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    Market Update: Overstimulated!

    Today's twin orgy of monetary & fiscal stimulus makes a market reckoning inevitable
    by Adam Taggart

    Friday, August 14, 2020, 12:01 PM

The melt-up discussed last week remains in full force, with the S&P 500 hitting a new intraday all-time high on Wednesday.

Just to make sure we’re all clear on this: stocks are back to their highest prices BEFORE the coronavirus pandemic exploded. Before Q2 GDP plummeted -33% in the US. Before 50+ million Americans lost their jobs.

Thanks to the $trillions shoved into the system by both central banks and national legislatures since April, “investors” now believe the markets are a 1-way ride to forever-increasing wealth.

As the chart below from the National Association of Active Investment Managers shows, financial advisory firms that manage client capital are more fully-invested in the markets than at any other time in the past several years:

NAAIM chart

So everyone in “all-in” on the belief that the markets are both fully backstopped and rising higher from here.

How realistic is this belief?

Michael Pento, this week’s Market Update video expert guest, thinks it’s willful delusion. History is crystal clear that disconnects like we have today between (over-inflated) asset prices and the underlying (contracting) economic reality always result in crisis — either a deflationary repricing, or a destruction of the purchasing power of the currency.

Michael shares the 20 financial and economic metrics on the dashboard of indicators he tracks to determine where we are in this story, and which outcome is looking most likely to happen when. This week’s interview is worth listening to for that list alone.

Not one to mince words, Pento believes this is the most treacherous time ever for investors — which means those blindly long the current melt-up will get slaughtered if indeed the risks he predicts play out. As always, we recommend working in partnership with an independent financial advisor who appreciates these risks, prioritizes preservation of your investment capital, and can help you chart the turbulent waters ahead when the reckoning arrives:

Anyone interested in scheduling a free consultation and portfolio review with Mike Preston and John Llodra and their team at New Harbor Financial can do so by clicking here.

And if you’re one of the many readers brand new to Peak Prosperity over the past few months, we strongly urge you get your financial situation in order in parallel with your ongoing physical coronavirus preparations.

We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.

But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.

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45 Comments

  • Fri, Aug 14, 2020 - 8:09pm

    #1
    MKI

    MKI

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    Another quality interview

    1. First, I want to say I appreciate these stock market discussions. Adam, you are a dang workaholic; I can't keep up! Great job bringing in SH guys, great way to provide a hard-to-find service, get good content, and help keep the blog alive.

    2. It's interesting to have open discussion about a frothy bull market from the POV of conservative professional investors. Clearly a rock and a hard place.

    3. One thing I would like to see discussed: select conservative blue-chips with high Bk value are not nosebleed based on the metrics like tech and are paying good dividends...so are not overly bubbly and could be considered to be an inflation hedge with careful stop losses.

    Quality interviewing again. Hope more folk comment. I may have a few more comments as I re-watch.

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  • Sat, Aug 15, 2020 - 8:02am

    #2

    Adam Taggart

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    How Overstimulated? THIS Overstimulated

    Stock market to GDP ratio

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  • Sat, Aug 15, 2020 - 10:28am

    MKI

    MKI

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    Stock/GDP since 1700 educational

    Stocks vs GDP show 4 distinct "shifts":

    1700-1850 at ~10

    1850-1950 at ~40

    1950-2000 at ~60

    2000-2020 at ~140

    Two points:

    Stocks are having more "value" over time, or GDP is a phooey metric. And if you've read GDP: A Brief But Affectionate History it's obvious that GDP is a fake metric (hell, it even includes government spending, which is meaningless and has grown massively in each period).

    But there is also no question that GDP (as it really is meant to be, not the faux metric) has went up many times since 1700 (we've invented electricity/planes/trains/autos/atom bomb/flew to the moon). The data and basic common sense implies all our technology growth has also lead to more demand for stocks (stocks are the vehicle that creates the tech); the ratio went from ~10 to ~140 over 300 years and is still rising.

    Now, the last 20 years has shown excessive and historic growth in the ratio. But since it has been rising in the past, and of course GDP is a joke metric, who knows why?

    Combine this reality with the fact that the term "stock market" in an era of no-dividend stocks a difficult metric to make sense of as well. Stocks like Amazon and IBM and Phillip Morris and Exxon are not the same thing at all (what do earnings from a non-dividend paying company that loses money mean anyway) yet all these stocks are lumped together and called the "stock market". That's like saying Atlantic salmon and a Big Mac belong in the same plate.

    So the ratio is a tough one to use to verify stocks are overpriced. I'm not saying they are not, either. I think it depends on the stock.

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  • Sat, Aug 15, 2020 - 6:33pm

    MillenialFalcon

    MillenialFalcon

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    MillenialFalcon said:

    Adam,

    You should try and get Michael Green of Logica Capital on.  He can explain how the move to passive investing by millennials and most people with 401k contributions is a structural change in the markets.

    Currently passive inflows into index funds account for than 100 percent of the net change in contributions to stock market. His research shows that fund managers for "target date funds" only hold 0.5 % cash at any given time. While most active managers hold around 5% cash. Changing from 5 percent cash to 0.5 percent cash (If everyone did it) will cause the market to go up 50x.  He has explained this phenomenon on other podcasts if people are interested.  401ks only offer about 10 choices in most cases and 3 or 4 of them are typically target date funds.

    More and more money is coming out of active and moving into passive.  And the passive is controlled by fewer and fewer players i.e. Vangaurd and Blackrock.

    The problem with passive target date funds are they only look at 2 variables. If you put money in and you are so many years old it buys x amount of stock and y amount of bonds.  Thats it.  They don't care about price or value.

