1. Given the current huge wave of money printing, what do you think is the best method of investing right now?
2. To me it seems that the best method is to be shorting on the dollar. What is your opinion of that?
3. What about gold or silver? Are these good investments? Why are they good? Is that because we expect the dollar to lose its status as reserve currency and be replaced by gold and silver? Are there other reasons to buy gold/silver as opposed to investing in the economy in general?
4. Now a more general question. If the Austrian school of economics is the only valid school, then I expect most Austrian economists to be very successful investors. Is that the case?
5. What special tools does Austrian economy give us for investment strategy that those who don't adhere to Austrian economy don't have? In other words what is the comparative advantage of Austrian investors as opposed to mainstream investors? What do they know that others don't, and how can they use this information for better investment?
Thanks.
1. non dollar stuff
2. sounds good, if you know about stuff like that
3. they are good because they retain their value in times of inflation and low interest rates, because people want gold exactly then.
dollar may lose its status one day, and maybe gold will replace it, but its not a sure thing by any means, so doesnt sound like reason to invest a lot in gold.
4. thats like saying if you know how to add and subtract you will be a great mathematician. Investing requires much more than that. wish I knew what.
but AE can save you from foolish mistakes
5. Realization that money printing = boom and inevitable bust, plus decline in value of the currency. And that any govt meddling in some area of economic life will make that area very expensive.
You can get a general answer to this last q by watching videos of Austrians discussing the economy and the market with non austrians on the stocks and financial tv shows. you will see the idiotic beliefs of the non austrians, and the austrians schooling them
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Interesting...the 3rd thread about this in less than 4 days. Although there wasn't much useful response in those, I recommend checking those out.
1.) ditto with dave
2.) The best method of overall investing is, as Jim Rogers says, to be a contrarian. Or, in Buffett's words: "Be fearful when others are greedy...but be greedy when others are fearful." Just because you're not long on the dollar doesn't mean you should be shorting it.
3.) Let's be clear. When people talk about "investing" in precious metals they are using more of a turn of phrase rather than an actual term. "Investing" literally means to actively purchase an asset or item with the hope that it will generate income or appreciate in value. (I personally go a step farther and say that an "investment" is strictly supposed to generate income...purchasing something based on anticipated appreciation is "speculation." Most people understand and use that term, but they also have no problem calling something bought on speculation an "investment". I prefer to make the distinction and at least always clarify "speculative investment.") Either way, this is different from "saving"...which is essentially just underconsumption.
Investopedia states: "In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price."
Typically, gold and silver are not purchased with the notion that they will appreciate in value. And they are certainly not purchased with the idea that they will generate some sort of income. They are purchased because they are a true money. They are a true store of value. Granted, the value of these metals may appreciate somewhat over time, as more and more people turn to use them as a store of value (or even as a currency), however this is not historically the case...and this is certainly not something most metal buyers are thinking when they move acquire it. They may think they are "making money" (aka "earning a return") when they see the price go up in terms of the dollars that they gave up to get the metal...but when the price of everything else goes up too, there really is no real return there. What they have done is effectively traded their devaluing fiat currency for a real store of value, and thereby effectively preserved their wealth. They have "saved"...not "invested."
So gold and silver are good stores of value...they are not necessarily good "investments". And while it is quite possible that gold could become the reserve currency (the world would be much better off), I highly doubt it. There are many powerful countries that would love to enjoy the same benefits the U.S. has over the last 65 years. So no, I don't think it is a good idea to buy the metals because they might become the reserve currency...it's a good idea to buy them because they are real money. There's no better way to save than with real money.
As far as why to buy precious metals as opposed to spending your money on something else, that's really up to you to decide. It literally is the same as asking "are there any reasons to save your money instead of investing it?" Of course. One of the main ones is your tolerance for risk. The other would be your ability to make sound investment choices. Obviously if one or both of those is quite low, you'd probably be more inclined to save rather than invest. That would mean buying gold and silver bullion.
4.) Again, I would be ditto with Dave. I forgot where it was that I read it (probably Lessons for the Young Economist), but I remember Bob Murphy saying something about how understanding economics won't necessarily make you rich, but being ignorant of it has a very strong chance of making you broke. I think a better analogy than the one about math would be something along the lines of saying it's like you should expect most mechanics who can build a car from scratch to be world class racecar drivers. Just because you understand how it works doesn't mean you necessarily know who to work it.
