How to make $301% in six years with low volatility

[*T*]

Re: How to make $315% in six years with low volatility

1) The hedge funds have been issuing completely new money into the banking system.

2) The second problem, (the one no one is talking about), is that the governments' at the heart of the system here in the West, must have, I repeat, must have..... bought CDO's. Our governments are as deep in the mess as anyone.

3) That leads us to the fourth problem which we can see happening right in front of our eyes. In trying to prevent a complete collapse, the central banking system is trying to prevent the collapse of the new asset values back to normal values by replacing the valueless CDO's with new issued money in the old traditional sense. They are printing money on a scale never ever seen before.

1) Agreed - not just CDOs but swaps and derivatives in general can sometimes have huge principals with relatively little traditional cash changing hands.

2) Can anyone back up this assertion with some facts and examples? On a regional govt level it appears to be true, e.g. the beautifully timed
Banks Sell 'Toxic Waste' CDOs to Calpers
and some village in Norway I recall, but is it anything other than isolated cases?

3) Again, can we back this up by facts? It seems implied by gold, oil, agricultural commodities rising but e.g. the much touted $500bn ECB injection was mostly replacing expiring 'old' money, wasn't it? Some of it seems to be illusory; isn't the recent M3 increase due to replacing CP with bank debt for example?

I am ready to believe these assertions as they seem sensible and fit in with my thesis and the iTulip thesis but seeing some supporting evidence for 3) particularly would allow me to position with more conviction. Given the subject of the article, it's all about conviction.

[jimmygu3]

Re: How to make $315% in six years with low volatility

And my view is, again, that the media remains focussed on the past bubble(s) and doesn't participate in the new one until it's pretty well over. Isn't that why the smart money exits the bubble asset class when the story hits Page One?

I suppose one could believe that the media played a role inflating the housing bubble, to use the most recent experience. Perhaps the final blow-off stage of bubbles is aided by the media, but I think the housing bubble example was pretty well fully inflated about the time the cover stories finally started to appear in 2005.

You may be right that when the cover of Time magazine says "Widgets Can't Lose", it's time to sell your widgets. But there are usually thousands of smaller news items in the years and months leading up to that which add to the mania. Not to mention "Flip This House" and other TV shows that tell you you're an idiot for not jumping into the speculative pool.

I'd even go so far as to say that the tech/internet bubble put the 24hr financial news networks on the map. Before that, financial shows were 'boring'. When Yahoo is up 60 points in a day and people have pagers for new IPO releases, finance is more like Vegas. Now that's compelling TV!

Rockefeller got out of the market when he heard the shoe shine boys trading stock tips. I knew Florida real estate was cooked in '05 when my construction-worker nephew told me he was planning to buy pre-construction condos with zero down and then flip them before closing.

[Chris Coles]

Re: How to make $315% in six years with low volatility

Many years ago, to try and impress a good looking librarian, (girl, I might add), I picked out the largest book I could find to borrow. It turned out to be a very detailed treatise on Gold and the use of gold to cover the possibility of future financial difficulties. It was a very good read. (The librarian thought I was an idiot), but the book was well worth the effort.

It taught me to always believe that, when the chips are down, Gold is the final arbiter of wealth. The one place you can put your money and be certain that you cannot, repeat, cannot, ..... lose its value if everything else is losing value.

With regard to my assumptions above, I can only describe them as my instinctive thoughts. If I am wrong, then everything will pan out in a similar manner to all the other events this past 70 odd years. But this time, my instincts are screaming at me there are very real differences.

[GRG55]

Re: How to make $315% in six years with low volatility

Many years ago, to try and impress a good looking librarian, (girl, I might add), I picked out the largest book I could find to borrow. It turned out to be a very detailed treatise on Gold and the use of gold to cover the possibility of future financial difficulties. It was a very good read. (The librarian thought I was an idiot), but the book was well worth the effort...

I am quite sure that my wife also secretly thinks I am an idiot for believing in gold. But as long as I keep allocating some of the gold investment amount to buying her high carot jewelry in the Middle East gold souqs she seems happy to go along with it (for now)...

