Investment general discussion thread

In My Humble Opinion
261

My wife & I have already taken one step, some years ago: we moved to the UK.
Where at least for the moment we have the NHS. Growing our own food isn’t really practical, but we own our house outright and have always lived below our means.

Mind you, even in the Depression, the dollar never totally crashed: there wasn’t the hyperinflation that some other countries experienced. If that happened to the dollar, all bets are off, I think?
There is probably no survival scenario in that case?

The question is, where to put it? I would seriously like to hear thoughts on this.
There doesn’t seem to be any other currency which has the volume and scope of the dollar.
If the dollar collapsed, would British Pounds or Swiss francs (for example) hold up as viable currencies? I very much doubt it…

262

Also FWIW - it has fallen less than the equity indices.

263

Sure, it hasn’t fallen much, but it should be up given the economic uncertainty. My friend speculated that people are selling their gold to make up losses for other positions. I put a call on gold at $281 as I suspect we’ll get it back next week as people look for someone to put their money.

264

Gold fell during the 2008 crisis too. My financial advisor explained to me back then that many investors are highly leveraged and had to sell gold to cover for other losses.

265

That makes sense but honestly I don’t worry too much about understanding anymore. Looking for “sense” seems foolish at this point for my brain anyway.

266

Selling out to cover losses is like, say, I’m planning to use my truck to make money, helping people move stuff, and so I’ll earn an extra $50k on the weekends over the next year. Expecting that extra $50k earnings over the next year, I borrow $20k from the bank to build a cool home theater.

Unfortunately, my moving business doesn’t take off and I stop being able to afford my loan payments. I have to sell my truck, the sound system, the TV, etc.

I was gambling that I could earn more than I would spend, and now I have to buy myself out of a hole by selling assets.

267

And when you sell out of sheer need the buyers notice and put the price down even further. Margin calls are never welcome, I bet a lot are being made right now.

268

The other possible reason for gold losses are that gold is an inflation hedge.

The Fed can shrink inflation by sucking money out of the system. They raise the interest rate and, suddenly, dollar bills are being vacuumed out of the economy.

As well as the vacuum effect, if you (an entrepreneur, developer, or future-minded planner) can’t get an affordable loan for your “Big Plans” then you just end up sitting on that money. You don’t start that business, you don’t buy that land, you just park your down payment and wait for a clearer sky.

There’s two parts to how much money there is in the economy:

  • Physical dollars
  • Transaction count

Like, if there’s 1,000,000 dollar bills floating around then you could say that there’s $1m in the economy. But, if everyone’s just sitting on their money then no transactions are happening. If you total the sum of money spent and paid, it’s just $0.

But if there’s a single $1 in some alternate economy - just one physical piece of paper with “$1” printed on it - that’s being passed back and forth between two guys, over and over again, then yes there’s only that single physical dollar bill but…in terms of how we calculate taxes…it’s the sum total of the transactions that the dollar went through that matters. If Bill received the dollar 50,000 times and he needs to pay 20% of his revenue, then he needs to hand over $10k to the government. This despite there only being a single $1 bill in the whole economy and once you hand that to the government, how do you pay the other $9,999?

Economics gets weird.

But so, when people park their money, it’s like there’s just less money in the economy. It’s deflationary. Business owners need to lower prices to attract customers out of their instinct to just sit on the cash and tighten the belt.

As the Fed raises interest rates, it removes physical dollar bills and/or it reduces the desire to engage in transactions.

Gold is a hedge on inflation. Both of those activities are deflationary. Someone who doesn’t really understand more about gold than “gold good when economy scary” is liable to sell when there’s talks of anything deflationary.

269

Oh most definitely.

So how would gold actually perform when there with deflation?

They looked to silver during the Great Depression since gold was fixed but short version, it dropped less and bounced back faster than equities.

Another take comes to the same conclusion.

https://www.reuters.com/article/markets/commodities/gold-as-a-hedge-against-deflation-rhona-oconnell-idUSL6E8ID53N/

But really who the hell knows?

270

I mean, the idea of gold is that people want it, regardless of what the going value of legal tender is. If you can buy 100 apples with a small gold disc today then you’ll be able to do so tomorrow, whether the dollar has inflated, deflated, or been replaced by the renminbi.

Under that theory (true or not), you never lose by storing money in gold or other physical assets (land, cattle, trading cards, etc.). You don’t necessarily gain on your investments, but you never lose.

But, if you have dollars saved and the Fed starts to vacuum up all the dollars out of the system, whenever someone uses them - but you’re keeping your dollars still - then your dollars are gaining in value just by your inaction. You don’t even need to invest. Under deflation, holding money is better than holding gold.

Counterwise, if you have dollars saved up and the prices go down (the other style of deflation) because the business owners can’t find customers, then there’s still all those dollars sitting around ready to go. Hoarding them doesn’t really advantage you compared to others, since they’re also all hoarding them. The Fed didn’t vacuum their dollars away.

In the second case, your best agenda is to buy back in at the right moment. If you can use your saved dollars to buy back into the market at its most depressed, before the others all jump back in, then you’ll gain. But if you miss that moment, then you haven’t really gained nor lost anything.

That all said, I’m feeling a bit sleepy so I might need to come back and double check.