Milton Friedman stated it quite clearly here, when a girl asked him why K-Mart was doing so much better than Sears, to which he replied "If I knew that, I'd be in a different business." (You can't help but love that man.) But the point is, to be a good investor you have to have good business acumen. And to have that, you have to have at least some basic understanding of economics (at the very least, on a micro level.) But to be an economist you don't have to know a thing about business. (As most economists sadly prove every time they open their mouth). So while being a great business man will probably mean you have some basic economic understanding and decent investing potential, being an expert economist offers you almost no such guarantee.
Now, of course, as a good business man, the more and better you understand economics, the better of an investor you can be...especially over the long term, as guys like Schiff, Faber, and Rogers illustrate. But as an economist, to be a good investor...well, as Friedman said: "you'd have to be an expert in a way I'm not."
5.) In the broad sense, to put it generally, Austrians better understand how the world works. It isn't necessarily any particular tool or set of tools...it's more a superior methodology and theory. They have a more accurate way of viewing and interpreting the economy, and in that way, they are better able to understand what effects will occur as a result of certain actions. Specifically, Austrians understand that there is a capital structure at work in the economy...that goods don't just appear out of nowhere because there is a demand. Mainstream models just clump everything together into a "capital" category, whereas Austrians recognize that there is a very complex and sophisticated process by which raw materials are mined, refined, wholesaled, marketed, sold, and consumed. This has enormous implications on the way events and data are interpreted, forecasts are made, and how policies are regarded.
Bob Murphy actually gave a full talk on how only the Austrians understand interest rates. This again has huge implications on virtually every aspect of how the economy is understood and what cause and effect relationships are seen. This is closely related to the overall Austrian understanding of the money supply. Here's a great interview with Jeff Tucker and Frank Shostak in which the economist talks about how Austrian theory combined with an analysis of money supply make for an excellent forecasting model. Shostak has a pretty good record of saying things will happen and then getting to see those predictions come true relatively soon afterward.
So, I hope this helped at least somewhat. Check those top two links to the other threads, and feel free to ask any other questions. It's what the forum is here for.
commodities. in particular gold and silver. oil and natural gas are more risky.
it is risky because a bubble can go on for years, you cannot know when it is about to pop, and if you short too early you go bankrupt.
at this time gold is used as a store of value and as a substitute for liquidity even in the short term.
I don't know but jim rogers is doing pretty well.
they know it is better to stay away from stocks and government bonds.
1. Areable land, or mean's to produce food sustainably. I recommend Aquaponics. Once it's setup properly it's just a matter of seperating the livestock of fish to avoid lossing an enitre school to illness that might occur. Also a solar type setup to keep those pumps going, and spare pumps. The very fact that everyone need's to eat will put you ahead of the curve when no one can even afford a loaf of bread.
2. By shorting I must take it you mean to buy into asset's on the margin. I can not recommend this to anyone. I would suggest pulling what Fiat you have and investing in my reply to number 1.
3. I have been buying silver for 5 years now. I have started to sell it off to expedite any other odd's and end's I have to finish my answer for number 1, and to finish my stockpile of canned good's and defensive tool's. I have no intention of holding a large quantity of any PM when the dollar disappear's. I have every intention of trading food, and the knowledge of how to grow that food for employment though.
4. This is a reasonable assumption, if those said economist's or proponent's of the Austrian method are thinking clearly and have a sense of reality. Unfortunately, this is not the case for the vast majority of the people just now starting to get into it. Some of them still think that when the dollar fully collapses they will be able to buy "stuff" with some other source of fund's that they do not actively possess in sufficient quantity to last long enough for long term survival. One ounce of silver will buy you maybe a week's worth of food after the grocery stores get raided.
5. I would think that would be self-evident for anyone that has read up on the Austrian School. Understanding how to properly price good's for barter, and how to allocate Investment's that are wealth generating rather than growth generating would be a good start. Actually understanding that wealth is a function of prosperity, and not of growth would be a start. I would add that understanding a contract would be important as well to avoid entangling one's self in business that could end up robbing you of this said wealth.
I'll add another one.
