For Peter Schiff

[MachineGhost]

If you're wrong for long enough, eventually people stop listening to you. It's a self-solving problem.

How'd that work out for Robert Prechter?  He's still in business!

[Libertarian666]

Who knows. Maybe he is right. But I wouldn't be able to sleep at night if I had half my portfolio in gold.

I wouldn't be able to sleep at night if I had that little of my portfolio in gold either.

[Ad Orientem]

Who knows. Maybe he is right. But I wouldn't be able to sleep at night if I had half my portfolio in gold.

I wouldn't be able to sleep at night if I had that little of my portfolio in gold either.

Good luck with that. You (and Schiff) may be right. In which case you will probably make a lot of money. Just be aware that if you have that much of your portfolio in a single asset class you are engaging in a highly speculative, and risky investment. If you are wrong you could get hammered. Remember the four cardinal rules of speculative investing...

1. Never speculate with money you can't afford to lose.
2. Never invest in anything you don't understand.
3. Never take money from retirement or PP funds to cover speculations that go south.
4. Never invest using margin or any other means that could expose you to more losses than what you originally dedicated to the speculation.

If you have half or more of your portfolio in gold I am assuming that you are either very wealthy and can afford huge losses without endangering your financial security, or you are violating rule #1.

[Pointedstick]

Least risky?

Physical gold has a few unique risks:
- Risk of theft
- Risk of loss/misplacement
- Counterfeit risk

...And many of the same risks as other investment options:
- High volatility
- Price subject to domestic interest rate policy
- Price subject to foreign market conditions
- Lack of income stream makes return 100% dependent on market conditions

Don't get me wrong, gold is great. I own a bunch. But I don't see it as some kind of super-safe risk-free savings vehicle. It's got its ups and downs like anything else.

[Ad Orientem]

I wouldn't be able to sleep at night if I had that little of my portfolio in gold either.

Good luck with that. You (and Schiff) may be right. In which case you will probably make a lot of money. Just be aware that if you have that much of your portfolio in a single asset class you are engaging in a highly speculative, and risky investment. If you are wrong you could get hammered. Remember the four cardinal rules of speculative investing...

1. Never speculate with money you can't afford to lose.
2. Never invest in anything you don't understand.
3. Never take money from retirement or PP funds to cover speculations that go south.
4. Never invest using margin or any other means that could expose you to more losses than what you originally dedicated to the speculation.

If you have half or more of your portfolio in gold I am assuming that you are either very wealthy and can afford huge losses without endangering your financial security, or you are violating rule #1.

Holding physical gold is the least risky position I can imagine, considering all the types of risk. Of course, nothing is absolutely riskless. However, holding any kind of equity or debt, including government debt, on the other hand, is highly risky along many dimensions, including inflation, confiscation, and outright fraud, so I avoid those to the greatest extent possible.

So to answer the four points:
1. Holding physical gold permanently is not speculation. It is savings.
2. I understand it much better than most people do, and more than almost anyone understands the other types of investments.
3. I do not take money from my PP for anything, other than at times when I have been unemployed or retired and was using it for monthly living expenses.
4. I never use margin or any kind of leverage for investing. The only debt I have is mortgage debt, which cannot result in a margin call and therefore cannot cause me to be sold out of an investment.

Re: Your #1
Gold is not savings unless you are residing in a country that is on the gold standard. Gold is cash. But it is cash in an extra-national currency. Since the United States uses fiat paper dollars (we can debate endlessly whether or not this is a good idea) for its money that means the value of gold can rise, or fall, sometimes dramatically, against the dollar. What you are engaging is is not savings. It's currency speculation. You are betting that gold will rise, or at least hold its value against the dollar. And to be sure you may be right. But you may also be wrong.

Gold has a long history of extreme volatility except during the relatively brief gold standard era. Again I'm not saying your speculation won't succeed. I'm just saying that if you are under the assumption that gold can't fall dramatically for a long period of time then you are mistaken. The history of gold is very similar to that of all asset classes. It has gone through both secular bull and bear markets that have lasted for many years.

[Libertarian666]

Re: Your #1
Gold is not savings unless you are residing in a country that is on the gold standard. Gold is cash. But it is cash in an extra-national currency. Since the United States uses fiat paper dollars (we can debate endlessly whether or not this is a good idea) for its money that means the value of gold can rise, or fall, sometimes dramatically, against the dollar. What you are engaging is is not savings. It's currency speculation. You are betting that gold will rise, or at least hold its value against the dollar. And to be sure you may be right. But you may also be wrong.

