Stocks may be way down, but NY real estate prices are still way high

I never implied anything was easy. I just said the discipline of selling (or passing on buying) expensive stocks or real estate is more difficult psychologically than it is mathematically rigorous.

>>> "the analysis is easy" kspeak says

actually, i didn't say this. when you quote somebody, get it right

>>> some stocks that were cheap at 20x earnings five years ago may be overpriced at 15x earnings now. Circumstances change.

thanks for the lesson. i didn't understand until now that all stocks don't deserve the same P/E multiple. but i would argue the same with manhattan real estate in many ways - the P/E multiple should be different. i am so glad a harvard grad explained this to me! it's all clear now.

Don't you work in asset management? therefore you must believe YOU are smart enough to do this. why aren't I?

>>> They imply that it is easy to make outsize returns in the marketerent times.

Not "outsized" - just a bit better than average. over and over again, i have admitted you miss out on some of the biggest gains. but to say it won't prevent you from losing your shirt is silly. you're trading off some of the upside for some of the downside, that's all.

kspeak,

"a bit beter than average" IS an outsized return. As Warren Buffet says, if you can eat comfortably matching the averages, then you can feast if you can beat it over time by a point or two.
And you just said it again: that it is easy to do "just a bit better than average." It is perfectly easy to do better than average over a short time horizon--flipping a coin you might get more heads than tails--but over time it is very, very hard. I certainly would not say or imply that you aren't smart enough to do it; I have no idea whether you are or not. But if you keep saying that it is easy to make returns that are "not outsized--just a bit better than average," I will probably start to think you aren't smart enough.

I'd also say that smarts are only part of it; necessary but not sufficient. Sorry to be crass about it, but balls are just as important.

As for thinking that I am smart enough...I don't know, it's really for my clients to judge. I do what I can, and then I have to let me performance speak for itself. But I certainly know that it isn't easy--for me, it is anything but easy. If it were easy, I would pay someone else to do it for me and I would go do something challenging. The challenge is what makes it fun.

And I just found the quote. You did say "the analysis is easy."

Rhino,

I don't invest in index funds so we are talking about apples and oranges. Certainly, the economy would have to change dramatically for it to make sense to own an index of public equities at an average of 20x earnings. But there are individual companies I would be very happy to own at 20x earnings, and that I would consider owning at 30x earnings, even with a 5 or 10 year horizon (which I always have).

no, i quoted the comment "the analysis is easy" (just like you did).

i keep coming back to the fact that there were extremely obvious risks in the market by 2007 AND clear signs that trouble was on the horizon. will it always be this obvious? perhaps not. did that mean the stock market was going to tank immediately? no ... it just meant it wasn't rocket science to see more upside than downside in the market over the medium term ....

i think you mean more downside than upside, and yes. look, as it turns out you were right. i thought nyc real estate was in big trouble after september 11th (i was in college then and planning my move back to nyc) and i turned out to be wrong. i thought that the tech bubble was an obvious attack of insanity and i turned out to be right.

i think we are talking about different things: the huge booms and busts are one thing, but making investment decisions day in and day out (buy, sell, hold, and don't buy are all decisions we have to make every day, and multiple times a day) are just very difficult. Emotionally, psychologically, and intellectually, this are very difficult decisions. Most people make them badly, some people make them reasonably well, and a few people make them very well or spectacularly. but the decisions are hard.

I'm not addressing single stocks, just making a point that 20x is too high to put new money into the stock market as a whole. Stock picking is a different story. Also my point is any perceived change that takes the stock market above 20x has been illusory over time, and if you put new money into the market it just as bad as buying an apartment for 20x essentially. This is a great debate, but for the record am I the only one here who has bought or sold stocks for a living, or am I wrong?

Yes the decisions are difficult but the math is not. Buffett again comes to mind, enduring taunts on the sidelines from 1996 through 1999.... And now again the taunts that he is early buying here.

>>> i think we are talking about different things: the huge booms and busts are one thing, but making investment decisions day in and day out (buy, sell, hold, and don't buy are all decisions we have to make every day, and multiple times a day) are just very difficult. Emotionally, psychologically, and intellectually, this are very difficult decisions. Most people make them badly, some people make them reasonably well, and a few people make them very well or spectacularly. but the decisions are hard

well put. this is my general theory - big booms and busts aren't rocket science. this is why both rhino and i have said this is a difficult strategy to implement as a professional investor. as a personal investor it is easier, but probably not easy. it takes guts to go against the grain. simply because of big booms and busts, i will never believe you should "always" be in the stock market.

