Author Topic: Precious Metals  (Read 20167 times)

vand

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Re: Precious Metals
« Reply #250 on: November 01, 2019, 03:35:00 AM »
Gold has a very long history of increasing purchasing power, roughly in line with economic expansion.  If you understand the nature of gold as money this makes complete sense; one of the definitions of good money is as a store of wealth. As real productivity and overall wealth increases then money itself becomes more valuable. That is to say for the same amout of real money you can now exchange it for more goods and services.  What other vehicle has there been, historically, to enable to the common man to save and transfer his wealth down through generations in, say feudal times, if not in real money?


Good Money Appreciates:

https://www.youtube.com/watch?v=GnCHmLsV6Ro
https://www.youtube.com/watch?v=l8_wqmsjrsY
https://www.youtube.com/watch?v=Lwnowt6p5O0


However, the fly in the ointment is its long cyclical nature and its volatility. Even the value of real money relative to other assets can change by a factor of multiples over the medium and longer terms.
« Last Edit: November 01, 2019, 03:41:37 AM by vand »

RWD

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Re: Precious Metals
« Reply #251 on: November 01, 2019, 07:06:18 AM »
Are there significant numbers of people who are actually trying to beat inflation in their investments in this day and age?
If you assume your investments will only match inflation you will need ~60x your annual expenses invested instead of 25x to retire early (without pensions/social security/etc.). For Mustachians saving 70% of their income that investment decision is the difference between working 26 years versus 8.5 years. For a mildly financially ambitious person saving 20% that is the difference between working 240 years versus 37 years.
The older generation has screwed the younger generation.  They have succeeded in pricing assets so high that future returns will be much lower.
The current PE ratio is 22.61. That corresponds to a 4.4% return. Or if you want to use the Shiller PE it's 30 which corresponds to 3.3%. Even if it isn't as good as the past (6-7%) it's still going to beat inflation which is the whole point we were discussing here. Saying "Are there significant numbers of people who are actually trying to beat inflation in their investments in this day and age?" is very different than "future returns will be much lower." Don't move the goalposts.
« Last Edit: November 01, 2019, 07:08:06 AM by RWD »

waltworks

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Re: Precious Metals
« Reply #252 on: November 01, 2019, 08:20:30 AM »
For crap's sake, stop reading Hussman. The prophets of doom have predicted 15 of the last 2 recessions...

In fact, if you're going to read anything, read this:
https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/

Here's the money quote if you don't want to bother: "If you are going to make investment mistakes, make sure you are biased towards optimism and not pessimism. Long-term thinking has been rewarded in the past and unless you think the world or innovation is coming to an end it should be rewarded in the future. As Winston Churchill once said, “I am an optimist.  It does not seem too much use being anything else.”

-W
« Last Edit: November 01, 2019, 08:23:29 AM by waltworks »

ChpBstrd

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Re: Precious Metals
« Reply #253 on: November 01, 2019, 09:50:43 AM »
Everyone’s doing their “research” in social media bubbles. In the Boglehead / MMM forums, one is advised to buy an aggressive allocation of index funds. Then you have YouTubers and bloggers promoting gold. Seeking Alpha promotes stock picking / timing. And in the margins of these sites/apps you see people selling annuities.

I wonder if one’s investment allocation is a factor of which forms of social media, and which influencers in particular, one finds entertaining?

It’s a terrifying thought.

Classical_Liberal

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Re: Precious Metals
« Reply #254 on: November 01, 2019, 01:06:02 PM »
I wonder if one’s investment allocation is a factor of which forms of social media, and which influencers in particular, one finds entertaining?

Chicken or egg. People look for confirmation bias.

waltworks

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Re: Precious Metals
« Reply #255 on: November 01, 2019, 01:51:28 PM »
IMO the bogleheads folks, in general, are just not entertained by money stuff (except by arguing about minutia of tax optimization and such).