Gold has a long history of extreme volatility except during the relatively brief gold standard era. Again I'm not saying your speculation won't succeed. I'm just saying that if you are under the assumption that gold can't fall dramatically for a long period of time then you are mistaken. The history of gold is very similar to that of all asset classes. It has gone through both secular bull and bear markets that have lasted for many years.

So US dollars are not savings unless you live in the US? That's a novel idea.

And as for my assuming that gold can't fall dramatically for a long period of time, I don't make that assumption. It would be very odd if I did, since I have been holding it since the 1970's. My assumptions are these:
1. Gold will not become worthless and cannot be created at will.
2. Paper/electronic dollars and all other currencies become worthless and are being created in ever-increasing quantities by the Federal Reserve and other central banks.
3. There is no credible possibility that they will stop this until they destroy the value of those currencies.
4. The risk of holding anything that can be created in unlimited quantity is unacceptable.

Thus, the only money that has acceptable risk is gold.

[Pointedstick]

So US dollars are not savings unless you live in the US? That's a novel idea.

My definition is that you save in the currency you use for the majority of your expenses. If you pay your mortgage and buy food and gas in dollars, your dollar reserves are savings. If you pay your expenses in euros, then dollars are investment or currency speculation. What would be the point of "saving" with a currency you don't buy things with? Holding that currency due to the hope for an increase in its value against another currency would be the only other option, and that's investment or speculation, not saving.

[Ad Orientem]

Re: Your #1
Gold is not savings unless you are residing in a country that is on the gold standard. Gold is cash. But it is cash in an extra-national currency. Since the United States uses fiat paper dollars (we can debate endlessly whether or not this is a good idea) for its money that means the value of gold can rise, or fall, sometimes dramatically, against the dollar. What you are engaging is is not savings. It's currency speculation. You are betting that gold will rise, or at least hold its value against the dollar. And to be sure you may be right. But you may also be wrong.

Gold has a long history of extreme volatility except during the relatively brief gold standard era. Again I'm not saying your speculation won't succeed. I'm just saying that if you are under the assumption that gold can't fall dramatically for a long period of time then you are mistaken. The history of gold is very similar to that of all asset classes. It has gone through both secular bull and bear markets that have lasted for many years.

So US dollars are not savings unless you live in the US? That's a novel idea.

And as for my assuming that gold can't fall dramatically for a long period of time, I don't make that assumption. It would be very odd if I did, since I have been holding it since the 1970's. My assumptions are these:
1. Gold will not become worthless and cannot be created at will.
2. Paper/electronic dollars and all other currencies become worthless and are being created in ever-increasing quantities by the Federal Reserve and other central banks.
3. There is no credible possibility that they will stop this until they destroy the value of those currencies.
4. The risk of holding anything that can be created in unlimited quantity is unacceptable.

Thus, the only money that has acceptable risk is gold.

I second what Pointedstick wrote. Holding US Dollars if you live in a country where that is not the de jure or de facto currency is indeed a form of speculation since the dollar may rise or fall against that currency.

As for your four points, those sound like an interesting rational for a speculative investment. Just be aware that people have been predicting the end of the dollar and the collapse of fiat money since at least the 1970's and some as far back as the 1930's. But who knows. Maybe this time they will be right.

[Libertarian666]

So US dollars are not savings unless you live in the US? That's a novel idea.

My definition is that you save in the currency you use for the majority of your expenses. If you pay your mortgage and buy food and gas in dollars, your dollar reserves are savings. If you pay your expenses in euros, then dollars are investment or currency speculation. What would be the point of "saving" with a currency you don't buy things with? Holding that currency due to the hope for an increase in its value against another currency would be the only other option, and that's investment or speculation, not saving.

So if you lived in Argentina, the only savings you could have would have been in Argentine pesos, which are depreciating on a daily basis?

I guess you can define "savings" any way you want, but that is a pretty idiosyncratic definition. I would define "savings" as "liquid (highly marketable) assets that are held for future spending or investment".

[Ad Orientem]

So US dollars are not savings unless you live in the US? That's a novel idea.

My definition is that you save in the currency you use for the majority of your expenses. If you pay your mortgage and buy food and gas in dollars, your dollar reserves are savings. If you pay your expenses in euros, then dollars are investment or currency speculation. What would be the point of "saving" with a currency you don't buy things with? Holding that currency due to the hope for an increase in its value against another currency would be the only other option, and that's investment or speculation, not saving.

So if you lived in Argentina, the only savings you could have would have been in Argentine pesos, which are depreciating on a daily basis?

I guess you can define "savings" any way you want, but that is a pretty idiosyncratic definition. I would define "savings" as "liquid (highly marketable) assets that are held for future spending or investment".