"but what you don't seem to realize is that your supposedly passive strategy is in fact very active."

I have to make decisions of course. My money won't grow sitting under my mattress. Passive investing uses history as a guide, not current market conditions. History is much easier to analyze than predicting what will happen next month, next year, or even 5 years from now.

"if you believed that you could make more money by switching to a 60/40 stock-to-bond split, would you not do it because you are so convinced that you are incapable of making a smart decision?"

Again, the historical yield vs. volatility trade off. Which I have analyzed - I've linked one quick summary for each 10% bracket here before. Let me know if you want to see it.

"If you visited India, say, and became convinced that it was on the verge of a spectacular boom, would you refuse to invest in India because, statistically speaking, most investment decisions are bad decisions?"

Yes. I don't think I'm capable of determining what you described better than others who's job it is to analyze it.

"Your strategy really amounts to willful ignorance: if I just don't pay attention to things and stick with my strategy, then I won't be accountable if things go badly. But you will be accountable; you are responsible for your decisions."

My decision is to follow a strategy that statistically beats all other strategies. My strategy also doesn't require me to follow the news. You can call that "willful ignorance" all you want, but that doesn't change the fact that my strategy wins.

In fact, you said you agree - why the argumentative tone? Perhaps being torn since your line of work contradicts the passive investing strategy you just said you believe to be best?

Techguy,

My line of work has nothing to do with it. Believe me, I know that asset management is the world's best business for the asset manager, and 90% of the time a bad proposition for the investor. All I can do is put out the best product I can, and leave it to the free will of the marketplace to determine the value of my product. If people want to buy it, then three cheers for me. If not, I'll have to get another job. I certainly don't force anyone to buy my services, and I don't artificially puff myself up to get business.

Now. You say that your "strategy wins." So I have to ask: wins what? That is to say, what exactly are you attempting to beat? Certainly you cannot deny that other strategies have performed better over time than a constant 50% stock/50% bond strategy. For instance, the strategy of just owning one stock, say Proctor and Gamble, or Phillip Morris, or Coca Cola, or Berkshire Hathaway, or Microsoft, or Progressive Insurance, or Clorox, or Colgate-Palmolive, or...you get the point, those are just a few off the top my head. The strategy of owning just one of those companies over the last 30 years would have made you seriously rich. Any of us can look backwards and say "If only I had bought Dell when it went public, if only I'd bought Expeditors International at $4 a share," or "If only I had gone long in China in 1999," or "If only I'd bought NYC real estate in 1975, sold in 1988, and bought again in 1993, and sold again in 2007." You say your strategy "wins," but you don't say what it beats.

Happyrenter, skim his posts. He's just not bright. He's not capability of really participating in this debate. I mean to say that tactical reallocation is not worthwhile is just beneath debate. How are you going to engage a guy who denies a decade.

What is your product? Are you a private client guy?

techguy, go back to your IT job at Citi. I am sure there are lots of computers to disconnect with all of the layoffs!

I run a very small (for now, I have high hopes) partnership (hedge fund, but these days those words are going out of favor) out of an asset management firm where I've worked since college. I'm fully more or less fully invested (fingers crossed) as of a few weeks ago, which is why I've been wasting time contemplating buying an apartment, hence all of the streeteasy research.

"Now. You say that your "strategy wins." So I have to ask: wins what? That is to say, what exactly are you attempting to beat?"

Highest returns for the same volatility. Clearly accepting higher volatility will (hopefully) net higher returns. Individual stocks have much higher volatility.

"techguy, go back to your IT job at Citi. I am sure there are lots of computers to disconnect with all of the layoffs!"

I'm a programmer, not IT, and without going in to detail, my job is extremely secure. I don't expect you to believe me (nor do I care). You've clearly sunken quite low - I wonder why.

"highest returns for the same volatility." i wonder why that is your goal--that is, you choose a fixed level of volatility and then try to find the best returns that will keep you there. aren't you in your mid 20s? i assume you are adding to your savings at this point in your life; it's not like you are on a fixed income. at your age you should be building a "total return" portfolio.

I should also add that it is pretty disingenuous to say that your "strategy wins" when you really mean that it beats other strategies at that exact level of volatility. I mean, are there any other strategies that approximate your strategy for volatility? And have you really examined all of them and determined that they cannot produce a superior return for you?

You know exactly what I mean, and know I'm correct, but you quibble about my terminology? That's the disingenuous part of this conversation.