In terms of your regular 'merican, assuming they invest at all, it's definitely tied to their age/social status/political leanings and what they are entertained by. Old and grouchy? The Fox anchors are on all those gold commercials! Young and hip? The e-trade baby is hilarious and my co-workers all like bitcoin and tesla! Unsure new parent? An Edward Jones door to door jackoff in a cheap suit will hold your hand and take your money.

Here in UT our preference is for faith and/or nutrition-based ponzi schemes. My blessed essential oils business has really taken off but I need a new round of funding - you and your friends and family can get in now and make a guaranteed 20%!

-W

nancyfrank232

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Re: Precious Metals
« Reply #256 on: November 01, 2019, 02:42:11 PM »
IMO the bogleheads folks, in general, are just not entertained by money stuff (except by arguing about minutia of tax optimization and such).

Soooo true

When I can’t sleep, I visit bogleheads

TomTX

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Re: Precious Metals
« Reply #257 on: November 01, 2019, 07:19:19 PM »
I think this explains why you are big proponent of gold and also why you will struggle to make your money grow. Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing.
As I stated a few days ago (in this thread), I only recently started buying precious metals (as in months ago), and I have years (over two decades by now) of experience with stocks and real estate.

You mention a 810 mortgage payment on a 42000 purchase. That would seem to correspond to a 5 or 6 year mortgage. Do they even have those (15 or 30 year is all I hear about)?

I remember hearing a local real estate professional speak to an investor audience saying that an investment property will cash flow if the monthly rent is at least 2% of the purchase price. People who listened to his advice generally missed the bottom in US housing around 2011 and 2012 because prices didn't go that low. His advice may have been applicable in a high interest era, but times change. In your example, the yearly rent is about half the purchase price of the property. Given that the mortgage number didn't make any sense, either, maybe you mistyped something?

You may have two decades of real estate experience, but it appears to be quite shallow.

Escrow is very common. Rolled into the mortgage payment. Thus the $810 monthly mortgage payment is probably PITI, not just PI. Your calculation appears to be just based on PI.

Monthly @ 2% of purchase price is darn high. Obviously very profitable if you can find it - Old school rule of thumb for likely cash flowing a property was just 1% - in a much higher interest rate time.

Radagast

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Re: Precious Metals
« Reply #258 on: November 01, 2019, 09:42:15 PM »
I think this explains why you are big proponent of gold and also why you will struggle to make your money grow. Real numbers: my house is a duplex for which the monthly rent is 1700, the mortgage is 810, and my share of the utilities and maintenance is 190, for $700/mo profit. I paid $42,000 for this. You do the math, feel free to neglect growth of principal. Well it turns out the entire economy is based on this type of thing.
As I stated a few days ago (in this thread), I only recently started buying precious metals (as in months ago), and I have years (over two decades by now) of experience with stocks and real estate.

You mention a 810 mortgage payment on a 42000 purchase. That would seem to correspond to a 5 or 6 year mortgage. Do they even have those (15 or 30 year is all I hear about)?

I remember hearing a local real estate professional speak to an investor audience saying that an investment property will cash flow if the monthly rent is at least 2% of the purchase price. People who listened to his advice generally missed the bottom in US housing around 2011 and 2012 because prices didn't go that low. His advice may have been applicable in a high interest era, but times change. In your example, the yearly rent is about half the purchase price of the property. Given that the mortgage number didn't make any sense, either, maybe you mistyped something?
PITI is $810. $42,000 was the down payment. It is cashflow positive and yet does not meet the 1% rule. However $8400 per year on a $42,000 initial investment is still a decent return that is far ahead of inflation. Although I tend to use $6,000 per year to account for my own time, still way ahead of inflation.

The 1% rule is what is commonly used around here. 2% has at best been rare and only in questionable places, and likely impossible now. You don't need a real estate professional to tell you what cash flow will be. You can use any online real estate site to get your estimated mortgage payment, add some maintenance and management fees, and then look at comparable rents.