    I think Michael Green thinks the system will blow up too.  But I think he would have a different opinion about if the markets are over valued and where we might be heading.

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  • Sat, Aug 15, 2020 - 7:35pm

    MKI

    MKI

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    Michael Green

    Thanks for bringing that up MF. Here's a link to Green's talk on your point. You are right; they don't care about price or value.

    IMO, this is an opportunity...dividend-paying stocks with real value (not the high-flying ones dominating index funds) may be actually under-priced, all other things equal, since the garbage is dominating the index. When the worm turns, and people flee to value, those rare value stocks could actually go up in a falling market (along with PM & oil, methinks) as the general market tanks. Do you think I'm crazy here?

     

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  • Sat, Aug 15, 2020 - 8:47pm

    #6
    Redneck Engineer

    Redneck Engineer

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    Passive Investing

    Michael Burry called the passive investing trend a bubble awhile ago.

    https://www.bloomberg.com/news/articles/2019-08-28/the-big-short-s-michael-burry-sees-a-bubble-in-passive-investing

    ”The bubble in passive investing through ETFs and index funds as well as the trend to very large size among asset managers has orphaned smaller value-type securities globally,”

    https://www.fool.co.uk/investing/2019/09/09/michael-burry-warns-of-passive-investing-bubble/

    “The worry is that the prices of these less-traded equities are being influenced by the billions of dollars flowing into them from funds. If passive investors suddenly sell their funds (including institutional investors and pension funds), the stocks linked to them will be badly affected and their prices rapidly decline. Many investors’ decisions are made by algorithms that will automatically sell stocks if they fall a certain percentage. There’s little to no human involvement. Stop losses are set at comparable levels so should some big event (US/China trade war, Brexit, a global crisis) cause a market decline, it could trigger a sell-off. Once large investors start selling, others will follow suit and the price will plummet.”

    Price discovery through the free market is premised on large numbers of investors independently judging the market, with market prices coming as the net result. But passive investing removes the assessment of stocks and companies. Instead, the higher-weighted companies receive even greater shares of marginal investments, since index funds are overwhelmingly cap weighted instead of equally weighted, further distorting market prices.

     

     

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  • Sat, Aug 15, 2020 - 9:57pm

    MillenialFalcon

    MillenialFalcon

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    Passive and Efficient Markets

    Redneck Engineer This statement - "Price discovery through the free market is premised on large numbers of investors independently judging the market, with market prices coming as the net result." is what Michael Green talks about when he discusses the assumption of efficient markets.

    The guys who invented passive investing also stated that it only works because there are "efficient markets."  What Michael Green argues is that when the only variables used are age combined with automatic contributions to 401k it = buy at any price.  Passive does not care about value/price.  Its an algorithm where putting in money = buy. Thats the only condition buy at any price.  So how can there be an efficient market if there is no consideration about price/value by the largest number of investors.

    Another aspect is passive keeps next to zero cash in its portfolio.  That alone has enormous implications.  Watch his stuff on youtube he shows the math where the whole stock market goes up 50x from where it is at today just by moving from active (5% cash on the sideline) t0 passive (0.5%).

    As for passive being a bubble - He also talks about laws that make 401k people use passive do to low fees.  Congress would literally have to pass new laws to change how HR Departments allocate 401k choices for employees.  There just aren't many options for people in these plans.  A bubble implies that it would blow up and stop at some point.  There just aren't any alternatives available so it seems highly unlikely.  Unless everyone goes into treasuries or money market funds.  Something like that.

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  • Mon, Aug 17, 2020 - 8:29am

    #8
    JWhite

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    Question re: alternatives to soft assets

    This was such a great talk!  Many excellent points, although quite sobering too….

    With respect to the expectation of market crashes (I assume this means globally?) and potential inflation (also global in terms of major fiat currencies?), are there other good options for hard assets outside of PMs and land?  What’s the thinking about diamonds and watches?  Although some people have preserved or made money with art and car collections, I don’t include art or cars here because unless one is in possession of Old Master pieces, these are speculative and one only finds out after the fact if they held their value, or if the artist or model fell out of favour in the meantime.

    I recently heard a wealth manager recommend diamonds in addition to gold as an inflation hedge.  It occurs to me that there could be advantages to holding some investments in the form of diamonds and/or watches if they are carefully selected, as they are not taxed by governments, cost little or nothing to maintain, the transfer of ownership doesn’t need to be registered in a central database, they don’t take up much space and are easily portable if the owner moves.  Over time, it does seem that there has continued to be a market for rare/quality diamonds and watches.

    Are there any thoughts on this?  Also, are there other assets that could be considered safe in terms of wealth preservation while diversifying outside of stocks, bonds and cash?

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  • Mon, Aug 17, 2020 - 9:01am

    MKI

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    alternatives to soft assets

    Markets for rare/quality diamonds/watches. Any thoughts? Other assets?

    Diamonds have no longevity like PM does plus have assessing issues; the demand is fairly recent and fully artificial via advertising/cartel. But gold rings are excellent, since they can't easily be regulated like bullion is. Their problem is they don't have immediate valuation like bullion and are less practical to store.

    To me, this debate has a clear answer: gold bullion: practical size-wise, international, historic, and can be quickly assessed "on the street". The only problem is that because it's historic, it is also taxed and may well be outlawed at any time in any area (as it recently was in the USA). As a backup to the legal issues, gold rings can be kept, so I like both.

    Every replacement has drawbacks too, so IMO gold bullion or rings is still the best choice.