Active strategies trail benchmark indexes. Therefore, benchmark indexes win. Pick your desired volatility (stocks vs. bonds), international exposure, currency exposure, turn a few knobs, get an optimal strategy.

My 401k isn't included in the 50/50 split. Thats in a target retirement index fund, which I'm pretty sure is about 80% stocks. As for the 50/50, I choose to be more conservative because there are other aspects of my life (the NYC economy and real estate market, for one) which are more correlated to stocks than I'd like, so I trade that off with a more conservative investment portfolio.

"The strategy of owning just one of those companies over the last 30 years would have made you seriously rich."

happyrenter, be careful with what you're saying here - that "strategy" (buying and holding one stock) is not what would have made you rich. Blind luck or unbelievably great foresight would have made you rich. That strategy, as I'm sure you would admit, is extremely high risk, and terrible for probably every single investor. You have to clearly define what your goals are before you can start picking at any strategy. I'd say most people are trying to find a mix of risk/reward they're comfortable with, while remaining aware that others could very well make (or lose) more if they're less risk averse. This is all basic stuff, and I'm sure you get it, but I think it's at the crux of this back-and-forth you've got going on with tech_guy here.

kspeak, the ad hominem stuff we can do without - the rest of your posts can be really good.

I can take the ad hominem. I have a thick skin. The low part, IMHO, was the stab at the Citi laid off employees. For all we know some of them are reading this thread. They don't deserve to bear the brunt of kspeak's anger towards me, whether that anger is justified or not.

"I'm a programmer, not IT"

Sorry, but programming is IT. Even if you do quant programming using MatLab for proprietary trading Funds ala Renaissance Technologies, you are still IT.

That is, unless somehow you've convinced yourself otherwise, even though the rest of the world doesn't think so. Judging from your verbiage on this forum, this appears to be how you operate in life- in a closed box where your rules are set and nothing will change them. You are a very good representation of Taleb's Dr. John. If it doesn't compute according to your rules, it's over.

Avoid the Fat Tony's of the world- they will take you for a ride.

btw- there's nothing wrong with working in IT. it's a great profession to be in right now as the skill set is very fungible across industries.

You dictate set rules to me in the same breath that you ridicule me for using set rules? Interesting.

You can use whatever terminology you want. I couldn't care less. The context you conveniently dropped, however was factually wrong under any set of rules. kspeak said I disconnect computers for a living - I do not.

Now, you say "rest of the world". I assure you that not only does the rest of the world not refer to computer programmers as IT, they also don't refer to MatLab as computer programming. Obviously you have no clue what I do, yet you try to make rules for it anyway. Sad. You don't have to believe me - ask your favorite IT guy wherever you work if they think someone who designs software applications and writes in C++ is "IT".

Despite that, you can use whatever rules you want, Dr. John. Your best defense of gold is "that's just the way it is - always has been money, always will be money". You quote political desire that's extreme fringe, stuff Ron Paul wants, yet you quote it as if its set universal rules. There's only 1 blind rule follower here.

Whatever you do, it ain't investing and it shows! For someone who thinks 800 square feet of floor space is intrinsically worth over $800k, you've got a lot to say about gold. I can't help but be in awe of a brazen disregard for a store of value that's stood since time has been kept. I like the Dr. John analogy. I tell you paper printed for the last 200 years is sacrosanct, you say yes sir.

Maybe gold is going down; maybe its going up...But to say its going away any time soon is pretty retarded. Especially since its up 250% since 2003 while the stock market has only round tripped. To the tactical asset allocators, you'd surely recognize you can adjust your portfolio all the time...more often than once every five years!

Stock certificates represent a share of a company. You have no say in the management. Most of the earnings are usually reinvested (ex. REITs and MLPs) rather than paid in dividends. Rarely does your stock get acquired for cash. Some would call that a ponzi scheme.

i know people that use matlab. most of them have phd's in finance and do some fairly complex modeling. it is NOT what i would consider something that IT people do.

.... yep, you're right, the blind rule follower is you, Dr. John.

and what's with Ron Paul? who cares about him? politics? what? who?

economics, mises institute yes. politics, Ron Paul? say what?

and so i did ask IT if C++ coding is "IT" and yep, they said it is. application and system development... sometimes middleware development.

perhaps wikipedia can explain it better than me: http://en.wikipedia.org/wiki/Information_technology

however, to be fair, i retract my statement about people who "use" matlab, which include some NASA people and some oil researchers i know besides the finance folk. mathworks up in natick develops some truly impressive multi-dimensional array computing frameworks. dang i miss beantown sometimes.