6. Learn to stand on your own, without assitance. Only those that are able to mentally handle this key portion will have a chance of surviving and thriving in the real world when the artificial one of the Fiat comes crashing down. I may be approaching this from a different standpoint, but I have seen first hand what desperation does to people. Stand on your own, and for yourself first, then you can help other's. Otherwise you will be letting them tear everything you have done up to that point away from you.
I have no illusion's about the depravity of my fellow human's. When the chip's fall, and people start getting hungry, then we will see if anyone is listening to us. Until then, I will stick to what I know, which is that 90% of 300+ Million live in Urban sprawl area. Out of that 90%, maybe 10% have a clue on how to get food without resorting to theft. Even fewer of them have even set themselves up for that situation.
I think index tracker funds (tracking the major stock markets) and some funds which attempt to beat these indices have been underrated.
Correct me if I am wrong, but equities outperform other asset classes in the long run (if I recall correctly The Economist recently reported that £1 invested in the London Stock Exchange in 1900 would be worth £16,000 in 2000 if the dividends were re-invested, http://en.wikipedia.org/wiki/Equity_premium_puzzle). So if you are investing for the long run you should invest largely in equities. If you have a very small amount to invest (say £10,000), managing your own portfolio (i.e. investing directly in equities) will require very low diversification (owning 1 or 2 stocks), or very high charges if you own 10 or so. If you manage your own portfolio you can do it whimsically which is probably no better than throwing a dice. If you research seriously that takes a lot of time (probably better devoting to earning money) and probably a bit of money. Even if you do research the chances are professionals will beat you (they have better information and probably have a better idea of how to use it, lower charges, more time, trade all the time whereas you probably have a job or studies). If you really have an edge you could of course beat the market. But if you're edge is based on bets about monetary expansion and inflation, you may be better giving your money to Euro Pacific Capital (as Peter Schiff probably knows every you know and them some).
Markets may be not efficient but they certainly are unpredictable. A lot of Austrians, Post-Keynesians, Marxists and more mainstream types (certainly Shiller, probably Roubini but don't really know enough about him) called the crash, but they called the crash over a long period. I think most, if not all, of them called it over such a long time period that if they used it to inform investment decisions, they may have sold a long way below the peak, and we all know the stock markets have rallied over the last few years. You risk losing out on lots of rapid growth this way! So the main thing to do is be invested in equities for the long term. But perhaps you shouldn't restrict yourself to tracker funds. Some people do seem to be able to beat the market. I've had a lot of my money invested in Fidelity Sepcial Situations since I was 11 when my grandfather put some money in for me. Over 15 years it has outperformed the FTSE. So perhaps look for funds like this where the fund manager has a good track record.
What if there is hyperinflation? A lot of people expect high inflation in the future. Of course it would be better to hold gold rather than fiat currency in such circumstances. But wouldn't it be even better to have money invested in equities? If you think no, you would still have to deal with the timing problem I outline above. I think the one exception would be when you want the money soon, so don't want the volatility of equities. The only problem is that gold is also quite volatile.
FWIW, I totally disagree with Sam
Sam:A lot of Austrians, Post-Keynesians, Marxists and more mainstream types (certainly Shiller, probably Roubini but don't really know enough about him) called the crash, but they called the crash over a long period. I think most, if not all, of them called it over such a long time period that if they used it to inform investment decisions, they may have sold a long way below the peak, and we all know the stock markets have rallied over the last few years.
Do you have any evidence of this whatsoever, or is this some sort of "it's possible, and it's the way I see it happening, so that's the way it probably happened" kind of thing?
What if there is hyperinflation? A lot of people expect high inflation in the future. Of course it would be better to hold gold rather than fiat currency in such circumstances. But wouldn't it be even better to have money invested in equities?
Not if the companies you buy pay low to zero dividends and/or go bankrupt....or the inflation of the currency they are denominated in gets so high that your dividend payments are worthless for too long. What's wrong with foreign stocks?
NidStyles: When the chip's fall, and people start getting hungry, then we will see if anyone is listening to us. Until then, I will stick to what I know, which is that 90% of 300+ Million live in Urban sprawl area. Out of that 90%, maybe 10% have a clue on how to get food without resorting to theft. Even fewer of them have even set themselves up for that situation.
When the chip's fall, and people start getting hungry, then we will see if anyone is listening to us. Until then, I will stick to what I know, which is that 90% of 300+ Million live in Urban sprawl area. Out of that 90%, maybe 10% have a clue on how to get food without resorting to theft. Even fewer of them have even set themselves up for that situation.