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  • Mon, Aug 17, 2020 - 9:02am

    trbickle

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    Diamonds

    I had recently thought about diamonds as well and noticed the Perth Mint was selling loose diamonds in an assay card similar to gold, but then I also found out they're actually growing diamonds in labs these days and even De Beers is on board so that put me off of that, though I agree it is interesting to look at alternatives.   I read about a lady who bought a regular new Mustang a few years ago, drove it a month, and then sold for a nice gain.  Lots of costs to think about, but still a good exercise in my opinion.  Watches is also viable, and even Hermes bags, but it's a whole world I'd have to learn about.  Interesting ideas.

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  • Mon, Aug 17, 2020 - 9:10am

    #11
    Island girl

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    Forbes article on the debt

    78 trillion by 2028?

    https://www.forbes.com/sites/mikepatton/2020/08/14/national-debt-to-surpass-78-trillion-by-2028-what-it-means-for-americans/#510f6d775ddf

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  • Mon, Aug 17, 2020 - 9:41am

    #12
    wotthecurtains

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    Diamonds

    One thing to keep in mind about Diamonds is they are not fungible the way gold is.

     

    So if the Elizabeth Taylor diamond is a certain size and has a certain value, your diamond that is 1/100th the size is not worth 1/100 of the bigger diamond.   Only the Elizabeth Taylor Diamond is that diamond and a lot of its value is tied up in that uniqueness.  This doesn't happen with Gold.  Your 10 ounces is really worth about 1/10th of some other guys 100 ounce bar and always will be unless there is some numismatic thing going on.

    The great thing about Gold is that the average joe really can buy the same kind of protection that the elites can buy.   Fine art, and thousands of acres of prime farm land or mineral deposits are out of reach for us little guys.

     

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  • Mon, Aug 17, 2020 - 10:19am

    DennisC

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    Not for Me

    I thought this article about synthetic diamonds and pricing was interesting:

    https://www.reuters.com/article/us-diamonds-debeers-synthetic-analysis-idUSKCN1OK0MQ

    Just like collector cars, signed baseballs, an historical armored tank collection, a 300 can collection of theme-inspired (and "collectable") beer cans, or "designer" bird plates; in the end, it's only worth what someone is willing to pay for it.  I'd rather stick with things that have less "up for discussion" potential (and are more fungible, as already mentioned).

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  • Mon, Aug 17, 2020 - 10:58am

    JWhite

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    Alternatives to soft assets

    Thanks for the thoughts.

    I should clarify that my question refers to natural diamonds, not lab created diamonds.  Coloured diamonds, which are more rare, has been specifically mentioned, and I read several months ago that the single mine which produced pink diamonds is now closed (or will be soon).  With respect to assessment of white stones, I would think that colourless and flawless, or internally flawless diamonds shouldn't be subject to major issues of assessment, if the cut of the stone(s) is excellent, and a GIA lab would be recommended, as they are the gold standard.  MKI - I assume this was what you meant - that different labs assess stones differently?

    Also, my general question as to alternatives is based on the assumption that one has already invested a sizeable amount or % in PMs and doesn't want to put all their 'eggs in one basket'.

    MKI - I wasn't aware the demand for diamonds was so recent.  I hadn't thought about gold rings (I suppose other fine gold jewellery like bracelets or necklaces could also be suitable, as they would simply get weighed and costed according to composition).  Out of curiosity, is there a reason you propose bullion over coins?

    I like gold a lot, although the risk of confiscation of gold coins & bullion (ie. registered ownership) could be a bit of a concern going forward.  In some areas (in Europe) silver is taxable, whereas gold is not as long as it is held for > 12 months.

    It would seem that gold is the most liquid and easiest to sell, but like diamonds, land can take time to get rid of.....

    Are there any thoughts on watches (ie. men's watches), or any other assets to diversify with?

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  • Mon, Aug 17, 2020 - 11:07am

    JWhite

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    Reply to Dennis

    Dennis - I wouldn't buy synthetic diamonds and would not recommend them as an investment.  Actually I wouldn't invest in any of the items you mentioned, as, like you said their future value is highly subjective 🙂

    Your comment also causes me to reflect that, like stocks, it is advisable to invest in things you understand and know something about....

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  • Mon, Aug 17, 2020 - 11:51am

    #16
    2retired

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    2retired said:

    The question I have is what asset is least subject to manipulation, and retention of value in times of flux. I remember a factory owner (not caucasian) from Zimbabwe in the early 80's grateful to get 10 cents on the dollar for his factory.

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  • Mon, Aug 17, 2020 - 3:08pm

    VTGothic

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    My alternative to PMs

    While I do have some PMs, I'm an even bigger fan of Bitcoin. It can be a wild ride, with all the volatility one should expect from a very young enterprise, so it's not for everyone, and no one should put the family's dinner money into it, but it is only going up over time (higher lows constantly) and it's still very early days. However, in any 4-year period, BTC has increased in value even if the time in-between saw significant roller coaster gyrations - and appreciated significantly more than stocks, bonds, or precious metals.

    That's due to its youth; because it's not yet a mature sector, it has asymmetrical upside potential, just like any new, young company. The risk : reward is significantly tilted toward reward. Even if you lost your investment, that's all you'd lose. If it's not dinner money, it's not the end of the world. So invest what you can afford to lose. Then watch for the upside growth. This is, at the least, a 100x opportunity.

    Best of all, you can access crypto from any computer anywhere in the world. That means no one can confiscate it at the border or in a midnight robbery, but you can always get to it. It will, however, take 3-5 days to turn some of it into cash - although there are credit/debit cards linked to custodied BTC, now, the same way there are now cards linked to custodied gold.