"But to say gold is going away any time soon is pretty retarded."

yes, rhino.. retarded rhino to dismiss 4,000+ yrs of it as a store in value is pretty retarded.

but i bet you dr. john is a great 'coder' or 'programmer', as that's what the dr. johns of this world do very well.

Call me IT all you want - I just love that you actually went out to ask the guy! And researched this. In the same breath that you make fun of rule followers, you expend so much energy to set the rules!

I'll leave you 2 lovebirds with this bit of irony. Rhino, you're a gold trader, no? Ask MMAfia what happens to gold traders if his politics (same as Ron Paul's) ever come to pass. Hint: the US government would set a fixed dollar price for gold. Its another rule he follows (well, wants everyone else to follow), and readily admits he can't explain it. "Just because".

Tech_guy, the IT guys at firms I have worked for ask me about stocks and investing. They don't tell me. Programming may not be IT, but its not investing. I'm not a gold trader, but I am a betting man. I would bet that gold, which has been around since history was recorded will be around for my and my children's lifetimes. I would also bet that if a coin was thrown heads 99 times in a row that it was very unlikely to be a fair coin.

Quick response to bjw on the strategy of owning one stock over time:

All of us are talking about looking at the past, picking the strategy that we think "worked best," and then using it for the future. I am not arguing that it is easy to pick a great company and stick with it over many years, and I agree that uncertainty being what it is, investing in one great company would not be the strategy for most people. That said, I do think that taking a lot of time to identify a few great businesses, buying them on the dips (some of the truly great companies never get that cheap, but they do dip), and selling them either never or when business conditions seem to have materially changed, or when they get overheated, is a pretty great investment strategy. Again, if you are unable to identify great businesses, then it isn't the strategy for you. But it is very definitely a strategy.

By the way, owning stock in essentially one company over many years worked great for the Google founders, the Waltons, the Rockefellers, the Sulzbergers, the Watsons, the Duponts, etc. etc. etc. All of these folks became enormously rich through their ownership of stock in one company. In each of those cases there came, or may come, a time when it makes sense to sell. But you cannot argue that investing in one great company is a proven loser as an investment strategy, when it is basically the strategy underlying nearly all the major fortunes in our country.

Happyrenter do you think there might be some survivorship bias in your sample set? Also, you cannot liken starting, building and retaining ownership in a business to a concentrated stock investment portfolio. You forgot to mention the late great Lehman and Ford families :)

Wait a second. First, of COURSE there is survivorship bias. I would never imply that owning just any single stock will make you rich, and I don't support a strategy of buying one stock. I am trying to make a point with hyperbole. Charlie Munger, Warren Buffett's investing partner, likes to say that if you own large positions in 5 high quality companies, you are securely rich. I agree.

But I disagree with your point about the difference between building a business and owning a concentrated position. I think the last time a Dupont ran Dupont was in the 19th century (or something like that), and most of the family was never involved. They just owned the shares. Likewise, the Waltons do not run Walmart, and even the Google founders do not run Google and haven't for a long time. I don't mean that I expect to get as rich as the Waltons--they got in on the ground floor through Sam--but why should I not learn from their example: the easiest and best way to get rich is through long-term ownership of stable, growing, profitable businesses.

As for the Ford and Lehman families, I hope you aren't suggesting that Ford and Lehman Brothers have been unkind to them over the last 50 or 100 years! I mean, the Ford Foundation has about $15 billion to give away. The Lehmans have been very well fed, have produced Governors and Senators, and amassed one of the great art collections in the world Where do you think that came from? As I said, eventually nearly every business will lose its luster (Although Dupont is still going strong), so you can't just buy stock and forget about it. But a great company can make you money for decades.

Rhino: I feel real bad about the IT guys at your firm. If we roll back to 1950, I'd bet on gold too. But at this point - ask MMAfia the last time we've gone this long without a gold standard. The answer is 13th century China. The coin started hitting tails every single flip decades ago, and you're the one betting it will suddenly hit heads again.

You think Fat Tony bets on 13th century China?

Happyrenter, my point is that the family got rich by the founder building the company and owning most of the stock...They didn't get rich by putting their own new money into the stock. I know that 5-10 stocks gives most of the diversification benefits. I've seen the curves. I am not entirely convinced that people can identify those 5-10... But I don't need to be convinced as long as people are willing to pay them (and me) to do so. I am agnostic to it in that regard.