Telecaster

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Re: Precious Metals
« Reply #259 on: November 02, 2019, 10:32:39 AM »
Since there have been many comments in these pages on long-term investment returns spanning multiple decades, I assume many readers here are familiar with the work of John Hussman (see hussmanfunds.com). He publishes a free monthly commentary (they are fairly repetitive, so once you read a few it's like having read them all). He's considered by many in the investment community to be the "smart money".  Based on historical evidence, he is currently projecting negative returns on a 10 year investment horizon, and that's in nominal terms, not real terms.

If you read Hussman, he certainly sounds like a smart guy.  He doesn't come across as a kook or conspiracy theorist or anything.  That said, he started his flagship
Strategic Growth Fund (HSGFX) right in the dot com melt down, so perfect time to start a bear/defensive portfolio.  We've been through a couple economic cycles since then, and the fund has a CAGR of -0.91% since Jan 2001.

You can play all the defense you want, but you've gotta score some point a long the way.  Had you invested in a nice index fund back then, your investment would have more than tripled.  Had you gone with Hussman, you'd be down 20%. 


Orthodox Investor

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Re: Precious Metals
« Reply #260 on: November 03, 2019, 06:52:32 PM »
PITI is $810. $42,000 was the down payment. It is cashflow positive and yet does not meet the 1% rule. However $8400 per year on a $42,000 initial investment is still a decent return that is far ahead of inflation. Although I tend to use $6,000 per year to account for my own time, still way ahead of inflation.
I didn't understand you in my previous reply, thinking the $42,000 was a purchase price. Generally, people who want to buy using a mortgage are forced to live near their job location, which is likely to be in an overpriced big city. If they already own a house with little or no debt, many of these individuals and families could sell their crappy house for a million and buy a large number of rental properties in a cheaper place. There are only very few who could actually pull this off before the  price differential disappears. Arguably, it's already happening, given that home prices have doubled or tripled in many places in a few short years. On the other hand, if you look at Hong Kong, you wonder why people are still hanging on to their million dollar apartments given that China will be able to legally turn the city into an Orweillian nightmare in 2047.

If you live near an Albertson's you can buy a dozen eggs for twelve cents this week and there are numerous other deals where you can buy groceries at extreme discounts. This happens as a result of a variety of factors, including price-insensitive buyers who use your tax money to purchase overpriced food items with their EBT (food stamps) cards (thereby giving supermarkets the flexibility to pursue a high-low pricing strategy, meaning they sell both overpriced and underpriced items). This type of thing has been going on for decades and for frugal shoppers makes it seem like we live in a deflationary world.

What the penny eggs at Albertson's and the $42,000 real estate opportunity have in common is that they seem too good to be true, yet they are real and pop up with enough regularity that it seems like one can rely on it. We get to buy stuff cheap thanks to an abundance of suckers who overpay and are subsidizing us. This takes us right back to the poker table because you only make money if there are enough suckers at the table who keep making dumb mistakes.

Mathematically, it is obvious that the only way you get richer is by making others get poorer. Given that the wealth in the world is mostly controlled by the top 1%, every time the value of conventional asset portfolios goes up for the bottom 95%, they are actually getting poorer. This is because the wealth gap keeps widening as asset values rise. I think the actual inflation rate in the world is the rate by which the combined value of all investment assets in the world increases. Since the ECB, SNB, and the Japanese Central Bank are already in the process of monetizing corporate bonds and stocks, and Yellen has already hinted at the possibility that the Fed may do so in the future, it's not unreasonable to consider all investment assets (other than derivative instruments) to be money good.

Radagast

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Re: Precious Metals
« Reply #261 on: November 03, 2019, 08:48:31 PM »
I didn't understand you in my previous reply, thinking the $42,000 was a purchase price.
Sorry I did phrase that poorly.