    Swanbitcoin.com lets people buy for as little as $10, on a recurring basis.

    Coinbase.com is one of the oldest and most reliable, "established" exchanges, although its fees are on the high side.

    Crypto.com lets people buy with credit cards, no fee through September, and provides both credit cards and loans tied to crypto held on account with them.

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  • Mon, Aug 17, 2020 - 4:07pm

    cindyb

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    cindyb said:

    If you're worried about moving wealth across borders, diamonds are a good choice. I once worked for a couple of Jewish fellows who moved their wealth out of south Africa that way. No judgement.

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  • Mon, Aug 17, 2020 - 4:42pm

    #19
    MKI

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    Alternatives to soft assets

    asset least subject to manipulation & retention of value in times of flux.

    Easy. Gold bullion. Liquid anywhere in the world in all times. Impossible to fake due to density. Easy to verify. Easy to hide. Imperishable. The only (potential) issues are 1) legal 2) gold fluctuates in price at times so you may need to sell at lower prices than desired (but it may go the other way too).

    I suppose other fine gold jewellery like bracelets or necklaces could also be suitable, as they would simply get weighed and costed according to composition.

    The problem is knowing the composition; no easy way to know. Rings, OTOH, are generally easy to guess and are usually stamped so they trade very easy. And it's unlikely they will be regulated IMO.

    Out of curiosity, is there a reason you propose bullion over coins?

    Yes. Bullion is created exactly for what we need: an international recognized coin that is easy to spot and prove validity. Other coins are not as well known; I won't buy them due to the liquidity issue so stick with Gold Eagles or Krugerrands, since they are the best known and most used (for Americans). Also, Eagles are technically US "currency" so fall into a special legal category. I like to have both, because who knows what the future legal landscape will look like.

    I strongly doubt gold will be made illegal in the future as it was in the USA, because it makes no sense to outlaw gold unless you are a creditor nation holding all the gold and pushing fiat (like we were back then). Now, we are a debtor nation and fiat is the norm. The bigger risk is our insane taxes on transactions. For this, it makes sense to build trading networks for your bullion so it never enters the systems. Family is best; older generations sell, younger one's buy.

    One thing I never forget: gold has no yield. I never hold more than 10% PM for this reason - I would rather hold real estate or own money-generating assets. I view assets as something that puts money in my pocket, and liabilities as something that takes it out. PM is neither, it's just insurance, so I never go above 10%.

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  • Mon, Aug 17, 2020 - 4:45pm

    ao

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    the problems with bitcoin

    I've enjoyed and learned from many of your posts, VT Gothic, but I have a different opinion about bitcoin.  We had considerable discussions about cryptocurrencies here before you joined on and while I can see their value as a short term trading instrument for a small portion of one's portfolio, I would not trust holding them long term.

    Your statement, " it is only going up over time" are famous last words in the annals of investing.  Furthermore, cryptocurrencies have been readily and easily confiscated by authorities both for tax reasons and for criminal actions.  In addition, the exponentially climbing energy demands involved in mining and maintaining BitCoin guarantee to make it unsustainable in the long run.  The fact that it is based on ephemeral electrons that can disappear at the drop of a hat (or an EMP) is another fact that would cause me to eschew them.  Furthermore, the addition and removal of BitCoin from a wallet is a noteworthy vulnerable link in the system.  And then there's the issue of a government instituting a sovereign digital currency and making all others illegal (and completely worthless) with the simple passing of a government edict.  I'll pass.

     

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  • Mon, Aug 17, 2020 - 4:48pm

    #21
    Mohammed Mast

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    Gold

    Yep you the wife and kids are gonna take that vacation to Thailand and bring about 20 grand in Gold with you. Okay

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  • Mon, Aug 17, 2020 - 4:49pm

    Mohammed Mast

    Mohammed Mast

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    Oh wait

    Nevermind Thailand won't let you in. Okay Let's go to Orlando then. The Magic Kingdom accepts gold

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  • Mon, Aug 17, 2020 - 5:31pm

    JWhite

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    Bitcoin

    VT – thanks for the suggestion and information.

    I was interested in buying BTC in summer of 2017 when it was ~ Euro 2500, but Somebody in my household was reluctant to jump on this new, unknown opportunity until one of his colleagues at work was talking about his Bitcoin holdings.  So, not wanting to be left out, he finally agreed, but by the time we bought it was late December 2017 and the price was well over Euro 12,000 per coin and……. you know the rest of the story 🙂  It has never come back to the point where we bought it.

    The original appeal as I understand it was p2p transactions that were separate from government and banking systems, in addition to being a digital currency with the benefits you mentioned.  But my impression is that some banks are involved now and some countries are creating their own cryptocurrencies, as is Facebook, so it seems there may be a trend toward regulating the cryptocurrencies, but I’m not sure.

    In addition to the sites you listed - if it is of interest to anyone, I used this website to find an exchange.  It lists some popular exchanges worldwide, in terms of website ease of use, trust score (important) and how you can pay.  Scroll half way down the page to get the chart:

    https://www.bestcryptoexchange.com/

    I haven’t looked at Bitcoin in a long time, but maybe it’s time to check it again.  I agree that you would only use money you can afford to lose, and you need thick skin to watch the volatility.  Some people have made a fortune with great timing, and some put a sum of money into it in the very early days and plan to leave it there for the future.  Thanks for the reminder about Bitcoin VT!

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  • Mon, Aug 17, 2020 - 6:22pm

    JWhite

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    Gold

    Thanks MKI - good points.  In addition to gold Eagles and Krugerrands, the Maple Leaf is the other coin with the highest purity and reputation (and is a negotiable instrument).  You made an interesting point about holding coins from more than one mint - hadn't thought of that.