[EJ]

Re: How to make $315% in six years with low volatility

In response to a question on a previous post, you indicated that you were going to sell some of your gold holdings when it reached $850. Did you do so yesterday?

Good question. Two issues: 1) unless evidence presents itself that central banks can reverse course during this debt deflation, I still plan to diversify when gold nears its real $2,000 versus nominal $850 peak, and 2) into assets that I have not yet identified. We have developed a fair number of candidates, but nothing specific as yet; the Next Bubble needs to develop further.

I will add that as the price of gold (not to mention silver and platinum, which I also own) rise to the levels we see today, it's increasingly nerve wracking. These prices and rates of increase present major challenges to the financial system and exert political stresses on governments and central banks. Rising inflation from China to Russia is causing domestic political problems that cannot be tolerated forever.

The most important lesson we learned in 2001 was that governments should not be underestimated; the motive to cooperate to solve systemic problems is much greater than the motive to fight each other. No one who benefits from the system desires systemic failure and the regime change that follows. They may get it anyway, but taking long bets against the house has as many hazards as long bets with the house as the system goes through transition. I maintain that the only way "out" that I can see is for governments to create something new rather than try to fix what is broken directly, that is, rather than try to re-inflate deflating assets, move the game to a new asset arena that is both politically expedient and practicable.

A great wisdom in economics was offered by John Kenneth Galbraith in his later years, reflecting back on his own errors. In A Journey Through Economic Time (1994) he said, "It is my guiding confession that I believe the greatest error in economics is in seeing the economy as a stable, immutable structure." (We're fans of John Kenneth Galbraith here; I had a chance to meet him at my sister's commencement at Harvard. We interviewed his son James K Galbraith in 2006.)

The economy is always changing. It's not a building but an amoeba; estimating how it's shape will change is more art than science. So far we've done okay, but the coming years will be especially challenging as crisis intensifies. Change can happen very quickly, as it did in 1980.

[bill]

Re: How to make $315% in six years with low volatility

The feds objective will be to keep the water level in the tea pot just right, not to hot, not to cold, a nice moderate rate of inflation steam until the next bubble is formulated. The fed’s rapid response policy of not allowing deflation at the same time keeping inflation intact is not by accident. If deflation in a certain asset class becomes a concern, implement policy for a more gradual prolong deflation cycle as in real estate.
The focus for the next bubble will be energy technology, energy usage and infrastructure to deliver, $100.00 oil demands it and will be used in part as a political launching platform. The reports, analysis, justifications for such projects and politically positioning must be in place prior to launching such cycles. Keep an eye on companies like http://www.wgint.com/about_us/ as one example for detail bubble formulating policy.

[Jeff]

Re: How to make $315% in six years with low volatility

Wow. It just hit $865. How can I be so happy I bought a lot at $350, and pissed I didn't buy more at $600?

[Guest]

Re: How to make $315% in six years with low volatility

I'm confused. If the inflation adjusted high for gold (previously reached during somewhat similar times) is something like $2,000 and it's currently less than half that, given the current economic problems listed in your book and others like Peter Schiff's, why do you consider it nerve wracking to own gold above $850? Other than the short term blips down on some sort of "good news" that never lasts long, what could force gold down significantly below its current price?

As a complete amateur in all this, I can tell you that the dumb masses have no clue what is going on and eventually all this will come out in the media (I have watched a relative flood of information that mirror what's being said here and in the books in the last 6 months that I never saw before). When that happens, wouldn't they just pile into gold, much as they did tech stocks and real estate before it? I had been searching w/o success for something to invest in with some degree of confidence from about 2001 to last spring and only finally found it after reading your chapter on gold in the book.

Being personally connected through employment and/or stock ownership to companies like Tyco and Krispy Kreme, where they cook not only donuts but books, I can attest to the quote on the website here about investing as a non-insider. Knowing what I know about how business decisions are made at financial institutions, I have zero confidence in financial stocks. Trust me, they're run by mental 11 y/o's who haven't bothered to read the definition of "fiduciary duty".

I was always nervous holding stocks and index funds. It seemed that periodically the market would tank 20% or so and was so vulnerable to "bad news" in the world that you never knew what was going to happen, even if you made all the right calls technically. But with gold I just do not have that feeling. The very prescience of your book and others gives me confidence that I properly understand what is going to happen (a continuing spiral of govn't debt ultimately resulting in currency worth less and less).