Tech_guy, where are you getting that I am expecting the gold standard. How by betting that gold is here to stay, am I the one betting against the coin? Are you a fucking imbecile? I am betting heads the coin that's hit 4,000+ heads in a row. Gold may or may not be a great investment or trade today, but calling it worthless is like playing with your little balls. Its taffy for the brain. Gold is worth $700+ an ounce because I can sell it for such.

You use history of gold as your support but clearly don't understand it. Gold had value for thousands of years because it was the basis of major currencies. It isn't anymore. The fundamentals changed. Did the price change? No. That's called a bubble.

Its ironic how quick you are with the intelligence insults when you're the self-admitted flunkee, and you clearly don't understand what you're talking about.

Buy ICE!!

A flunkie with $2mm in the bank and a total of zero one bed coops down 25% or more. That's actually not what a bubble is called at all. What are the chances that you are the right one among two Harvard grads and two more articulate people calling you an idiot? Flip that coin. You work for me. People like you support people like me. That is the reality. I am the profit center of a bank or hedge fund. You are called back office for a reason. If you worked at a firm with me you wouldn't have the balls to talk to me in this fashion. Whereas I would be able to yell at you for not getting your shit done.

Rhino,

I certainly wouldn't have told you where I went to college if I thought you would talk about it like that. The sort of person who yells at other people and belittles them is not the profit center of any business I would want to be associated with. If you had more confidence in yourself and more security in your position, you wouldn't be going around puffing yourself up (I went to Harvard! You work for me!). You only make yourself seem unimpressive, insecure, and boorish when you talk that way.

And by the way, you graduated from Harvard almost 20 years ago, right? Probably time to stop bragging about it and focus on the things you've done since. But if you are going to brag about it, leave me out.

Rhino86, lovely stuff. It's clear Harvard didn't teach you anything about class. At least happyrenter gives them a good name here.

Anyway, as for the one-stock strategy, I hear what you're saying happyrenter, but I certainly never said it wasn't a strategy. I just see it towards the extreme end of the risk/reward spectrum (not counting roulette tables here) and therefore very tough to endorse (I know you're not either). Owning shares of 5 or so strong companies is a very different strategy, and one that I would consider much more sound, though as was pointed out, picking those companies is more challenging than it sounds.

>>> kspeak, the ad hominem stuff we can do without

Fair point - it was meant to be a joke, but apologies. When I'm wrong I admit it.

I do agree with techguy about gold - not that I am saying the value is going to go to zero, but that there is no guarantee if things go to crap it'll be worth anything. There are plenty of times in history that gold has had little value - times when a sizeable block of gold couldn't buy a loaf of bread. It certainly has symbolic and historical value so I wouldn't bet on it being worth nothing, but given how much it's price has already gone up, I could see it going down, so I certainly would not put my money in it now. It may be a perfectly sound strategy to do so, but risky to me.

I still believe it's possible to see when a bubble exists and, at very least, avoid entering the stock market at such a point. I don't think this is "timing" I think it's looking at fundamentals. Deciding when to sell during a bubble is the hardest part if you bought prior to the bubble, because you are playing with the houses money, and you don't know how much longer it'll keep going up. It's much easier not to ENTER a market when prices are already high.

Happyrenter said he thought NY real estate after 2001 was a bubble, and he turned out to be wrong. Personally, I didn't really think 2001 was a bubble. Prices had increased a lot, sure, but from an undervalued point to begin with (in 1998 prices finally came back to 1988 levels). The buy/rent math was favorable then. I came close to buying a place then and only didn't buy because I was going to business school but it would have been cheaper for sure. I don't think this is a black-and-white issue. The bigger a bubble gets, the easier it is to spot. There was definitely MORE of a bubble in 2007 than 2004. There is always some degree of judgement involved ...

As for real estate, those who bought places and really like where they live shouldn't care that much about the paper value, especially if the real cost of owning isn't greater than renting (IMHO these deals were hard to find in the past 2 years but some may have existed). If you need to sell in the next 5 years (or possibly even 7-10) you may lose a bit

Whew! Try decaf you guys!

tech-guy: "Highest returns for the same volatility. Clearly accepting higher volatility will (hopefully) net higher returns. Individual stocks have much higher volatility."

You're leaving out the illiquidity discount for real estate (or liquidity premium for stocks, if you will). At times of distress like now, it really widens, which distorts the comparison between returns of different asset classes.

