2012/2013 Fiscal Cliff

[kv968]

why has this thread gone so askew? maybe because the gold naysayers are trying to poke a hole. i was once a nay sayer as well, i said no way, how can i spend $600 on that little coin as i watched it move to $800 then $1000, $1200 and upwards to $1900 to where we are now. back to the original topic, it has been nothing but a safe haven for me and it will continue to do so.

I'm not a naysayer nor am I goldbug. People should invest however they see fit.

And I'm sorry if this thread has gone askew but if someone mentions a way to make money that doesn't make sense to me, I'm going to ask about it. Maybe I'm missing something or maybe the other person is. Either way neither of us will know if it's not hashed out.

I'm not trying to "poke holes" in anything. Carpenter brought up a possible investment that to me with my experience doesn't make sense and I'm just trying to find out exactly what he means.

[97guns]

sorry, i may have used the wrong terminology. this is an excerpt from a fellow that went through a poland collaps, think it would serve well to the title of this thread



I grew up in Poland (moved to USA 20 years ago) and I was a kid when Solidarity overturned our government because they were basically bleeding people dry. What everyone is here describing as a total meltdown of a government was what I experienced growing up. I remember riots on the streets, empty shelves in the stores, people standing in lines for hours for food, hyperinflation taking people to poverty levels. I remember my parents standing in lines for hours with food rations in order to buy some food. That's when there was a delivery because most of the time there was nothing but empty shelves. We lived in Warsaw capital of Poland but thank god we had family in a little farm town. We drove there and were coming back with half a pig, eggs, milk whatever because we couldn't buy it in the city.

Growing up in this mess I started to notice many similarities that drove me to buying silver. I don’t think most people in US have any idea whats coming and I’m really surprised how oblivious and uninformed people really are. I guess some of the blame is on people but really I blame media for not doing its job which is to tell the truth.

When a country gets to the point where Egypt is right now with people on the streets, couple things take place. First is going to be the eye opener and the realization that fiat is going down faster then Titanic. People will buy PMs in order to preserve value on a massive scale. Every bullion bar, gold or silver coin, class ring, gold earring, tooth filling I don’t care what will be sold in the first few days. This demand and the fact that there is no supply because of riots and strikes will shut down most PM sellers as lines will be huge, no supply, people angry, broken windows …. see where I’m going here . At the same time food and other commodities are flying out of stores until they are completely empty. Now guess what this demand and failure of fiat is doing to the price of PMs and other commodities. Here is ladies and gentleman what you refer to as the moon, well maybe half of it anyway. PMs will double triple and quadruple in a very short period of time. I don’t think anyone can really tell you the exact gain because of all variables involved (I’m not big on guessing). This will also affect all other commodities as well. Here is one thing that I haven’t seen anyone else mention. At this point hyperinflation starts kicking in and our government cant fight the simple supply vs demand principle. Let me explain. Riots wont last long because someone will make some kind of a promise and you cant riot when you and your family is starving so you need to concentrate on your basic needs. People return to work but fiat is still tanking, stores are still empty and people still don’t wont to keep any fiat. Imagine a long line of people standing in freezing snow waiting for food and some farmer pulls up with a truck full of meat, eggs, milk etc. People jump to that truck and look at all that fresh food hmm hmmm yummy but guess what the price is now double whats in the store because clearly demand is much higher then supply. Farmer sells his stuff and leaves with huge profits now. Store owner sees that and next time he gets delivery he doubles his prices. Deadly circle develops quickly. Welcome to hyperinflation and its game over right there and then. It takes years if not decades to come out of that hole. This is by the way where you see PMs hit the other side of the moon as I mentioned earlier but at this point no matter how many zeros you add behind it doesn’t change the real value of it. Prices will rise for other commodities in direct relation so value doesn’t really change at this point.

My parents came over my house the other day and we were talking about PMs (I just ordered some gold and silver for them ) and they told me this anecdote back from around that time. Back then everyone used to joke that if you started saving for a car by the time you had that money you could only buy a bicycle with it because prices going up constantly. That’s hyperinflation for you.