I suppose if they find massive new gold deposits or a cheap and easy substitute for oil in the next year, it could go down a lot. But that's highly unlikely.

I guess my point is, where else are people going to go besides things like Gold? With real estate in oversupply, debt harder to get which further depresses it, an end to the debt fueled "boom", etc I don't see economies continuing to grow worldwide, but a realignment (recession) back to normal. So money put into stocks seems scarier to me at this point than gold.

Foreign utility stocks, maybe. But I don't see a bidding war for a German electric company consuming us like the real estate or tech booms.
What other risks are there to look out for?

[bart]

Re: How to make $315% in six years with low volatility

3) Again, can we back this up by facts? It seems implied by gold, oil, agricultural commodities rising but e.g. the much touted $500bn ECB injection was mostly replacing expiring 'old' money, wasn't it? Some of it seems to be illusory; isn't the recent M3 increase due to replacing CP with bank debt for example?

No. Neither CP nor bank debt is in M3.

The recent spike is due to large increases in Institutional Money Market inflows, Jumbo CD inflows and H.8 deposits (line 17 on the H.8 report).

[jk]

Re: How to make $315% in six years with low volatility

I'm confused. If the inflation adjusted high for gold (previously reached during somewhat similar times) is something like $2,000 and it's currently less than half that, given the current economic problems listed in your book and others like Peter Schiff's, why do you consider it nerve wracking to own gold above $850? Other than the short term blips down on some sort of "good news" that never lasts long, what could force gold down significantly below its current price?

As a complete amateur in all this, I can tell you that the dumb masses have no clue what is going on and eventually all this will come out in the media (I have watched a relative flood of information that mirror what's being said here and in the books in the last 6 months that I never saw before). When that happens, wouldn't they just pile into gold, much as they did tech stocks and real estate before it? I had been searching w/o success for something to invest in with some degree of confidence from about 2001 to last spring and only finally found it after reading your chapter on gold in the book.

Being personally connected through employment and/or stock ownership to companies like Tyco and Krispy Kreme, where they cook not only donuts but books, I can attest to the quote on the website here about investing as a non-insider. Knowing what I know about how business decisions are made at financial institutions, I have zero confidence in financial stocks. Trust me, they're run by mental 11 y/o's who haven't bothered to read the definition of "fiduciary duty".

I was always nervous holding stocks and index funds. It seemed that periodically the market would tank 20% or so and was so vulnerable to "bad news" in the world that you never knew what was going to happen, even if you made all the right calls technically. But with gold I just do not have that feeling. The very prescience of your book and others gives me confidence that I properly understand what is going to happen (a continuing spiral of govn't debt ultimately resulting in currency worth less and less).

I suppose if they find massive new gold deposits or a cheap and easy substitute for oil in the next year, it could go down a lot. But that's highly unlikely.

I guess my point is, where else are people going to go besides things like Gold? With real estate in oversupply, debt harder to get which further depresses it, an end to the debt fueled "boom", etc I don't see economies continuing to grow worldwide, but a realignment (recession) back to normal. So money put into stocks seems scarier to me at this point than gold.

Foreign utility stocks, maybe. But I don't see a bidding war for a German electric company consuming us like the real estate or tech booms.
What other risks are there to look out for?

the issue is for having the stomach to ride out the volatility. it's easy to be confidant when gold has been moving up steadily for the last several years [as pointed out by ej in the post starting this thread].

but if you look at the 1970's chart, for example, you'll see that at one point gold was cut in half. let's halve THAT- suppose gold drops to the low $600's? are you ready for that? is your confidance strong enough that you won't sell some or all of your position? this is the basis of the comment i made earlier in this thread, about the importance of position sizing.

richard russell likes to say that a bull market likes to shake off as many riders as possible on its way up. that's the effect of downside volatility forcing nervous selling, and also of people mistiming things when trying to outsmart the trend by trading - taking profits in the hope of re-purchasing positions after a sell off.

the next leg of the gold bull market, the second leg, will have more volatility. buy what you can live with during the downswings, and then hold on for dear life.