Do you live in Argentina? The USD is not in any way comparable to the Argentine Peso. That said you do make a valid point. If you have the misfortune of living in a developing country with a history of currency crashes then you would want a substantial hedge against such an eventuality. In that case I would advise holding your PP in either the USD or another stable currency from a large economy.

[Libertarian666]

My definition is that you save in the currency you use for the majority of your expenses. If you pay your mortgage and buy food and gas in dollars, your dollar reserves are savings. If you pay your expenses in euros, then dollars are investment or currency speculation. What would be the point of "saving" with a currency you don't buy things with? Holding that currency due to the hope for an increase in its value against another currency would be the only other option, and that's investment or speculation, not saving.

So if you lived in Argentina, the only savings you could have would have been in Argentine pesos, which are depreciating on a daily basis?

I guess you can define "savings" any way you want, but that is a pretty idiosyncratic definition. I would define "savings" as "liquid (highly marketable) assets that are held for future spending or investment".

Do you live in Argentina? The USD is not in any way comparable to the Argentine Peso. That said you do make a valid point. If you have the misfortune of living in a developing country with a history of currency crashes then you would want a substantial hedge against such an eventuality. In that case I would advise holding your PP in either the USD or another stable currency from a large economy.

The USD is indeed comparable to the Argentine peso, in that both are irredeemable fiat currencies that are being printed with wild abandon.

So I keep my cash holdings in the only currency that can't be printed, and is used in the reserves of all major central banks for that exact reason.

[Pointedstick]

The USD is indeed comparable to the Argentine peso, in that both are irredeemable fiat currencies that are being printed with wild abandon.

Yes, that's why we've had such terrible inflation in the United States over the last decade or so. 

So I keep my cash holdings in the only currency that can't be printed, and is used in the reserves of all major central banks for that exact reason.

More power to you then, but I don't think I could stomach keeping short-to-medium-term funds parked in an asset as volatile as gold is. When I needed to buy something with that money, I might find that it had lost have its value against the fiat currency required to complete the purchase (as it did in the 80s and 90s).

[Libertarian666]

The USD is indeed comparable to the Argentine peso, in that both are irredeemable fiat currencies that are being printed with wild abandon.

Yes, that's why we've had such terrible inflation in the United States over the last decade or so. 

So I keep my cash holdings in the only currency that can't be printed, and is used in the reserves of all major central banks for that exact reason.

More power to you then, but I don't think I could stomach keeping short-to-medium-term funds parked in an asset as volatile as gold is. When I needed to buy something with that money, I might find that it had lost have its value against the fiat currency required to complete the purchase (as it did in the 80s and 90s).

Good point. I should clarify by saying I keep my long-term cash holdings in gold. I do have dollar accounts for my emergency fund and for transactional balances, and for foreseeable upcoming expenses denominated in dollars.

[moda0306]

2. I understand it much better than most people do, and more than almost anyone understands the other types of investments.

Are you sure about that?  One might assume that gold, as a non-deteriorating asset, is a very stable form of savings.  However, with the U.S. Government (and other major governments) sliding in and out of "taxing" and "subsidizing" dollar-denominated savings via negative/positive real rates of return from their risk-free asset environment, you are essentially owning a leveraged mirror image to the current state of that environment. 

So what you have is an asset that can go, in 2012 dollars, from $1,900 in 1980, to $330 in 2001.  That's a phenominal real loss.  It doesn't seem to be factored into your analysis.  Am I wrong?

[Libertarian666]

2. I understand it much better than most people do, and more than almost anyone understands the other types of investments.

Are you sure about that?  One might assume that gold, as a non-deteriorating asset, is a very stable form of savings.  However, with the U.S. Government (and other major governments) sliding in and out of "taxing" and "subsidizing" dollar-denominated savings via negative/positive real rates of return from their risk-free asset environment, you are essentially owning a leveraged mirror image to the current state of that environment. 

So what you have is an asset that can go, in 2012 dollars, from $1,900 in 1980, to $330 in 2001.  That's a phenominal real loss.  It doesn't seem to be factored into your analysis.  Am I wrong?

My analysis is that the US government is insolvent, as are most other developed countries' governments. I believe this will be widely recognized in the relatively near future (within 5 years or so). I suspect very strongly that HB would agree with me if he were here to witness the current unprecedented explosion of deficits and debt monetization, although of course I can't prove that.

Obviously, the result of recognizing the insolvency of major governments would be chaos in the markets, not excluding the foreign exchange and debt markets. Thus, I'm much more worried about holding paper issued by an obviously insolvent government than I am about holding gold, which should gain considerably in exchange value during such a period.