Of course all this will make PMs shoot through the roof but what’s being a millionaire when you live in a country where you cant go to the store and buy milk and eggs. Also realize that at that point millionaire is not the same as rich because at this point ice cream cone is over $100. We wont get rich from this but it will help to survive this mess I hope we never get to this point but future is looking gloom from where I’m standing and from what I’ve been reading.

Needles to say I started noticing similarities and decided to invest in some silver and got few hundred ozs since. Still waiting for my last order, got it on the last dip at 27.50 but I bought at 30 as well and will continue.

Sorry didn’t mean to make it that long but that’s my story and that’s why I’m here and that’s why I’m buying PMs.

[Carpenter]

You haven't answered the question.

Here's what you posted previously:

So you are going to sell your current gold holdings for $1,658/ounce. You are going to put that money into a CD. In one year, you are going to buy back the gold at $1,668/ounce. You'll redeem the CD to pay for that transaction. In the process, you'll earn interest on the CD. Currently, 12-month CDs are yielding 1.1% tops.

Now if the price of gold goes up, you're in good shape. You will sell at $1,658 and rebuy at $1,668, will have earned a little bit of interest on your cash and if the price of gold is $1,700 or more, you'll make out there too.

BUT, what if next August the price of gold has dropped to $1,500? You'll have lost $158/ounce. The interest on the CD won't be nearly enough to make up for that loss.

I've answered the question, several times.


What if stocks go down more than the dividends they pay? At least you've earned the dividend.



Gold is up $36 today, do I look smart?
Gold could be down $50 on Tuesday, will I look like a chump?

But in one year, leasing would allow me to increase my gold holdings by 1.5 ounces.

That would be the point of leasing.

[kv968]

I've answered the question, several times.


What if stocks go down more than the dividends they pay? At least you've earned the dividend.



Gold is up $36 today, do I look smart?
Gold could be down $50 on Tuesday, will I look like a chump?

But in one year, leasing would allow me to increase my gold holdings by 1.5 ounces.

That would be the point of leasing.

Ok, we'll go the stock route. Unfortunately the dividend example you gave plays out quite a bit and some people see it the same way you seem to..."at least I got the dividend". That's not necessarily the right way to look at it.

Some get caught up in companies that produce a high dividend yield of say 10% and think that's great yet the stock price itself may fall 30% in the meantime. In which case they're losing money and sometimes don't even realize it since they're still getting a decent dividend. If it continues to pay that type of dividend and the stock doesn't fall any further they may make the money back in the long run but I'd say that's typically not the case especially if the stock really tanks. Of course if the stock price does come back then either they breakeven or make money depending on how high it goes.

The scenario I'm asking you about is what happens when the stock/"gold" price falls significantly and doesn't come back to the price you paid for it? For some reason it seems like you think you'd still be making money and I'd like to know how because I know on the stock side of that same scenario I wouldn't be.

Like with your gold leasing. You may increase your holdings by 1.5 ozs. but get the 1.5 ozs. at say $1600/oz. and it never reaches that level again you've lost money. Sure, you'll have more gold to lease the next time but if the capital losses you've incurred on the gold itself fall below the say 2% you're getting to lease it, you're losing money.

And back to your forward contract scenario...it wouldn't really matter if the price of gold was up $200 tomorrow or down $600 next week. If you entered into a forward contract with someone with an expiration of Aug 2013 (as per your previous example) all that would really matter is the price on the settlement date unless you could sell the contract on secondary market.

[Carpenter]

Once again...

Historical returns for the S&P average including the reinvestment of dividends over 40, and 60 year durations, were compared to historical returns for leased gold over the same 40, and 60 year durations.

That exercise was done here, in this thread, about four pages back.

The question was asked "how does one go about leasing gold?".

I outlined a mechanism by which one could participate.

I am not projecting gains from any investment strategy currently being practiced, about to be practiced, or ever may be practiced.