    I tend to think of Bullion as gold bars rather than coins.

    Re: jewellery - that's a good plan to check that the gold rings are stamped with the carat composition.  I think all fine gold jewellery would have a stamp at the closure - my gold pieces do, so I imagine this is standard.  It's probably not as likely to be confiscated, taxed or regulated as gold coins or bars, I agree.  And I like your idea of keeping assets in the family - or at least out of the taxation system.

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  • Mon, Aug 17, 2020 - 6:51pm

    Mohammed Mast

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    Cryptos

    There is no LET ME REPEAT no investment that can compare to crypto currency. Bitcoin has gone from pennies to at this moment $12,351 in eleven years. Ethereum has gone from .35  to $433.48 at this moment. This happened in a 5 year period. People come up with all kinds of silly reasons not to join the revolution, from if the internet goes down to the cost of electricity, to solar flares. The truth is if any of those things happen the least of anyone's worries will be their crypto holdings.  The truth is around 95% of USD is nothing more than pixels on a screen. Not really much different than cryptos. We are an almost totally cashless society right now. As for the government the likelihood of it becoming illegal declines everyday. It is a technology. Owning a token is like owning a share of stock in a tech company. Ethereum is deployed all over the world in many different ways. Remember Jamie Dimon? Well guess who is big time into crypto? JP Morgan. The TOTAL market cap of all crypto is $384 billion. Anyone care to guess how much money HSBC, Wells Fargo, JP, Morgan, BOA and others have laundered? They have aided and abetted everybody from drug cartels, to human traffickers. The coin of the realm for criminal activities has been and still is the Ben Franklin. So when people talk about the illegal activity associated with crypto I get hysterical. The banksters are some of the biggest criminals on the planet. If the government chooses to shine a light on any crypto transaction they can find it. Every exchange in the US has to comply with AML and KYC regs.

    Bottom line every argument I have ever heard about crypto is a red herring. It is based on fear. Fear of the unknown mostly. You would think by this time on this site people would be smart enough to recognize what an incredible innovation is taking place.

    Be that as it may the real reason to get on the crypto train is you are serfs tied to a debt based monetary system. The real promise of crypto is as a democratically issued currency with no debt attached. It would seem like a no brainer that the libertarian minded folks here would run to embrace it. But shocker of all shockers everyone wants to own equities, everyone wants the latest stock advice. Well to each his own.

    One of my very first posts here was on the crypto discussion going on with Mark rees. At the time I suggested Tezos. I got no response. At the time of the ICO , which up till then was the largest ever, they were .36 each at this moment they are $4.14 each. That is they have gone up more than 10x in three years. If gold or silver had done that this site would not be the 3E's site it would be the PM site.

    You can now thanks to the innovation of DEFI earn interest on your crypto. You can earn anywhere from 3-12% compound interest .

    Okay I am done you can now return to your regularly scheduled programming.

     

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  • Mon, Aug 17, 2020 - 8:20pm

    ao

    ao

    Status: Platinum Member

    Joined: Feb 04 2009

    Posts: 1286

    tulips anyone?

    As I said Mohammed, I like many of your posts.  And yes, cryptos have had incredible returns.  Used judiciously as a trading instrument, they can make you a lot of money.  But my practical nature and yes, fear, I fully admit (a rational, well controlled fear by the way which has gotten me to a place where money is the least of my worries), keeps me from pulling the trigger on them.  Guess I've never been one to hop on trends and FOMO has never driven my actions.  If anything, Mark Rees tended to trigger my huckster alert alarms.  I couldn't help but be reminded of time share salesmen I've run into.  I may be inaccurate in my appraisal but that's just my honest impression and I've learned to trust my instincts.

    You mentioned Tezos going up more than 10x in 3 years.  Well so did rhodium and I caught a good part of that.  Furthermore, it was something I could hold in my hand and that no one else controlled.  I guess to each their own and one has to operate within their personal comfort zone.  The thing I'm investigating now is investing in physical metals such as iridium, ruthenium, scandium, etc. but I'm having difficulty locating supply sources near spot price so the research continues.

    By the way, you tossed out another acronym that I am ignorant of.  What is DEFI?

     

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  • Mon, Aug 17, 2020 - 8:23pm

    MKI

    MKI

    Status: Member

    Joined: Jan 12 2009

    Posts: 234

    2+

    Bullion coins

    the Maple Leaf is the other coin with the highest purity and reputation (and is a negotiable instrument).

    The problem with the ML is that it is too pure, so it won't hold up physically if it's traded around. Look at some old Kugs to see how much damage can happen, and those coins are robust while the ML is fragile. So many people won't use buy it. It's critical that the the coins are liquid, that is they are well known and well used by all. The ML does have fans for some reason (the "pure" part is just a sales gimmick), but many won't buy ML for the reasons given, so I won't own them either since what I seek the most is liquidity.

    To be clear, I prefer Eagles in every way except they are technically US currency makes them a legal unknown in the future legal landscape - probably a good trait, but could be bad, depending on the law and country being traded. So I diversify with 25% Kugs just as a backup because it's known everywhere and for longer. I stick with the best known and most liquid.