[Ad Orientem]

2. I understand it much better than most people do, and more than almost anyone understands the other types of investments.

Are you sure about that?  One might assume that gold, as a non-deteriorating asset, is a very stable form of savings.  However, with the U.S. Government (and other major governments) sliding in and out of "taxing" and "subsidizing" dollar-denominated savings via negative/positive real rates of return from their risk-free asset environment, you are essentially owning a leveraged mirror image to the current state of that environment. 

So what you have is an asset that can go, in 2012 dollars, from $1,900 in 1980, to $330 in 2001.  That's a phenominal real loss.  It doesn't seem to be factored into your analysis.  Am I wrong?

My analysis is that the US government is insolvent, as are most other developed countries' governments. I believe this will be widely recognized in the relatively near future (within 5 years or so). I suspect very strongly that HB would agree with me if he were here to witness the current unprecedented explosion of deficits and debt monetization, although of course I can't prove that.

Obviously, the result of recognizing the insolvency of major governments would be chaos in the markets, not excluding the foreign exchange and debt markets. Thus, I'm much more worried about holding paper issued by an obviously insolvent government than I am about holding gold, which should gain considerably in exchange value during such a period.

I am sorry but this is starting to sound silly. You are parroting the same line gold bugs have been spouting for 80 years. The United States is not insolvent. Its debt is denominated in a currency it controls (unlike Argentina). No nation in such a position goes broke unless it chooses to. Now we may reach a point where debt monetization sparks a nasty run of inflation. But that is light years from insolvency or hyperinflation. Hyperinflation is not a monetary phenomenon. It is a political one, being a symptom of a failed state.

There is no rational comparison between the United States and Argentina.

[Pointedstick]

Oh boy, here we go again. Somebody break out the Mosler Stick!

[Reub]

2. I understand it much better than most people do, and more than almost anyone understands the other types of investments.

Are you sure about that?  One might assume that gold, as a non-deteriorating asset, is a very stable form of savings.  However, with the U.S. Government (and other major governments) sliding in and out of "taxing" and "subsidizing" dollar-denominated savings via negative/positive real rates of return from their risk-free asset environment, you are essentially owning a leveraged mirror image to the current state of that environment. 

So what you have is an asset that can go, in 2012 dollars, from $1,900 in 1980, to $330 in 2001.  That's a phenominal real loss.  It doesn't seem to be factored into your analysis.  Am I wrong?

My analysis is that the US government is insolvent, as are most other developed countries' governments. I believe this will be widely recognized in the relatively near future (within 5 years or so). I suspect very strongly that HB would agree with me if he were here to witness the current unprecedented explosion of deficits and debt monetization, although of course I can't prove that.

Obviously, the result of recognizing the insolvency of major governments would be chaos in the markets, not excluding the foreign exchange and debt markets. Thus, I'm much more worried about holding paper issued by an obviously insolvent government than I am about holding gold, which should gain considerably in exchange value during such a period.

Some would have you believe that a country that has 100 TRILLION dollars in liabilities with tepid growth and an aging population is a responsible, solvent country. Some also live near a river called denial.

[Pointedstick]

Some would have you believe that a country that has 100 TRILLION dollars in liabilities with tepid growth and an aging population is a responsible, solvent country. Some also live near a river called denial.

I don't think anybody would have you believe that. Monetary growth requires economic growth to prevent inflation. When the money supply grows too fast and economic growth is too slow (or the government purposely destroys productive economic resources), that's when bit problems happen. This hypothetical elderly country with bad economic growth would be in very deep doo-doo indeed.

[moda0306]

Would somebody Reub will respond to ask him where he got $100 Trillion in debt?  Does that include private debt then? 

What about private financial and non-financial assets?  What about our massive productive capacity?  Do those mean nothing?

[MachineGhost]

Some would have you believe that a country that has 100 TRILLION dollars in liabilities with tepid growth and an aging population is a responsible, solvent country. Some also live near a river called denial.

Japan is the canary in the coal mine.  It is denial to deny that Japan is not a third world banana republic.

[Reub]

Didn't I already tell you that I don't respond to your posts?

[moda0306]

Didn't I already tell you that I don't respond to your posts?

Yeah, that's why I asked someone else to ask you... for the purposes of advancing discussion beyond throwing out numbers out of nowhere but the most recent Austin Powers movie.  I figured you probably had a good point somewhere in there.

[Pointedstick]

What are we, fifth graders here?

[moda0306]

What are we, fifth graders here?

Sorry. Got caught up in a juvenile exchange.  I'll respect the wishes of those who don't want to answer my questions and just leave their posts to speak for themselves.