I have no way of knowing what gold will be worth tomorrow, next week, next month, or next year. None whatsoever.

The fact remains, however, that leased gold outperformed both the Dow, and the S&P by wide margins in both the 40, and 60 year durations.




Now that I have said that again, is there some function of the mechanism I've demonstrated that you still do not understand?

Or is the strategy, as I have outlined it, entirely possible to execute?

[kv968]

I'm starting with physical gold.

1)I sell gold at todays price. (currently $1658)

2)I invest the proceeds from the sale of gold in a 1 year time deposit.

3)I make an agreement to purchase gold at a given price in the future. (Aug 2013 currently $1668)

4)Convert the CD at maturity

5)Pay for delivery of the gold forward contract with the proceeds from the time deposit.

In the above example as long as the interest rate is above 3/4% a gain can be realised.

Yesterday, for a period of time, gold was in backwardation.

People who wish to earn a return on their gold, and retain the inflation hedge that gold offers can take advantage of something similar.

Private mints, refineries, depositories, and unallocated metal funds all take advantage of leasing.

I don't participate in leasing.
This was a mental exercise to illustrate the mechanics, and justify the gains I claimed were possible from gold leasing.

Gold forward contracts are between individuals, and require no initial outlay of cash.
They don't occur on an exchange, and are exempt from commission fees associated with futures contracts.
They are structured to suit individuals, and not subject to the restrictions of comex futures contracts.

Once again...

Historical returns for the S&P average including the reinvestment of dividends over 40, and 60 year durations, were compared to historical returns for leased gold over the same 40, and 60 year durations.

That exercise was done here, in this thread, about four pages back.

The question was asked "how does one go about leasing gold?".

I outlined a mechanism by which one could participate.

I am not projecting gains from any investment strategy currently being practiced, about to be practiced, or ever may be practiced.

I have no way of knowing what gold will be worth tomorrow, next week, next month, or next year. None whatsoever.

The fact remains, however, that leased gold outperformed both the Dow, and the S&P by wide margins in both the 40, and 60 year durations.




Now that I have said that again, is there some function of the mechanism I've demonstrated that you still do not understand?

Or is the strategy, as I have outlined it, entirely possible to execute?

There's not really a function of your mechanism that I don't think I understand. What I don't understand is why don't you take into consideration the fact that gold may be lower than the price your contractually responsible to buy it for therefore resulting in a loss?

Using your previous example and a 1-yr CD @ 1.1% (the best I could find):

Sold gold at $1658 and with one year of interest that's $1676.24. Honor the agreement of buying gold at $1668. Receive gold and make a $8.24 profit to boot.

What I keep asking about is what if gold is trading at $1500 at that time? You'd still be buying the gold at the predetermined price of $1668 but you could just go out on the market and buy it for $1500. What I can't understand is how you don't see that as a loss.

In the options world, which is pretty similar to futures in their basic structure, your $1668 "call" would expire worthless since no one would want to buy gold at that price when they can just buy it on the market for less. However in your case, you'd be obliged to buy it.

[Carpenter]

There's not really a function of your mechanism that I don't think I understand. What I don't understand is why don't you take into consideration the fact that gold may be lower than the price your contractually responsible to buy it for therefore resulting in a loss?

Using your previous example and a 1-yr CD @ 1.1% (the best I could find):

Sold gold at $1658 and with one year of interest that's $1676.24. Honor the agreement of buying gold at $1668. Receive gold and make a $8.24 profit to boot.

What I keep asking about is what if gold is trading at $1500 at that time? You'd still be buying the gold at the predetermined price of $1668 but you could just go out on the market and buy it for $1500. What I can't understand is how you don't see that as a loss.

In the options world, which is pretty similar to futures in their basic structure, your $1668 "call" would expire worthless since no one would want to buy gold at that price when they can just buy it on the market for less. However in your case, you'd be obliged to buy it.

What if a frog had wings?

Why do you belabor that which you have no way of knowing?
Because I have no way of knowing, I have resisted to retort, "What if gold goes up?"