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  • Mon, Aug 17, 2020 - 9:34pm

    ao

    ao

    Status: Platinum Member

    Joined: Feb 04 2009

    Posts: 1286

    1+

    pros and cons

    I agree that the purity of the maple leaves makes them much more vulnerable to damage but even with less pure gold coins, they're rather vulnerable to damage.  But fortunately, gold coins aren't traded around much, especially in contemporary times.  For example, I've never touched mine with a bare finger.  To me, the biggest plus side of the maples leaves is the anti-counterfeiting engraving of the newer ones, especially with better and better counterfeits coming to markets.  Like you, I prefer eagles for their liquidity but there is a price for that liquidity in the form of a bigger premium, a price differential that may not necessarily be rewarded when it comes time to sell.  Like any other asset, diversification is important so I would encourage one to hold both maple leaves and eagles as well as a third coin type such as krugerands or philharmonics and some collectible coins as well.  Doing so expands one's options, particularly if one has to vacate one jurisdiction for another or if one faces the possible threat of confiscation.

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  • Tue, Aug 18, 2020 - 5:25am

    #29
    Mohammed Mast

    Mohammed Mast

    Status: Silver Member

    Joined: May 17 2017

    Posts: 727

    Electricity

    https://www.coindesk.com/the-last-word-on-bitcoins-energy-consumption

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  • Tue, Aug 18, 2020 - 5:35am

    #30
    Mohammed Mast

    Mohammed Mast

    Status: Silver Member

    Joined: May 17 2017

    Posts: 727

    Crypto 101

    https://www.coindesk.com/learn

     

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  • Tue, Aug 18, 2020 - 6:05am

    #31
    Mohammed Mast

    Mohammed Mast

    Status: Silver Member

    Joined: May 17 2017

    Posts: 727

    DEFI for Beginners

    https://blog.coinbase.com/a-beginners-guide-to-decentralized-finance-defi-574c68ff43c4

    https://www.youtube.com/watch?v=RxrqNmv2tR0

    https://www.youtube.com/watch?v=RxrqNmv2tR0

    https://www.youtube.com/watch?v=TI2YW_enZcE

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  • Tue, Aug 18, 2020 - 8:23am

    JWhite

    JWhite

    Status: Bronze Member

    Joined: Jul 12 2016

    Posts: 117

    2+

    Gold coins

    MKI - Your points about the Maple Leafs are well taken, but the purity doesn’t seem to be a big concern based on the fact that they sell out every year.  I agree with ao that most people holding or trading gold know it is a very soft metal and handle the coins and bars with cotton gloves, and also these tend to sit in a vault or safe and only get moved rarely.  I’ve never received any Maple Leafs that are scratched.  I suspect that with the recent Chinese counterfeits of gold coins flooding the market, the newer Maple Leaf coins will become more in demand due to the tiny maple leaf hologram, and their purity, which makes them harder to copy.

    The Eagles and Maple Leafs are both legal tender, but my understanding is the Krugerrand is not.  With respect to the idea of diversifying one’s holdings of gold coins, does anyone have an opinion as to pros and cons of holding legal tender coins vs. Krugerrands?  What are the potential implications?  Also are there advantages to holding bars over coins, or vice-versa?

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  • Tue, Aug 18, 2020 - 9:43am

    Jim H

    Status: Bronze Member

    Joined: Jun 08 2009

    Posts: 1199

    3+

    geographic diversification

    If there is a confiscation event, which I am not predicting per se, then you really want to hold some of your metals outside the country you live in - preferably in a jurisdiction known for strong rule of law.  Switzerland, and Singapore come to mind.  I hold some in Singapore, outside the banking system.  That money becomes my helicopter out of Dodge if and when Dodge falls, and if I have not decided for the good of my kids to die on that hill, in which case the helicopter is still there for them.

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  • Tue, Aug 18, 2020 - 10:09am

    MKI

    MKI

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    Joined: Jan 12 2009

    Posts: 234

    1+

    Gold coins

    ML purity doesn’t seem to be a big concern they sell out every year.

    Heh; in this market every bullion coin made is selling out :-). What should concern us is trying to sell in a bear market...that's when liquidity becomes a challenge. Regarding ML fragility, three, no four points:

    1) Look at old Kugs; tons of them damaged. So many are indeed handling them & the  ML excludes those folk, making ML less liquid.

    2) I never handle my bullion (buried immediately). However, I still don't buy ML, because my future buyers don't like them for their lower liquidity in the hand trade. Your market may vary.

    3) The fact the ML is currency is actually a legal negative to me, since I'm not Canadian but there well may be future US laws regarding CA currency. Kugs are unlikely to face the same laws since SA is a basket case not overly friendly plus Kugs have become more historic than SA currency anymore. But this uncertainty is why I hold two types. one "modern" and the other "historic".

    4) The high premium on Eagles tells me everything I need to know: my future buyers agree with my assessment it's the most liquid coin. Liquidity is my key issue, and I'll pay it :-). This extra premium has held up my entire life.

    the newer Maple Leaf coins will become more in demand due to the tiny maple leaf hologram, and their purity, which makes them harder to copy.

    Copying is a non-issue; one cannot fake gold coins to any aware buyer; all one needs is a Fisch or a digital scale and a pair of calipers. It's really easy. This is exactly why I buy bullion.

    Also are there advantages to holding bars over coins, or vice-versa?

    Bars have zero advantages unless you are a billionaire and need to stack! I'm fairly well off and 10% of my NW in bullion coins have no storage issues. If you do have storage issues? You are sitting very, very pretty. Now silver, that's a different issue, and I do own bars of that, because it's less valuable and the risk of forgery is much lower.