"A flunkie with $2mm in the bank and a total of zero one bed coops down 25% or more"

You've spent about 5x more time in the work force than me, and brag that your net worth is double mine? We'll see how well that works out for you in the long run.

"You work for me. People like you support people like me. That is the reality. ... You are called back office for a reason. If you worked at a firm with me you wouldn't have the balls to talk to me in this fashion"

Not even remotely true, but if it makes you feel better, keep thinking that. Outside of the streeteasy boards, I haven't been called back office once in my entire life. I wonder what firm you're at - I received quite a few offers coming out of college. Most places I interviewed with had sad programming departments and I quickly declined.

5x more in the workforce? I graduated college in 1995. Two years off the 13 for business school, but I'll exclude that. We are to believe that you are 2.5 years out of college, and in that time you have earned enough to save a million bucks after taxes, above your expenses, working for firms as opposed to working for yourself? Is your math off or are you that full of shit?

I also get the sense that you came from money, didn't earn it all yourself, but that's besides the point. Your details about me are off in several places, but I'm not going to correct you. You don't have to believe me - its your pissing match, not mine.

What's off shithead? I graduated in 1995 and you said you are worth a million bucks? Now you have to slink away like a bitch because you have my age wrong? Wrong again on my background. Wrong again on your worth. You forgot to subtract 25% of whatever you paid for your shitty little one bed.

Slinking away? Hardly. happyrenter said right above its been 20 years since you graduated. Honestly, I couldn't possibly care less, and if it wasn't 1 post above what I was writing, I wouldn't bother to look it up at all. You're the only one who thinks this pissing match is important. Which is especially sad since 2M doesn't piss very far. Paris Hilton destroys you at your own pissing match - you must be quite dumb to be so far behind her, huh?

"50/50 stocks/bonds (or whatever ratio you feel is a suitable risk / reward tradeoff), followed by either periodic rebalancing or rebalancing whenever the ratio gets too far out of sync, also allows for you to benefit quite a bit from the top (selling stocks to buy bonds) and the bottom (selling bonds to buy stocks). I rebalanced within 5% of the trailing bottom a few weeks ago."

The data shows that rebalancing more often than once every 12 months loses you money....

Essentially, you sell out of bull markets too quickly.

awww....

leave tech_guy alone folks... he's just a paranoid, defensive and pissed-off home-debtor who bought near the peak of the bubble. same as petrfitz, same as spunky (although spunky smartened up in the end).

but i can't resist when he posts completely INCORRECT information like:

"You use history of gold as your support but clearly don't understand it. Gold had value for thousands of years because it was the basis of major currencies. It isn't anymore. The fundamentals changed. Did the price change? No. That's called a bubble."

ABSOLUTELY wrong... it was NOT the basis of major currencies. Didn't I just educate you that in China, PAPER currency was used for over 100 years in the 12th century before it collapsed due to 'over-printing'? It was in fact ILLEGAL to pay in Gold/Silver back then, and you ran the risk of being beheaded. Now, 100 years is much longer than today's current paper fiat currency 30 year run, and it failed for the exact same reason: GREED.

The FUNDAMENTALS, which you don't understand, is the temptation to overspend, get into debt, and print money to get out of debt. Happened in the 12th century when Marco Polo was around, is happening today in the 21st century. And guess what? It happened countless of times in between. As the Romans, the Germans, and America's Founding Fathers who wrote the constitution all found out the hard way.

Watch and learn Dr. John. It's going to be no different this time around. The system which you live within and can't think 'out of' will suffer a loss of confidence in the next couple of years. But because you can't 'think out the system', you will never believe until it happens. Ask Fat Tony- he makes a fortune taking advantage of the Dr. Johns of the world.

I don't know what I was thinking. You're 100% right. I'm going to use 12th century China as a guide for all of my decisions from now on. Its what Fat Tony would have wanted.

The best part is, tech_guy can't even answer this very simple question:

Why does the US Central Bank keep a whopping 77% of its reserve assets in the form of GOLD today?

I mean, come one, the fundamentals have changed right? It's worthless right? We got rid of the gold standard more than 30 years ago right? We're in a new paradigm where we've finally discovered the holy grail monetary system where the new money and currency is paper right (although the Chinese discovered this back in the 12th century way before us) right?

Even better, it's a BUBBLE right?

So why would the US Central Bank, with its RESERVE ASSETS, a.k.a its stash of "if everything collapses", hence the term RESERVE, keep over 77% of it in the form of GOLD TODAY?

Just answer that simple question. And don't tell me they just got lazy and didn't get rid of all of it since the 70s yet.