It is enough for you to know, that I prefer to take my gains in ounces.
I will take that $8.25 x number of ounces, and count those gains as ounces in a forward contract.

I accept that most are unwilling to embrace that concept.

I am unwilling to risk the ounces I have accumulated by speculating with them in price movement.

This began as a comparison of the historical performance of leased gold, and the S&P.

What I can't understand is why you have failed to acknowledge the superior performance of gold.

[disneysteve]

What I can't understand is why you have failed to acknowledge the superior performance of gold.

That's a perfectly good question. I certainly haven't sat down and run numbers myself but I have seen charts suggesting that gold has outperformed stocks over the long run. I've also seen charts suggesting that stocks have outperformed gold over the long run. Clearly, it depends on how you massage the numbers.

Even if it is true that gold has outperformed stocks, what's the point? That you should put all of your money into gold? Under no circumstances, no matter what the return, would I agree with that. I also wouldn't agree that you should put all of your money into stocks. You should diversify: large company stocks, small company stocks, international stocks, growth stocks, value stocks, bonds, cash instruments, precious metals, commodities, real estate, etc. No matter how good the performance of one asset or one sector has been, it should only be one part of your portfolio.

By the way, I don't own any physical metal but I do invest in a gold fund (and it has done quite well in recent years as one would expect) but it is only one holding in our portfolio that also includes many other assets.

[kv968]

What if a frog had wings?

Why do you belabor that which you have no way of knowing?
Because I have no way of knowing, I have resisted to retort, "What if gold goes up?"

I know I keep bringing up the scenario in which gold goes down because it seems as if you don't realize there's a distinct possiblity that you can also lose money with your plan. Or maybe you do realize that but just don't care that you could be buying in at a loss but accumulating regardless and that's what confounds me.

I haven't brought up the fact that gold may well indeed go up since we both know that in such a case it would be a win and there would be no doubt that that was the right way to go at the time. Dealing with winners in your portfolio is the easy part, how to deal with loss and mitigating risk not as much so.

It is enough for you to know, that I prefer to take my gains in ounces.
I will take that $8.25 x number of ounces, and count those gains as ounces in a forward contract.

I accept that most are unwilling to embrace that concept.

I am unwilling to risk the ounces I have accumulated by speculating with them in price movement.

If accumulating gold, even at a possible loss, is your preference than I'm willing to embrace that concept. I don't think that's the way I'd personally go about it but if that's your preference than so be it.

This began as a comparison of the historical performance of leased gold, and the S&P.

What I can't understand is why you have failed to acknowledge the superior performance of gold.

This began as a comparison of the S&P and GOLD itself which you were happy to point out did quite well until dividends were factored in. Once it was shown that gold didn't do quite as well when that "minor technicality" was added in THEN it became about the S&P and gold leasing.

The big difference I see is I can buy one share of a stock, ETF, mutual fund, etc... and get my dividends reinvested. I'm quite sure I can't get the whole gold leasing plan going with an ounce. So to me the returns on gold leasing is pretty much purely hypotheical since it's not a practice available to the average Joe. If you find out otherwise please let us know. I mean buying the Chrylser Building in '97 probably would have been a good investment too had I had the money at the time.

And I'm not disparaging you for owning gold nor am I ignorant to the fact that gold has done well (particularily in the last 7 years or so). I just wouldn't want to hold a majority of my investments in it. If that's what you prefer, that's your decision and I wish you luck.

[Carpenter]

I know I keep bringing up the scenario in which gold goes down because it seems as if you don't realize there's a distinct possiblity that you can also lose money with your plan. Or maybe you do realize that but just don't care that you could be buying in at a loss but accumulating regardless and that's what confounds me.

I haven't brought up the fact that gold may well indeed go up since we both know that in such a case it would be a win and there would be no doubt that that was the right way to go at the time. Dealing with winners in your portfolio is the easy part, how to deal with loss and mitigating risk not as much so.



