Commodities bias?

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metametal's picture
metametal
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Posts: 25
Commodities bias?

While I feel very indebted to Chris for his overall analysis, particularly in his Crash Course book,  I find myself a bit uneasy about  what appears to verge on boosterism for precious metals on this site.  While the argument that gold and silver have a big upside in increasingly volatile markets seems strong, it also seems to me that Chris's articles tend  to understate the general risk of getting into potential commodity bubbles.  If you invest $10K in gold with the expectation that it may double in the near term, you also need a selling strategy for when to take the profits.  Otherwise, what's to keep said investor from going poof when the bubble bursts in the next massive sell-off?  Dr. Martenson does not seem to me to have adequately addressed  the downside risks for precious metals in a 2008-like or otherwise Black Swan event.  The price history chart for gold shows roughly a 25% drop in the months following the 2008 meltdown.  In a greater panic, the decline could be even more pronounced.  Is Chris discounting the need to defend against Black Swans?  Given his invaluable exposition of risk in The Crash Course, it's hard to imagine that he would.  The book describes a global debt bubble that could explode for any number of reasons and result in a crash of equities (not excluding commodities) whose scope we can scarcely imagine.  As investors in extraordinarily dangerous times as described in the book, don't we need to keep extreme possiblities constantly in mind?

Again, I would respectfully question advising investors to get into any commodities without also suggesting a selling strategy for extreme events.  If the advice is to hang onto all positions through the most desperate panics, this should be stated up front. 

For that matter, we probably also need a more detailed buying strategy taking the likelihood of extreme events into account.  Is it clear that now is the best time to buy into precious metals?  Why not wait for the next 2008-style meltdown (or worse) and buy near a bottom after all the herds have panicked?  If, as Chris's book suggests, we are in line for a systemic financial collapse, why advise anyone to join a herd before that crash scenario plays itself out?

Granted that we should all consider precious metals as strategic options in these increasingly volatile times. But like any other investment, we need to think about when to get in and when to plan to get out.  With every due respect for Chris great contributions, I wish he would expound a bit more on these points.

Travlin's picture
Travlin
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Joined: Apr 15 2010
Posts: 1322
Responses to prior post

[quote=dps]

Long, long ago, Chris had said he would consider trading in his gold for land at say 1oz per acre.  More recently, Chris has noted the possible value to be found in timber land.  It would take some digging to find the references, but you could find them here on the site with enough persistence.  ... dons

[/quote]

[quote=Travlin]

Metametal

Check this link http://www.peakprosperity.com/blog/financial-crisis-far-over/39379 05-12-2010

[quote=Chris]

Under what circumstances would I consider transitioning away from gold and silver as my preferred means of preserving my wealth? I would want to see four things:

  1. A return of my home country, the US, to fiscal surpluses.
  2. Real interest rates that are attractive. Right now I'd peg those at 5% on the short end and 8% on the long end, maybe higher.
  3. No more quantitative easing. Period. Monetary sanity is a must.
  4. Balance of trade returned to the global landscape.

[/quote]

I also remember him saying elsewhere to hold off on purchases if you already have a core position, as he expected what could be a last great buying opportunity by the fourth quarter, which he would alert us to. My memory is not exact but you can look it up if you want.

Travlin 

[/quote]

Metametal

You have raised legitimate questions. When you originally asked them in post 56 here http://www.peakprosperity.com/martensonreport/coming-rout?page=5#comments you received the two responses above. I understand that they only covered one of the issues you raised, and a new thread is warranted to get more information. I have included these so everyone is current on responses.

Please accept my belated welcome to the forums.

Travlin 

agitating prop's picture
agitating prop
Status: Platinum Member (Offline)
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Posts: 864
 The most important time to

 The most important time to hedge is when you absolutely 'know' what is going to happen, how things are going to play out. I had this argument with a friend who is a pure deflationist, who was hounding me about my stop-loss position in gold. I told him that I was hedged 40% Canadian dollars to 60% gold. He looked relieved for me. Then I asked him, as he's a yankee bucks bug, if he's hedging his firm beliefs....not so much. 

The internet is the contrarian's playground. The contrarians have been right more often than not, so if forced to choose?---- I'd go with Chris over Kudlow! But yeah...hedge those bets, ALWAYS. 

metametal's picture
metametal
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Joined: Jul 12 2011
Posts: 25
Chris's four-point criteria for moving out of gold

These seem all to be basic value criteria.  If so, Chris seems to be saying he plans to "stay the course" no matter how volatile the gold market gets unless or until these fundamentals change.  Laudable in theory, but can the investors he advises keep anything like that discipline?  If not, shouldn't they be warned up front?  Or are we all assumed to be pros here?

Travlin, thanks for your kind greetings.

Chris

 

Travlin's picture
Travlin
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Joined: Apr 15 2010
Posts: 1322
My perspective

Metametal

Here is my understanding, which may not be completely accurate.

Chris is not a Registered Investment Advisor, so he is limited in what he can say. Do not expect him to answer individual investment questions. He describes the big picture, with general observations we can apply to our specific circumstances. He also tells us what he is doing personally. That’s about as far as he is legally allowed to go. Considering his very critical remarks of federal regulators, the SEC would love to make an example of him for any violations.

