayAmerica says

What you don’t realize is that we are in the mess we’re in because of EXCESS credit (easy money policies) which undermined the entire economic system. Adding credit into a credit bubble is not the answer. By the way, I’m not using “scare tactics” as you claim, but simply stating my opinions seasoned with facts. Save your accusations of scare tactics for someone else.

Actually, I do realize it (although I think the cause was more due to poor understanding of risk/reduced lending standards rather than excess credit). But, regardless of why we got into the situation we were/are in, the fact remains that it was/is a credit crunch. In order to combat it, more liquidity was needed. Businesses couldn't get working capital to meet payroll, for gods sake... You would rather they go under and more people lose their jobs?
You don't consider this line to be a scare tactic? "If that doesn’t frighten you, nothing will."

tatupu Excess easy credit created the housing bubble. Adding more air to the bubble accomplishes exactly what ?? Please be specific to the housing bubble segment of the economy when answering. The first time homebuyer tax credit is nothing other than an artificial pump into the bubble. What happens when that air, i.e. tax credit disappears??

Ray--

I thought I was pretty clear in my previous post. Liquidity allows companies to make payroll, have capital budgets, hire new people. Corporate America depends on the availability of short term credit for their operations.

Who cares about the first time homebuyer credit? That's a drop in the ocean. I have no idea what will happen when it expires--maybe home prices will drop, maybe the economy will have picked up and enough demand will have returned to keep prices steady. Hard to say. But, your previous post that I responded to had nothing to do with the housing credit--where did that come from?

tatupu70 says

maybe the economy will have picked up and enough demand will have returned to keep prices steady.

are you serious? do you actually believe that home prices will stay steady when all this stimulus goes away. where are the jobs? home prices will be steady when unemployment is not over or near 10%... and we're looking at years down the road. printing money out of thin air will not solve our problems, it'll just eventually make our dollar useless.

@crash--

Wow, nice editing job there. If you would have included the first half of my statement it included this line

tatupu70 says

I have no idea what will happen when it expires–maybe home prices will drop,

Does that help?

With all the advertising and mainstream gold coverage I've seen lately, it seems like a pretty safe bet to run like hell and and wait for the correction.

Governments throughout history borrowed money to fight wars when money was gold, silver, copper, and bronze tokens and bars. They also went into massive debt. The Kings and Queens of Europe were very good at running up debt when money was gold, silver, copper, and bronze tokens and bars.

No matter what tokens we use, governments can borrow as much as the world is willing to lend them. And the world can decide it wants its payments immediately for governments that the world deems are carrying too much debt. Countries went bankrupt back when money was gold, silver, copper, and bronze tokens just as they do today with fiat paper currency.

Today, the situation would be the same if government were forced to use gold, silver, copper, and bronze as token money. Paper money and fiat currency makes economies and the global economy much more efficient than using gold, silver, copper, and bronze tokens for currency. Our entire global economic system would collapse if we were forced to use gold, silver, copper, and bronze tokens as money because there are now too many people in the world to spread around whatever gold, silver, copper, and bronze is left to make a global economic system efficient enough to move goods and sell services. We wouldn't be able to produce enough gold, silver, copper, and bronze tokens to allow 6+ billion to carry out basic transactions on a micro-economic level. On a global scale commerce would be stagnated and grind to a halt as nothing could ship from buyer to seller without the physical transfer of gold, silver, copper, and bronze tokens. So transactions on a macro-economic level wouldn't work efficiently either.

Those who insist on returning to a gold standard to limit government spending are arguing for returning to a gold standard without understanding basic macro-economics.

simchaland says

Our entire global economic system would collapse if we were forced to use gold, silver, copper, and bronze tokens as money because there are now too many people in the world to spread around whatever gold, silver, copper, and bronze is left to make a global economic system efficient enough to move goods and sell services.

In this day and age, you could let gold and silver act as currencies which can instantaneously be redeemed via debit card. As for there not being enough metal....there's no problem the right price won't solve. That is all...

Simchaland, OMG...everything would adjust, like water seeking its own level. It's people manipulating a worthless currency, increasing the supply, is the problem. Sound money is never THE problem.

In Utah they're talking about letting people pay their taxes with gold.

Nobody's suggesting that paper dollars are useless as a means for transacting -- I think the suggestion is that it's a tenuous place to park your savings. If the currency is debased through QE and other volatile fiscal measures, the buying power of the dollar will diminish accordingly. So, while you can still pay your bills with paper dollars, it will require more dollars to afford the same (or less) of that good/service, thereby making the dollar less attractive/useful as a store of wealth.

As for the broader implications of fiat currencies over the long term, David Stockman makes some excellent points starting at about 14:00 on this video. No matter how you feel about this subject, it's good food for thought:

http://www.youtube.com/watch?annotation_id=annotation_478159&v=Lq9NwyQSzhk&feature=iv

Except for a modest reserve, all my money goes in to various free-market investment vehicles: stocks, bonds, and real estate.