If accumulating gold, even at a possible loss, is your preference than I'm willing to embrace that concept. I don't think that's the way I'd personally go about it but if that's your preference than so be it.



This began as a comparison of the S&P and GOLD itself which you were happy to point out did quite well until dividends were factored in. Once it was shown that gold didn't do quite as well when that "minor technicality" was added in THEN it became about the S&P and gold leasing.

The big difference I see is I can buy one share of a stock, ETF, mutual fund, etc... and get my dividends reinvested. I'm quite sure I can't get the whole gold leasing plan going with an ounce. So to me the returns on gold leasing is pretty much purely hypotheical since it's not a practice available to the average Joe. If you find out otherwise please let us know. I mean buying the Chrylser Building in '97 probably would have been a good investment too had I had the money at the time.

And I'm not disparaging you for owning gold nor am I ignorant to the fact that gold has done well (particularily in the last 7 years or so). I just wouldn't want to hold a majority of my investments in it. If that's what you prefer, that's your decision and I wish you luck.

The likelihood that the average investor has earned the average touted for the S&P, is no less ludicrous than the gains I've demonstrated were possible for gold.

As far as your hypothetical purchase of the Chrysler Building, the only thing that kept you from doing so was an inability to recognise potential, and/or a lack of drive to accomplish that goal.

FINIS.

[disneysteve]

The likelihood that the average investor has earned the average touted for the S&P, is no less ludicrous than the gains I've demonstrated were possible for gold.

This is true for a variety of reasons. When we look at the "average annual return" that assumes that you put all of your money in at the beginning of the time period and left it in there for the entire period, not adding to it or subtracting from it. Who does that? I don't. Like most average investors, I put money in on a regular ongoing basis, month after month. So my return will never match the "average" return. It might be lower. It also might be higher.

Of course, the same is true for gold. Saying that you (or anyone) has beat the stock market because of the average annual return of gold over the past 40 years isn't true. It depends when you purchased your gold and what has happened since. If someone owns 10 ounces of gold that they bought 10 years ago, they've done great. If they've bought one ounce each year for the past 10 years, they've seen a lesser return. And if they bought 10 ounces last month, even less.

[kv968]

The likelihood that the average investor has earned the average touted for the S&P, is no less ludicrous than the gains I've demonstrated were possible for gold.

I agree, the average investor most likely didn't earn the average touted for the reasons Steve pointed out. Although I'm sure some have.

The gains you've demonstrated for holding gold outright aren't ludicrous if someone had bought it at the right time and held onto it. Just as if someone had held onto the S&P. However I think your idea of an average investor with a few ounces of gold leasing it to produce a "dividend"-like outcome is.

As far as your hypothetical purchase of the Chrysler Building, the only thing that kept you from doing so was an inability to recognise potential, and/or a lack of drive to accomplish that goal.

FINIS.

And you're right, I might not have recognized the possible potential and I may lack a bit of drive but I think the biggest deterrent to me was the $200+ million price tag

[elessar78]

Back to the actual topic of this "fiscal cliff".

What it is is several "events" that are scheduled to take place on or around New Year's day: Bush tax cuts expire, child tax credit is cut in half, investment, gift, and estate taxes will go up. On the other end of the equation, the Federal budget is in limbo and the most bi-partisan way to deal with this is to keep the tax cuts AND find less drastic ways to cut spending.

But in reality, you can't address Federal spending in a meaningful way without reducing defense spending. 66% of the Fed. budget is tied up in Social Security, Medicare/Medicaid, and Defense. BY LAW, Social Security and Medicare/Medicaid are what is called "Mandatory Spending"—so it can't really be touched unless they change the laws surrounding these.

Just like a household, the deficit (or household debt), needs to be tackled two-fold: increase income AND reduce spending. Just like in a household trying to get their financial ship in righted, it's probably going to be painful. This is the part that I don't get about the American electorate, they want a solution but want one that won't bother them too much. The country has lived high on the hog for decades, blame can go to both parties and the electorate at large, and now we gotta get things in order.