[bart]

Re: How to make $315% in six years with low volatility

Put away your calculators, money supply counters. It's all about politics. Always has been, and always will be. Don't bother looking at the money supply and inflation statistics; they are not going to be valid when you need them to be because governments cannot play the inflation game in full view.

Although your point about politics (from the root words poli meaning all, and tics meaning blood sucking pests of course) is very well taken, I respectfully disagree about money supply and inflation stats being invalid either now or in the future except under extraordinary conditions (like making it illegal to publish economic or monetary stats).


There are more than a few folk like John Williams who have much experience with divining the real facts about the CPI, money supply etc. through the curtain of BS from the BLS and others... and are publishing them broadly.


Then we have the whole concept of time lags that must be taken into account. If the Fed discontinued all the monetary aggregate reporting tomorrow, today's data would still be valid for 12-18 months since that's roughly the amount of time it takes for monetary changes to be reflected in most prices.

[c1ue]

Re: How to make $315% in six years with low volatility

Now we have a quite different problem to address, the hedge funds are still there doing their thing, leveraging away as fast as the central banks are trying to stem the depreciation by inflating the system.

Chris,

Do you have evidence that the hedge funds are still able to access the credit they previously had?

Who would be lending them this money?

If banks are facing solvency crises, I would think loans for leverage would be scrutinized much more than in the past - when the loans were probably not vetted at all.

[FRED]

Re: How to make $315% in six years with low volatility

The feds objective will be to keep the water level in the tea pot just right, not to hot, not to cold, a nice moderate rate of inflation steam until the next bubble is formulated. The fed’s rapid response policy of not allowing deflation at the same time keeping inflation intact is not by accident. If deflation in a certain asset class becomes a concern, implement policy for a more gradual prolong deflation cycle as in real estate.
The focus for the next bubble will be energy technology, energy usage and infrastructure to deliver, $100.00 oil demands it and will be used in part as a political launching platform. The reports, analysis, justifications for such projects and politically positioning must be in place prior to launching such cycles. Keep an eye on companies like http://www.wgint.com/about_us/ as one example for detail bubble formulating policy.

A most concise summation of iTulip Select investment thesis! Thanks for the all the heavy lifting, identifying legislation and companies as potential targets for Next Bubble investment.

[donalds]

Reflation beats down deflation?

If I understand things correctly, those who see inflation emphasize money creation, while those who see deflation emphasize credit destruction.

So, while we are experiencing credit/debt deflation, we are also experiencing money inflation. The former reflects the melting of shadow (fictitious capital) credit/debt creation (which has, at least up till now, been substituting for, and exceeding Fed money creation -- just as debt has long now been a substitute for decreasing or at least flat incomes): the deflating of assets as collateral; the later reflects the . . . inflating our way out of debt deflation by reflating deflating assets.

Doesn't the Fed reflating machine (buying Treasuries hand over fist) run the risk of fast eroding the value of the dollar, thus discouraging foreign CBs and private investors from buying Treasuries, leading to higher long term rates . . . canceling out any benefit from reduced Fed interest rate target levels. And doesn't Fed aggressively expanding monetary base risk leading to unneeded reserves piling up in the banking system, causing the Fed fund rate to dive?

Lost in the picture here, as far as I can tell, is the real economy of work and consumption. If a recession, as iTulip predicts, is just around the corner, then are we to expect that with declining consumer demand the Fed is expected to reflate deflating assets? If so, then I guess we'd have to expect renewed debt creation, that is, households falling further into debt as a result of inflating our way out of debt deflation. A paradox, indeed.

[c1ue]

Re: How to make $315% in six years with low volatility

I was always nervous holding stocks and index funds.

Stocks and index funds are a play on nominal growth plus monetary inflation.

Index funds are the low cost play, stocks are the "skill" sales pitch.

If there is a depression, though, this conventional wisdom will be exposed for the scam that it is.

However, if EJ/iTulip is right and there is a successful reflation, then index funds in the right sector will be successful.

Thus as with any choice, you must scrutinize both the macro- and the micro- strategy to arrive at something you can stand by.