What, in your estimate, would keep those hungry mobs away from your produce-filled fields?
Sam: A lot of Austrians, Post-Keynesians, Marxists and more mainstream types (certainly Shiller, probably Roubini but don't really know enough about him) called the crash, but they called the crash over a long period. I think most, if not all, of them called it over such a long time period that if they used it to inform investment decisions, they may have sold a long way below the peak, and we all know the stock markets have rallied over the last few years.
John James: Do you have any evidence of this whatsoever, or is this some sort of "it's possible, and it's the way I see it happening, so that's the way it probably happened" kind of thing?
I'm sorry that this sounded such a sweeping generalisation that you responded in this way. Let me first clarify what I said. I'm fairly sure it is accurate, but please let me know if it is not. First I think just about everyone who called the crash did so over a long period. Peter Schiff saw it coming a long time before hand but didn't know which years it would happen. Please tell me if anyone ever correctly predicted like this: "there will be a crash in 9 months." Or "Sell the Dow at 13,500, buy at 7,500." That is what I am doubting. The onus would be on someone else to prove this. Please give a reference if someone did. Secondly, a lot of people who called the crash (say a year or so before it happened) were saying as the Dow plummetted to 7,000 about rebounded to 8,000, stay away, this is a dead cat bounce like after 1929. So there does seem to be a difficulty of knowing when to get back in the market. I did not mean to say that therefore everyone who used some such strategy (of applying ABCT to get out the market before the crash) would have been outperformed by the market. After all, I don't what assets they went into. I suspect Schiff has done well (I am interested in what he has to say and book Crash Proof late last year out of interest and with the possibility of informing my investments). The point is you want to be in equities as they do best on average. So there probably wasn't anyone capable of using ABCT to time the market. Schiff didn't do this, he diversified from US equities to include foreign equities, mining equities and some gold. I just checked Crash Proof and he says own some physical gold, but beware the context: he's talking about someone with a reasonable portfolio of say $1m. If you've got a few thousand and you buy an ounce or two I'm not really sure you're following the spirit of Schiff's advice (he said have 30% in gold, or 10% if you're conservative. I don't think that implies 100% if you're poor).
Sam: What if there is hyperinflation? A lot of people expect high inflation in the future. Of course it would be better to hold gold rather than fiat currency in such circumstances. But wouldn't it be even better to have money invested in equities?
John James: Not if the companies you buy pay low to zero dividends and/or go bankrupt....or the inflation of the currency they are denominated in gets so high that your dividend payments are worthless for too long. What's wrong with foreign stocks?
They probably wouldn't pay dividends as the money would depreciate so quickly. They'd re-invest and the equities would grow even faster. You can arrange for dividends to be re-invested anyhow. "What's wrong with foreign stocks?" What an odd question! I'm arguing for a fairly passive investment style. I'd imagine more than half the investible assets of the world are outside the USA, so of course you should own more foreign stocks! What could I have possibly said to have made you think otherwise?
"FWIW, I totally disagree with Sam"
Why?
We have all seen the unbelievable size of the first 2 QEs, Obama's promise to keep the deficit at close to $2 trillion more every single year [anyhting less is killing 70,000 babies, etc], The Fed's buying 70% of the latest Treasuries with printed money, Bernanke's obsession with "fighting deflation", the low interest rates for a decade and no releif from them "until the economy stabilizes" [which can never happen with artificially low interest rates].
I'm convinced by those who argue that all those add up to high, if not hyper, inflation ahead for a good while. And who therefore argue that gettining out of the dollar should be top priority. I did not notice your post emphasizing this, leading me to think you are saying the US stock market is a good place to be now, if you but choose wisely.
Which is what I disagree with.
I also am convinced that we have inflation right now as we speak, and that is what is causing stocks to go up, not any sound improvement in business.
z1235: What, in your estimate, would keep those hungry mobs away from your produce-filled fields?
Being at least a gas tank away from major cities, away from refugee lines of drift, and the inverse square law are the best you can hope for. This quote from Survivalblog.com editor James Rawles is terrifying but true:
[When he says TEOTWAWKI he means The End Of The World As We Know It.]