Unfortunately, 'free-market' in the present-day context is something of a misnomer. Thanks to things like bubblenomics, regulatory capture, the increasing confluence of corporate/banking interests and policymakers and other more abstruse trickle-up apparatus, the playing field more resembles a minefield where all the goal posts move in favor of the big players. Think Wonderland croquet.

Gold: highly unimaginative.

Gold and silver critics, listen up.

Clearly demonstrate to us where the money is going to come from to bailout the states that are bankrupt. Show us where the jobs are going to come from to create economic growth. Show us where the tax revenue is going to come from, when housing prices keep dropping and foreclosures keep climbing. Show us how the US taxpayer is going to pay for the coming $40+ trillion dollar shortfall over the next 40 years for social services. Show us how high taxes stimulates the US dollar.

Show us how the central banks of China, Russia and India that are now buying gold and silver are wrong. Russia and China also recently agreed to price trade deals in their sovereign currencies, not dollars.

We want facts and not smarmy insultive critiques. You have lost your credibility because all you do here is attack (and skew and twist and distort and distract) fact-supported opinions, rather than support your own in any tangible fashion.

Lay down your facts now, or stop posting mindless critiques that waste our time here.

another gold commercial I bet.
With the high unemployment and dropping house price, I really don't see the hyper-inflation.

If smart and rich people see high inflation, they will buy land/house and hire people like crazy.
After all, these workers/sellers are stupid enough to accept worthless US dollars as a compensation.

xenogear3 says

another gold commercial I bet.
With the high unemployment and dropping house price, I really don’t see the hyper-inflation.
If smart and rich people see high inflation, they will buy land/house and hire people like crazy.
After all, these workers/sellers are stupid enough to accept worthless US dollars as a compensation.

And I wish the exact opposite and it will happen because I wish it were true.

Do you have ANY supporting data? Anything? Care to tell us where the money is going to come from, as I asked about in my post above?

Easier to critique the other side than it is to support your opposing view, isn't it?

For the record, gold and silver are, historically, good hedges in BOTH inflationary AND deflationary scenarios.

Again, please stop the smarmy comments.

Billy Jack says

Gold and silver critics, listen up.
Clearly demonstrate to us where the money is going to come from to bailout the states that are bankrupt. Show us where the jobs are going to come from to create economic growth. Show us where the tax revenue is going to come from, when housing prices keep dropping and foreclosures keep climbing. Show us how the US taxpayer is going to pay for the coming $40+ trillion dollar shortfall over the next 40 years for social services. Show us how high taxes stimulates the US dollar.
Show us how the central banks of China, Russia and India that are now buying gold and silver are wrong. Russia and China also recently agreed to price trade deals in their sovereign currencies, not dollars.
We want facts and not smarmy insultive critiques. You have lost your credibility because all you do here is attack (and skew and twist and distort and distract) fact-supported opinions, rather than support your own in any tangible fashion.
Lay down your facts now, or stop posting mindless critiques that waste our time here.

I'm not sure who you are having an imaginary argument with--I'll try to keep the smarminess down though.

My questions is--how does any of what you describe above translate into a reason to buy gold? Other than that's always how it's worked in the past...

tatupu70 says

Billy Jack says

Gold and silver critics, listen up.

Clearly demonstrate to us where the money is going to come from to bailout the states that are bankrupt. Show us where the jobs are going to come from to create economic growth. Show us where the tax revenue is going to come from, when housing prices keep dropping and foreclosures keep climbing. Show us how the US taxpayer is going to pay for the coming $40+ trillion dollar shortfall over the next 40 years for social services. Show us how high taxes stimulates the US dollar.

Show us how the central banks of China, Russia and India that are now buying gold and silver are wrong. Russia and China also recently agreed to price trade deals in their sovereign currencies, not dollars.

We want facts and not smarmy insultive critiques. You have lost your credibility because all you do here is attack (and skew and twist and distort and distract) fact-supported opinions, rather than support your own in any tangible fashion.

Lay down your facts now, or stop posting mindless critiques that waste our time here.

I’m not sure who you are having an imaginary argument with–I’ll try to keep the smarminess down though.
My questions is–how does any of what you describe above translate into a reason to buy gold? Other than that’s always how it’s worked in the past…

I'm in agreement with taputu. I'm just not seeing anyone show up at VONS/Ralphs and pay for their groceries with gold.

I'm not saying that arguments for gold are invalid. Some are reasonable, but I just don't see it being a new currency. Although who knows anything anymore, I live in an upscale neighborhood in LA County and people are buying up guns here for whatever the reason. Gold doesn't seem like such a far-fetched idea anymore.

This explains why the unemployment is so high.

These 10+% people don't want US dollars as compensation !!!!