How's this for irony - the best answer I can come up with is to quote *you*:

"Do you understand that Gold is despised by the Central Banks? They HATE it. It's the bastion that Keynesian economic theory wants to dispose of as a "barbaric relic". Do you know what the Central Bank Gold Agreement (CBGA) is?

They TRIED to get rid of it, really REALLY badly. And they were selling so much of it that it's price went down so much that they had to create the CBGA."

http://www.streeteasy.com/nyc/talk/discussion/5195-cramer-says-to-buy-gold?page=2

CBGA is discussed here: http://en.wikipedia.org/wiki/Washington_Agreement_on_Gold

The fact that you can't see how your very own statements / analysis support *my* position, not yours, shows how blinded you are by your stupid rules and extremist politics.

MMAfia, excellent point. The US and all the European governments all have gold deposits. So not only does the market deem it worthwhile ($750 an OUNCE) but every OECD government does as well. Still unclear what the argument is against gold as a portion of a portfolio.

Also don't follow the wiki quote. So there was basically a gentlemens agreement among central bankers that gold is important, yet is part of an argument against the worth of gold? Where is the logic?

"Under the agreement, the European Central Bank (ECB), the 11 national central banks of nations then participating in the new European currency, plus those of Sweden, Switzerland and the United Kingdom, agreed that gold should remain an important element of global monetary reserves and to limit their sales to no more than 400 tonnes (12.9 million oz) annually over the five years September 1999 to September 2004, being 2,000 tonnes (64.5 million oz) in all."

I don't expect Rhino to understand, but everyone else should click through on the link and read everything else that he conveniently chose not to quote.

Can you summarize your point on gold? Are you expecting it to go away as a store of value in your lifetime?

Besides all this shit you wrote below is editorializing the Wikipedia article. I quoted the relevant piece, you made your own interpretation and ran with it. Of course they hate the opposition to their power. The lesson is they failed.

"Do you understand that Gold is despised by the Central Banks? They HATE it. It's the bastion that Keynesian economic theory wants to dispose of as a "barbaric relic". Do you know what the Central Bank Gold Agreement (CBGA) is?

They TRIED to get rid of it, really REALLY badly. And they were selling so much of it that it's price went down so much that they had to create the CBGA."

"I don't expect Rhino to understand, but everyone else should click through on the link and read everything else that he conveniently chose not to quote."

tech_guy, like rufus, you keep exposing your lack of knowledge yet display the same flavor of brazen confidence in what you talk about, they way in which rufus talks about how chicago is better than nyc.

rhino86, on the other hand, understands when to acknowledge something that he/she doesn't understand instead of claiming to be an expert on it.

i'll explain to you, rhino86 what tech_guy does not understand, although he thinks he does:

the answer has to do with Central Banks gaming each other via the Gold Carry Trade, and the contango environment in the Gold markets at that time.

you see, at that time, the Central Banks (CB's) were playing messing with each other, issuing 'threats' to sale massive amounts of gold in order to push the price down. before the Washington Agreement on Gold (now referred to as the Central Bank Gold Agreement - CBGA) was implemented in 1999, CB's were free to sell gold willy-nilly into the marketplace with no thresholds on volume or timing.

the lack of oversight or control/regulation was destroying the value of their gold reserves as a whole as individual CB's were carrying out nefarious activities to damage competing CB's with questionable outright sales and purchases of gold and loans/swaps of gold into the market (or call those loans/swaps back into their reserves from the markets).

so they did TRY to get rid of it, at the expense of other competing CB's, using those actions as 'head-fakes' to gain competitive advantage relative to competing CB's via the Gold Carry Trade (swap/lease programs). but they realized that it was only hurting them collectively as a whole in the end, and reducing the value of their reserve assets, because in the end, all the CB's consider it as the ultimate and final store of value if all their currencies were to collapse and breakdown.

Yes I will freely admit I didn't understand this CBGA... Nor do I have a strong opinion on a fundamental gold trade (fundamental being perhaps an oxymoron with respect to gold) here on money printing vs. the bear case of deflation. I am (with my trading hat on) intrigued by the strength of gold relative to other commodities vs. its peak at -25% instead of -65% or more for most commodities and many stock markets. Inclined to buy it here in the $720-750 neighborhood.