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  • Tue, Aug 18, 2020 - 10:52am

    #35
    Mohammed Mast

    Mohammed Mast

    Status: Silver Member

    Joined: May 17 2017

    Posts: 727

    More on The Crypto Electricity Myth

    https://medium.com/coinshares/beware-of-lazy-research-c828c900b7d5

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  • Tue, Aug 18, 2020 - 10:59am

    ao

    ao

    Status: Platinum Member

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    Posts: 1286

    3+

    reply to JWhite

    A number of years back, when I did extensive research into the matters you are currently investigating, I came to the conclusion that 1 ounce sovereign bullion coins that are legal tender like eagles and maple leaves were my preferred investments.  Fractionals had too high a premium.  Numismatics were overpriced and not quite as liquid although having a few collectibles is certainly reasonable.  The Krugerrand was gradually falling out of favor with the South African history of apartheid and SA's growing political problems and that decrease in popularity seems to have grown over the years.  Also, coins are more readily recognizeable as bona fide and are more liquid than bars.  This is especially true as it pertains to larger bars.  I remember doing a like-for-like exchange of a gold kilo bar for 1 oz. gold eagles after realizing that fact when the bar greatly appreciated in value.  If you think about it, who are you going to sell a kilo bar to?  It's not like you can walk up to just anyone and say, "Hey, will you give me $65,000 for this gold bar?"

    If, on the off chance, you would choose to move your gold from one governmental jurisdiction to another, there may be other considerations.  For example, if you decided to move to Canana and take your gold with you, Canada imposes a goods and services tax on any gold that is less than 99.5% purity, meaning maple leaves and philharmonics would be exempt but eagles and krugerrands would not.  There may be other laws of this type of the books elsewhere but that is not something I know.

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  • Tue, Aug 18, 2020 - 12:13pm

    MKI

    MKI

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    Posts: 234

    1+

    reply to ao

    I really agree with your comment; well written. Your discussion of the import barrier into Canada is exactly the "type" of law we can expect from all over, every nation, using their own evil formula to push their own agenda. There was zero reason to have ML so pure except as a gimmick. Hell, we don't even need to wait until some future crisis for Canada to write laws punishing gold owners :-). Just imagine the crazy laws once gold hits $10k in a runaway bull market. Lesson: now is the time to start building networks to buy and trade, before it gets ugly.

    Krugerrand was gradually falling out of favor

    I haven't seen this; could you give me some examples? I'm pretty reclusive and may have fallen behind. f anything, I see the opposite, because some people are really anti-American and anti-western so shun the GE for spite, but enjoy the "black market" & "historic" vibe of the Kug. But 99% still think the Eagle is top choice for every other reason. But the GE better metallurgy has really made it the international bullion these days.

     

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  • Tue, Aug 18, 2020 - 1:35pm

    ao

    ao

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    Posts: 1286

    1+

    reply to MKI

    Thanks for your comment.  Yes, if gold skyrockets, TPTB have a number of options they can use against us, ranging from a high percentage windfall profits tax to outright confiscation.  Nevertheless, I still like physical metals and if I can't trade them, I'll pass them on to my children since it is unlikely for that restrictive condition to persist permanently.

    I'm sorry I can't provide concrete evidence about the krugerrand falling out of favor.  My opinion in this matter was formulated by noting the trend towards a falling premium in recent years, the greater availability relative to eagles and maple leaves on several occasions, the sense I got from talking to some gold dealers with deep experience and connections, and a few articles that touched on the subject.  Also, I don't know if you remember when silver krugerrands came on the market back around 2017.  I thought there would be a rush to buy them.  There was not.  They seemed to languish on the market and the premiums drifted far below those on silver eagles.  Nevertheless, I don't think it's a big problem and krugerrands should hold value but, like you, I greatly value liquidity and therefore hold more eagles than any other sovereign coin.  The exception is palladium eagles which are scarcer than hen's teeth and have an outrageous premium, such that I have not purchased any.

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  • Tue, Aug 18, 2020 - 6:14pm

    #39
    JWhite

    JWhite

    Status: Bronze Member

    Joined: Jul 12 2016

    Posts: 117

    2+

    Gold

    Thanks very much for all the comments and considering my questions - these have given me some things to think about.

    My particular situation is that I'm a Canadian expat living overseas (hence my bias toward gold from my own homeland - sorry MKI, you won't convince me to avoid Maple Leafs!), and there is a distinct possibility we will return to Canada, but the timing is uncertain at this point.  I suspect there will always be a market for Maple Leafs within Canada, as well as anyone who values the purity or security features, or if gold becomes quite scarce.  Liquidity may depend where you are selling and if it is a country that mines precious metals - in Europe, the Eagles, Maple Leafs and Krugerrand all seem well represented at PM dealers.   I agree with ao regarding the fractional coins - they are great to give children as gifts but otherwise are too expensive per ounce.

    I suspect the reason for Canada's taxation of coins below a given purity is to encourage the sale of their own gold within Canada.  But I wasn't aware of this fact, so that is good to know for anyone planning a move to Canada.  My impression is that the sale of bars are taxed but coins are not, but I'm not sure if that is true everywhere and for various metals.

    The idea of holding some gold in a different country, at a safe location, is a great idea as well.  I've noticed in the last few years, that the governments of several nations have been building their gold reserves, and/or returning reserves held in other countries.  And they want to know who is holding precious metals in their country.  Germany recently passed a law that gold can now be purchased anonymously up to a value of Euro 2,000, otherwise the dealer must take a copy of your ID.  That's a single 1 oz. Gold Eagle or Maple Leaf coin.