I don’t remember Chris ever saying anything about selling PMs for short term trades or to avoid downturns. For this to be profitable your timing has to be right twice, when you sell and when you repurchase. Timing fluctuations is folly. Like many investors with long experience, I tried this in my early days and realized that if you have confidence in your position you are better off to hold it through fluctuations. If you are afraid to do that then why did you buy it in the first place? From what I remember Chris has always said buy more when appropriate, and hold until things change drastically per the guidelines I quoted. The point of PMs is that due to the corruption of our finances and markets they are the last refuge, and should recover from any large loss and probably rise handsomely. The price decline in 2008 was driven by a short term need to raise cash to cover other positions. Look at how PMs have risen since, especially compared to stocks.

A few weeks ago he suggested we hold off on purchases for now, as an exceptional low price opportunity may come by year-end, following a major rout in credit and / or stocks. Despite the chance of a major PM price decline, people with no precious metals were encouraged to establish a core position via dollar cost averaging, otherwise they risked getting left behind a breakout in price.

My memory is not always reliable. What you should do is read all of Chris’ articles since July of last year. Bear in mind that his analysis is adjusted for changing circumstances, but his major themes have been consistent for a long time. If you are an enrolled member you will have access to reports that give more detailed information about investing, which you seem to want. You can start with a monthly membership for $30 with access to previous reports, and decide if you want to continue. Personally, I find it a great investment.

Chris’ experience as a sophisticated investor is what lead him to develop the Crash Course. But remember that investing is just a part of the first E, and his focus now is on the implications of all three Es. He is not an investment guru trying to maximize his following by telling you exactly what to do. That is part of the reason I trust his thoughts on investing more than anyone else I have found. His big picture view gives him a unique perspective.

Travlin

metametal's picture
metametal
Status: Bronze Member (Offline)
Joined: Jul 12 2011
Posts: 25
Thanks!

Thanks, Travlin, for taking the time to explain this site in so such detail.  Much appreciated.

I'd be interested to see more opinions on the role of market timing in PM investing.  Agree absolutely that any attempt to time a market exactly is quixotic and ill-advised. On the other hand, when investing in volatile commodities (or any commodities in highly volatile times), some strategizing on when to buy and sell seems not unreasonable.  For instance, Chris's advice that you cited (i.e., to think about holding off on PM purchases until the end of 2011) seems like an example of reasonable timing right there.

I like this site's emphasis on the need to trust one's own (hopefully informed) view of the world.  My own view, which I believe accords with much of Chris's book, is to expect the extremely unexpected in the next two decades.  If you believe, as I do, that the buy-and-hold paradigm no longer makes any sense, then it seems to me some degree of timing in investment decisions becomes not only reasonable but inescapable.

PM as a buy-and-hold investment doesn't really make sense to me, since I believe that large PM bubbles will inflate and deflate multiple times over the next few decades, resulting in big winners and big losers depending on when they entered and left these markets.  If something really big and scary happens someday, as I believe it will, a lot of people who thought they were going to hold will bail out at a loss because they bought in too high.  But that's just my view.

Chris

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
CTFA

metametal,

The time to buy precious metals is when you are sick to your stomach about the thought of doing so and when you buy them, you ask yourself, what have I done!

The time to sell is when you think you're an absolute genius, the price is going to the moon, everyone and their uncle are buying and bragging about their phenomenal profits, there appears to be no end in sight as to how high it can go, and it's an absolute sure thing.

Other suggestions are: CHECK THE FRIENDLY ARCHIVES!!!  I know some (but not all) of the information you're interested in is there because I wrote some of it. 

earthwise's picture
earthwise
Status: Platinum Member (Offline)
Joined: Aug 10 2009
Posts: 848
ao wrote: metametal, The
ao wrote:

metametal,

The time to sell is when you think you're an absolute genius, the price is going to the moon, everyone and their uncle are buying and bragging about their phenomenal profits, there appears to be no end in sight as to how high it can go, and it's an absolute sure thing.

Thanks for answering a question that has long been on my mind but never got around to asking.

h2oBoy's picture
h2oBoy
Status: Bronze Member (Offline)
Joined: Jun 18 2009
Posts: 52
opinions on the role of market timing in PM investing

 As I have stated several times prior, I follow Chris' Crash Course recommendations, yet, when it comes to selecting miner stocks, and considering the large sum of $ i need to invest, I have to rely on professionals rather than myself. Leeb's Real World Investing has returned 150% (March 09 to April 11) from choices I've made from his list of companies. Recently, I came across another site that I've found even more interesting. http://www.smartknowledgeu.com/

Reading through their site caused me to add them to my subscriptions. Very heavy on research and timing, while adding a serious focus on PM and market manipulation, which Davos cautioned me about months ago.

I don't trust myself to pick the stocks or the timing, so for $800 to $1000 a year I feel much better about investing and have earned way more than the cost of these subscriptions.

These combined with keeping up on the writings of Chris, a number of other serious contributors on inflation, deflation and insolvency give all I feel I can get to make my decisions in these way uncertain times.

Why would the average investor do anything else?

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