So I ask you AGAIN, and this time, in your OWN WORDS rufus, er I meant, tech_guy:

Why does the US Central Bank hold 77% of its reserve assets in GOLD today?

rhino86, many people are confusing the Gold trade as a hedge to inflation, thinking that inflation will rear its head when the liquidity injections gain traction and increase the velocity of money or money multiplier effect. this is a valid case, as history has shown that central banks cannot micro-manage the delicate balance between overshooting/undershooting the desired targets.

in fact, the last 'mess-up' of this was when Greenspan left interest-rates too low after the DotBust collapse. as we know, this was a big contributing factor to today's problem, which is an even bigger monster than DotBust.

however, i am in Gold trade because of another reason, and that is the massive debasement of the USD and all other currencies (as we are witnessing today by CB actions), and the potential resulting lack of confidence in the monetary system as a result. there is a chance, I now admit, that inflation may not actually occur because the black hole the CB's are throwing money into might actually be bigger and hungrier than the amount of money they can generate out of thin air (a.k.a infinite money cannot buy trust amongst lenders). there's over $1.2 Quadrillion in notional value in the global derivatives markets as stated by the Bank for International Settlements. that should give you a some perspective of the black hole. as the derivatives market is unregulated, no one know who owns what of that massive amount.

the best outcome is that the CB's actually SUCCEED and reflate our way out of this mess. that is their goal right now. reflate and deal with high inflation later- at least they know how to deal with high inflation, an environment where gold does very well.

however, what may occur, is that they fail, and the black hole is just simply too massive. in the process of failing, they debase currencies to the point that confidence in the fiat system threatens to seep in, and then we have a serious, serious situation where only the assets that do not have ANY counterparty risk, including the Fed or other CB's (look at Zimbabwe) will hold value. If the Fed starts buying USTreasuries, as Bernanke has already alluded to, then we are going down the path of creating even more massive amounts of money going into the black hole which will increase the risk of further devaluation and destabilization of trust in the current fiat monetary regime.

"Besides all this shit you wrote below is editorializing the Wikipedia article"

What you quoted was MMAfia's words, not mine. I thought I made that abundantly clear, but you seem to be completely unable to even read what I write, nevermind show any ability to understand it. Arguing with you is a waste of my time.

so tech_guy, for the umpteenth time, answer the simple question in YOUR OWN WORDS:

Why does the US Central Bank hold 77% of its reserve assets in Gold?

Stop dodging, avoiding, or trying to answer a question with another question and just answer this very simple question in your own words.

They tried to dump it, saw the price was tanking, then created a price fixing cartel to limit their sales to a small amount every year so they can liquidate without crashing the price so quickly.

In the agreement they put flowery positive sounding words to trick people unable to read between the lines (Rhino). They think an agreement to prohibit too much selling is really an agreement to say "gold is wonderful, rah rah rah". If it was so wonderful, they wouldn't need an agreement to limit selling. They'd LOVE for the price to crash so they can scoop up more.

This is obvious to anyone not blinded by stupid rules, Dr. John. An entity trying to artificially prop prices up is clearly a seller, not a buyer.

Again, exposing your lack of knowledge, rufus, er... tech_guy. Sorry, but it's only obvious to you because you're wrong and don't comprehend what really occurred. Again, you think it's so simple and so easy to understand, only because you don't understand but think you do.

You are like the guy who thinks he's funny but really is not, but continues to crack lame jokes at everyone else's expense.

They were selling it to undermine each each other.

"If it was so wonderful, they wouldn't need an agreement to limit selling. They'd LOVE for the price to crash so they can scoop up more."

Exactly. The small Central Banks like Taiwan etc. at the time who had only tiny amounts were trying to exactly that- at the expense of the large CB's like the US who had massive amounts of gold protecting this country's assets in the case of an economic disaster or a serious war/world war. so a tiny CB like that of Taiwan was messing up the value of a large country's reserve asset value, to drive price down so that it could pick more up. Of course, this got the other CB's very angry, and hence the agreement which is that BECAUSE Gold is valuable to them, they didn't want nefarious activities by CB's to try and accumulate more by price manipulation to mess up their own reserve's value.

But of course, all you can see is the superficial and obvious (but wrong) analysis. That much I expected from you. Thanks for verbalizing it.

Now go back and re-read your history.

Taiwan wasn't even part of the CBGA. You're really grasping for straws now.

Alpine - 13 months ago - "Sorry to disappoint you, but prices are not going to collapse. And praying will not change that"

hehe

rotfl.

and tech guy! wow.

parade of morons...

though, I have to say, as embarassing as that is for alpo, I think his claiming there was no crash AFTER WE CRASHED took the cake for stupid.