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  • Tue, Aug 18, 2020 - 8:49pm

    #40
    MKI

    MKI

    Status: Member

    Joined: Jan 12 2009

    Posts: 234

    1+

    Caveat

    Caveat: if moving to another country (I'm USA) I would definitely switch my 75% GE to that nation's bullion (if they had one) merely for liquidity/legal. I would probably swap my 25% Kugs to GE though as AO noted based on premiums it's looking like GE is filling the "international" role Kugs used to fill 1934-'74 when the US was the big persecutor of gold owners while it ran the fiat game. In the end, it's all about liquidity where one lives; the rest is details. Thanks all.

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  • Wed, Aug 19, 2020 - 12:25pm

    ao

    ao

    Status: Platinum Member

    Joined: Feb 04 2009

    Posts: 1286

    1+

    addendum to caveat

    I agree with you MKI.  It's noteworthy that one can do a like-for-like exchange (i.e. exchanging one form of gold such as bars for another form of gold like bullion coins) and it is NOT a taxable event in the US last that I heard.  Switching from gold to silver, cash, Bitcoin, etc., however would be, to the best of my knowledge.  The IRS is pretty useless in term of providing you with accurate and detailed information on this subject so consult with your accountant if you have any questions.

    In my experience, most federal agencies provide substandard customer service although they constantly claim the opposite and frequently tout that they are tirelessly working to improve the consumer's experience.  Sadly, I've seen little evidence of the latter.  The problem is federal employees who are virtually immune to firing and know it.  I'm presently dealing with Social Security and Medicare on two different issues and find that too many employees seem minimally concerned about helping you solve any problematic issues.  Some are polite, some are not, but the majority seem to be woefully under-informed about subjects you'd think they'd have more expertise in.  Many also seek to do the least work possible.  It's like pulling teeth to get them to do their job.  I would think many of them would be easily replaceable by AI since they are already acting like robots.  Many of them have no idea how good they have it compared to the working man or self-employed who do not get a straight salary but are only rewarded in proportion to the quality and quantity of their work.  End of rant.

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  • Thu, Aug 20, 2020 - 9:20am

    #42
    2retired

    2retired

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    Joined: Jul 20 2020

    Posts: 43

    1+

    2retired said:

    It is informative to read all the varied assessments of gold/bitcoin/bonds/market holdings as I have believed in most all of them at some time or other. I currently think 'social capital' is near the top of the list (subject to change without notice).

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  • Thu, Aug 20, 2020 - 8:37pm

    #43

    Mark_BC

    Status: Bronze Member

    Joined: Apr 30 2010

    Posts: 396

    Mark_BC said:

    TSLA hits $2000!!! Yeah!!!! So much for predictions last month about an imminent crash. Will it hit $3000? Maybe.... maybe not. My guess is YES. And the predictions last year that it would crash before it hit $700? What happened to that? I called $1000, I called $2000, and now I call $3000.

    Clearly if the market was going to crash it would have happened long ago. Repeating the same old broken record about over-valuations is so passé. That's so... 2019. It's different this time. It's the post-Covid world.

    The world's moved on, we're way beyond that; that train left the station long ago. It's high time PP admits that there is more going on here than they care to admit in terms of central support for the market.

    As some other people have wisely said, this market will continue until all crumbs of middle class wealth have been swept off the table. As long as there is still profit to be made inflating the market, then the market will continue to be inflated. So do you want to be a member of the middle class, the upper class, or the poor? At this point if you don't have lots of wealth stored up in physical assets like land and PM's then your only option to stay out of the poorhouse is to play the market and take advantage of these unprecedented gains.

    The market will go up until it's time for the insiders to make some money off a crash by not supporting it anymore and letting it go down, just like they did with the CoronaCrash™. And I think we'll hear lots of warnings of that ahead of time if you listen to the right insiders.

    For now, keep playing the market and accumulating fiat credits. Don't get too exposed so if it does crash you won't get slaughtered. Instead you'll fall back on all the gains you've made up until that point! There's no need to get slaughtered in this market.

    Disclaimer: I own no TSLA stock or derivatives, and I never have. Too bad, I have stayed away due to its volatility but it just keeps going up and up and up. My biggest mistake in life is not taking my own advice...

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  • Fri, Aug 21, 2020 - 8:04am

    2retired

    2retired

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    Joined: Jul 20 2020

    Posts: 43

    mistake in life is not taking my own advice...

    We remember some of our mistakes, & should-have-dones, which is why I have farmed out most investment management.....to keep my hands off it! Larger agile predators being adept at panicking smaller fry. I was told once, that every 10 years or so, you may be able to recognize an exceptional opportunity; that has rung true for me.

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  • Fri, Aug 21, 2020 - 10:04am

    #45
    wotthecurtains

    wotthecurtains

    Status: Bronze Member

    Joined: Feb 27 2020

    Posts: 68

    Sometimes you gotta follow your gut

    I still remember back in March when the fed announced its new bond buying facility.

     

    At the time I thought  "This changes everything" (for the blue chip type stocks).   If Equities are behind debt in a restructuring and if big corps can sell endless debt to the Fed when why would anyone (big) ever go bankrupt again?

     

    Of course I lack a Phd or a billion dollar hedge fund but my thesis hasn't exactly been wrong.  In fact I hear tell that the Fed buys Apple bonds and Apple uses the money to buy their own stock so if anything I underestimated what the March announcement really meant.

     

    So far my gold stocks are keeping me warm at night but I'm vigilant for the moment when these guys decide that the markets are now stable enough that they turn their attention towards "managing" gold prices again.

     

    Gold bugs will tell you "its different this time, the genie is out of the bottle", but Im not gonna sit through day after day after day of billion dollar comex sell orders waiting for an exchange default like I did last time.

     

    Or will I?

     

    Gotta learn to trust my gut...

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