Inflation and deflation have meaningful variations, and things change with the specifics.

271

The true or not is key, although even under the true case it also matters if is the only over a longer time period but disconnected over more moderate ones.

Clearly it is not exactly true over shorter time periods. The graph demonstrates a clear lack of gold staying flat to inflation adjusted dollars. Overall it has out performed and sometimes underperformed. It’s run these last few year has been a dramatic over performance. Might continue. Might not.

Its disconnect from all of equities, bonds, and the dollar, may be its strongest function in a regularly rebalanced portfolio.

But knowing what it will do in deflation or inflation? I don’t really believe anyone knows. Even though some people claim to.

272

I have seen opinions that one reason gold & silver have declined in price is that DJT explicitly exempted them from the tariffs. Many people had assumed that after the tariffs were imposed there would be a precious metals shortage, which caused buying. Now that it appears there will not be a shortage, gold & silver are giving back some of the gains.

"The precious metals, along with steel, aluminum and many other industrial metals, won’t be subject to the Trump administration’s reciprocal tariffs, the White House confirmed.

The list of exemptions includes all base and precious metals, as well as other niche materials and industrial inputs. This means that the previously announced import tariffs on steel, aluminum and copper won’t be compounded by yesterday’s reciprocal blanket tariffs."

Interesting fact (that I have not seen publicized) is that the exemption also applies to other metals, e.g. aluminum and steel. So what happened to all the ranting about “Chinese steel?”

273

Interesting.

As far as

The already announced tariffs still apply. They just “won’t be compounded by yesterday’s reciprocal blanket tariffs”.

Of course China is going the withhold rare earth metals. I can imaging some other niche material input providers retaliating in the same way.

274

Bought a “test” amount of some VOO (S&P 500 fund) @ $465. It closed Wed at about $520.

I’ll reply to this post when it comes back to $520. That’ll be a roughly 10% gain.

Odds this is a zombie thread?

275

The S&P500 peak was 6147 in February.

How about some guesses?

How low will it get?

When will it get there?

How long to recover? (Never is an allowable guess.)

I’ve no confidence in my predictions at all! But that won’t stop me from guessing …

Last big drops were about 40% of market value, that would drop us to 3100ish. I’ll guess a bit worse than that: about 3000. And that bottom will take three to four months to hit. Then flat until midterms. Then recovery starts as a new Congress gives investors hope. But getting back to where we were will take three years maybe. Pick up steam as Trumpism is hopefully strongly rejected the next election.

Zero confidence prediction. Your turn!

276

It really depends on whether and by how much the President decides to keep tariffs. My expectation is that he’ll shrink things a bit from here but that, overall, they’ll stay far above what he had in recent history and that gives us the schedule. On the schedule, we expect several more drops, at about 6 month intervals.

But, if they’re rescinded quickly, because all the other nations of the world decided to agree with Donald Trump that it was unfair of them to have non-reciprocal tariff rates and so, for example, the full EU and China and Vietnam all put the US on their Most Favored Nation list, then the bottom would not be far from where we are now.

That said, there’s two ways to value the stock market. One is to look at the number you get if you add the total value (price times number of shares) of the all the stocks together. The other is to take the total value and evaluate it against the purchasing power.

The current administration could start pumping out checks, sent to every address of a citizen in the country, and drive the total price of the stock market wildly up, while the price of potatoes and real estate inflates even faster. The stock market could “crash” while the total value of all stocks climbs, if the dollar was driven to have a small enough purchasing power.

So when we ask where the bottom is, we need to ensure that we’re using a means of measurement that’s robust enough to have meaning through all possible craziness.

277

No idea. My “test” was de minimis; a fractional share. I would never invest in this climate because I’m no good at short-term stuff. Nobody is really.

I was going to be a good sport and make some guesses. I do like reading people’s reasoning, but I got nothing. I do think it will go down more, but I don’t think it will go that low and I think it will come back faster.

278

I really doubt that the tariffs will go away quickly even if Trump decides to rescind the ones he instituted. What I’ve read is that previous tariffs (Smoot-Hawley, for example) took decades to go away. I’ve also read that Republicans lost big-time in the elections following the imposition of tariffs, so there’s at least that to look forward to.

279

Even if trump tomorrow said the whole thing was just a mistake and he takes it all back, the world’s trust in the USA as a stable reliable business partner has already been destroyed for decades.

The appropriate counter reactions by foreign governments and by foreign businesses of all sorts to that trust destruction are coming. And are coming regardless of the trajectory of these or any future tariff nonsense. Those changes may well be the longer and more damaging legacy of this whole ignorant affair.

The only way to deal with a bucking bronco bully is to wall it off from civilized society.

Everything I just said applies equally in the realm of foreign policy, military and diplomatic affairs, etc.

280

Is that not yet the case, broadly speaking?

I cannot imagine trump admitting a mistake. I don’t think he ever did and he never will. That, and that he gets away with it is his superpower. How long he gets away with it will determine how low the stock exchange will fall. And that in turn will influence whether he keeps that superpower. Uncertainty all the way down.

I concur here too.

Everybody will be hurt. The wrong ones will win, perhaps, a bit, but it will be a pyrrhic victory.