All That Glitters (J.D. Roth 2020 essay)

Discussion of the Gold portion of the Permanent Portfolio

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dualstow
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All That Glitters (J.D. Roth 2020 essay)

Post by dualstow » Sat Jan 21, 2023 4:08 pm

Mark recently linked to this piece as a way to ID which J.D. Roth we were talking about in another thread.

For what it’s worth, I think it’s an excellent essay. The bit about his father “investing” in gold when he could barely put food on the table struck a chord, especially. Not because my Dad is like that. No, he’s a stock investor. I just thought the essay made perfect sense. And after all the bad things the author had to say about gold, he still liked the Permanent Portfolio. Sounds right to me.

Whenever a friend asks me what I think of gold as investment, I always remember to include the advice that you don’t want to buy metal if you think you’re going to have to liquidate it anytime soon. (Duh. But, you’d be surprised). I guess cash is boring for those who are just getting started in investing. A few years ago, I finally got a friend into stocks and he went *all* in. Then he got married and bought a house, so guess what. He sold stocks when he didn’t want to. Not that much different from J.D. Roth’s father.

The excerpt from the other thread, including the link to the ‘All that glitters’ article:
Mark Leavy wrote:
Thu Jan 19, 2023 10:00 pm
dualstow wrote:
Thu Jan 19, 2023 7:22 pm
Smith1776 wrote:
Thu Jan 19, 2023 6:40 pm
My local public library in my new city has the best book on investing ever written in their catalogue. First I’ve seen!
AFB25C5F-CA12-47EA-AE4E-7602AA690799.jpeg
I just looked up JD Roth. Is it the JD Roth?
This is the JD Roth that wrote the forward.
Sam Bankman-Fried sentenced to 25 years
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Re: All That Glitters (J.D. Roth 2020 essay)

Post by seajay » Sun Jan 29, 2023 6:41 am

Pre 1930's and gold (silver) was cash/money. However savers would tend to lend that gold (money) to the state or banks (so banks in turn could lend out gold (money) to others). Safer than carrying around large amounts of gold, and you got more gold (money) in return. From the 1930's the US convinced others to use the dollar for international trade settlement, prior to that and London had cages for each country where gold bars were physically moved between those in reflection of trade surplus/deficits. As part of that the transition over to using dollars for trade the US promised to peg the dollar to gold. And that held right up to the late 1960's.

Thereafter gold/fiat-currency became disconnected. To lend gold to the state entailed having to sell gold into dollars and lend those dollars, and where at maturity there was no assurance that in total you'd even get back at least the same amount of gold as what you lent. The state and banks transitioned to where they no longer needed to borrow, and could instead print/spend or banks could just magic up debt to credit the borrowers account with. The problem there is that whilst gold can't be magically created/credited, dollars can.

For much of history gold and bonds were equivalent, the typical saver simply held bonds. From the late 1960's however and things changed. A reasonable choice for savers was to transition out of bonds and into a stock/gold barbell. US dollar fiat currency invested in stocks, alongside non-fiat gold currency.

Whilst that article looks at the intrinsic value of gold, better would have been to look at the intrinsic value of the dollar. When the state can just print/spend and devalue all other notes in circulation in so doing inflation might be considered as just another form of taxation. A barbell of two extremes, dollars fiat and gold non-fiat combine to a central bullet, similar to how a barbell of 1 and 20 year treasury bonds combine to a central 10 year treasury bullet. When those dollars are invested in stocks and since the late 1960's a 50/50 barbell of stock/gold has yielded comparable broad total return rewards as that of 100% stock.

The value of gold is that it is in-hand, no counter-party risk, doesn't have to be invested in order to offset dollar devaluation (inflation) and has the tendency that as/when stocks and bonds drop a lot, typically due to high inflation (arising out of lowering faith in fiat currency), so the price of gold tends to rise/spike. And vice-versa (when stocks do well, gold tends to lag/decline). But equally some years may see both stocks and gold down, bonds having done well. A reasonable choice might be to hold equal amounts of all three, and apply a bit of a Larry Portfolio type small cap value tilt for the stock holdings. Stocks often include elements of foreign earnings (currencies), bond domestic currency, gold non fiat currency, and three assets (stock/bond/commodity) asset diversity.
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Re: All That Glitters (J.D. Roth 2020 essay)

Post by dualstow » Sun Jan 29, 2023 2:07 pm

Interesting read. Oh, but that I could lend out a gold bar and get little sovereigns as interest.
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