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Generally, people who want to buy using a mortgage are forced to live near their job location, which is likely to be in an overpriced big city. If they already own a house with little or no debt, many of these individuals and families could sell their crappy house for a million and buy a large number of rental properties in a cheaper place. There are only very few who could actually pull this off before the  price differential disappears.
I do not understand. Nearly no people are both willing and able to do that. What price differential?

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What the penny eggs at Albertson's and the $42,000 real estate opportunity have in common is that they seem too good to be true, yet they are real and pop up with enough regularity that it seems like one can rely on it. We get to buy stuff cheap thanks to an abundance of suckers who overpay and are subsidizing us. This takes us right back to the poker table because you only make money if there are enough suckers at the table who keep making dumb mistakes.
I just checked and that area has several multi family homes which if anything seem to be getting better rates of return than I get (I went by gut when I bought the house, having not discovered personal finance yet). It was not a one off opportunity and those types of deals exist in many parts of the US.

Different people have different objectives and time frames. I'm not a sucker if I pay $100 for a hotel or an Air BnB, I'm just a person who wants a decent place to crash and shower for a night. Now I am renting again, while still owning the house. I observe based on the high rent and overall cheapness that the owner is almost certainly making bank, but I'm not a sucker for choosing to rent here for a year or two. On my time frame it makes the most sense, and I joyously call someone else to fix the dishwasher. My tenants are not getting screwed by paying me, in fact they were pretty happy to be there instead of their previous digs. Eventually (I presume, probably with cause as I noticed one gets Vanguard statements) they will move onto bigger and better things.

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Mathematically, it is obvious that the only way you get richer is by making others get poorer.
False. This is the mistake in your thinking which causes all the others. If this was true then there would be no doubt that precious metals would be as reliable as anything else. But it is wrong. New wealth can be generated without making anybody poorer. As an example, I have done consulting work for the gold mining industry, who produce previously worthless microscopic gold from the ground and turn it into what you call wealth. Well, it turns out things beside gold have value too, in fact collectively the other things have a lot more value. Any time a new thing is created that people find more valuable than before, new wealth is created, and nobody needs to be harmed in the process (although I agree there are often externalities). That is the entire point of this forum.

RWD

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Re: Precious Metals
« Reply #262 on: November 03, 2019, 08:54:20 PM »
Mathematically, it is obvious that the only way you get richer is by making others get poorer.

Not only is this not obvious, it is actually wrong. Wealth is not a zero sum game.

maizeman

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Re: Precious Metals
« Reply #263 on: November 03, 2019, 08:54:46 PM »
Mathematically, it is obvious that the only way you get richer is by making others get poorer.
False. This is the mistake in your thinking which causes all the others. If this was true then there would be no doubt that precious metals would be as reliable as anything else. But it is wrong. New wealth can be generated without making anybody poorer. As an example, I have done consulting work for the gold mining industry, who produce previously worthless microscopic gold from the ground and turn it into what you call wealth. Well, it turns out things beside gold have value too, in fact collectively the other things have a lot more value. Any time a new thing is created that people find more valuable than before, new wealth is created, and nobody needs to be harmed in the process (although I agree there are often externalities). That is the entire point of this forum.

+1 to this point by Radagast. It's possible to grow the total pie of wealth, not only to take from someone else to give to yourself.

If wealth was constant, people would have have a much higher standard of living 400 years ago than today, as the same amount of wealth would be spread much more thinly across a much larger population.

js82

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Re: Precious Metals
« Reply #264 on: November 04, 2019, 07:28:29 PM »
Mathematically, it is obvious that the only way you get richer is by making others get poorer.

On paper, perhaps.  In practice, nonsense.

Most of the energy we use on our planet comes from the sun, either directly(solar energy) or indirectly(growing plants, hydroelectric power, technically even fossil fuels).  In the end, harnessing that energy to do work, be it by growing crops or generating electricity to do/make useful things, makes someone richer.  If done in the right way, it makes that person richer without generating negative externalities for others.

Furthermore, productivity/efficiency gains are a direct refutation of your assertion.