Because of the urbanization of the U.S. population, if the entire eastern or western power grid goes down for more than a week, the cities will rapidly become unlivable. I foresee that there will be an almost unstoppable chain of events: Power -> water -> food distribution -> law and order -> arson fires -> full scale looting
In my lectures on survival topics I often mention that there is just a thin veneer of civilization on our society. What is underneath is not pretty, and it does take much to peel away that veneer. You take your average urbanite or suburbanite and get him excessively cold, wet, tired, hungry and/or thirsty and take away his television, beer, drugs, and other pacifiers, and you will soon see the savage within. It is like peeling the skin of an onion—remove a couple of layers and it gets very smelly. As a Christian, I attribute this to man’s inherently sinful nature. Here is a mental exercise: Put yourself in the mind set of Mr. Joe Sixpack, Suburbanite. (Visualize him in or near a big city near where you live.) He is unprepared. He has less than one week’s food on hand, he has a 12 gauge pump action shotgun that he hasn’t fired in years, and just half a tank of gas in his minivan and maybe a gallon or two in a can that he keeps on hand for his lawn mower. Then TEOTWAWKI hits. The power grid is down, his job is history, the toilet doesn't flush, and water no longer magically comes cascading from the tap. There are riots beginning in his city. The local service stations have run out of gas. The banks have closed. Now he is suddenly desperate. Where will he go? What will he do? Odds are, Joe will think: “I’ve gotta go find a vacation cabin somewhere, up in the mountains, where some rich dude only goes a few weeks out of each year.” So vacation destinations like Lake Tahoe, Lake Arrowhead, and Squaw Valley, California; Prescott and Sedona, Arizona; Hot Springs, Arkansas; Vail andSteamboat Springs, Colorado; and the other various rural ski, spa, Great Lakes, and coastal resort areas will get swarmed. Or, he will think: “I’ve got to go to where they grow food.” So places like the Imperial Valley, the Willamette Valley, and the Red River Valley will similarly get overrun. There will be so many desperate Joe Sixpacks arriving all at once that these areas will degenerate into free-fire zones. It will be an intensely ugly situation and will not be safe for anyone. In some places the locals may be so vastly outnumbered that they won’t survive. But some of the Joe Sixpacks will survive, and then the more ruthless among them will begin to fight amongst themselves for the few remaining resources. They will form ad hoc gangs of perhaps 6 to 30 people. Once the Golden Horde has been thinned (and honed to ferocity) and they’ve cleaned out an area, the thugs at the pinnacle of ruthlessness will comprise the most formidable rover packs imaginable. They will move on to an adjoining region, and then another. But the inverse sqaure law will work in your favor: Imagine that you take a jar of marbles turn it upside down on a wooden floor and then lift the jar suddenly upward. The marbles will spread out semi-randomly. But the farther from the mouth of the jar, the lighter the density of marbles. Hence, the rover packs will attenuate themselves into a huge rural expanse that is peopled with well-armed country folks. By the time the looters work their way out 150 miles from the big cities, they will be thinned out considerably. The rover pack is your primary threat in a total collapse, no matter how remote your retreat. Here are your potential adversaries: A squad to company size force (12 to 60 individuals), highly mobile, moderately well armed with a motley assortment of weapons and vehicles, and imbued with absolute ruthlessness. Be prepared.
The US stock market is around 30% of world stock market capitalisation, so a well-balanced portfolio could have that much in it. You should have a global perspective, so should be aiming to track global stock markets.
Fair enough, you should get out of the dollar if you think America is permanently doomed, but if you think America will not completely collapse, you are still left with the dilemma of when to get back in.
What timescale for you have in mind for inflation, and what would you consider high?
Also how badly have stocks done during periods of high inflation? (I don't know the answer, but I don't see why they would do terribly, even if they did badly for a while)
Finally, consider that there are multiple choices: US stocks versus gold is not the only one, you can also choose foreign stocks. These are probably better than gold. Also the dollar has been doing better than sterling and the euro and lots of writing in the English publications is holding up the US as the best investment. Remember, you are foreign to us (here in the UK)!
One thing everyone should be investing in is nickels, before the Mint debases them which will happen probably this year or next. According to Coinflation.com the 1946-2008 Nickel (with a 5 cent face value) had a base metal value of $0.0733 in February, 2011. That was 146.7% of its face value:
http://www.survivalblog.com/nickels.html