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DavidV
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I don't have any specific investment advise to give, especially after losing money in a bull market, but to give an indication of how difficult it is to forecast the market, almost two weeks ago a friend of mine got a professional alert that the market was going to tank big time -- and it has been up ever since. So, if you can find a way to make money in the stock market, my hat is off to you :P

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So, if you can find a way to make money in the stock market, my hat is off to you :P
Learn a thing or two about business, know a bit about economics, keep track of government controls, and put your money in industries you understand. There is always going to be business, the only trick is figuring out which ones are going to succeed and which ones are going to fail.
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... gold.
Not directly related, but remember to retain documentation for all your bullion purchases. From a tax-perspective, when you sell bullion, it is like selling shares: the dealer will send you a 1099B form, which will also be reported to the IRS. Then, you will need your purchase documentation to figure out what price you paid (cost-basis), and how much tax you owe.
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Per IRS regulations (and most industry standards) you should keep all your important documents for 7 years. I keep mine for 10, and now with the ability to scan things into our computers, it shouldn't be too difficult to keep track of. If you hold an investment longer than that, I would keep your purchase information, at least, as long as you own the investment. Usually, you can get the information from the records department of your investment company, but I've seen cases where warehouses burn, flood, etc. and those documents/microfilm are lost. Ultimately, I would rely on yourself.

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I don't have any specific investment advise to give, especially after losing money in a bull market, but to give an indication of how difficult it is to forecast the market, almost two weeks ago a friend of mine got a professional alert that the market was going to tank big time -- and it has been up ever since. So, if you can find a way to make money in the stock market, my hat is off to you :D

Indicators (mostly in the bond market) are still pointing to a big-time dip in the stock market. What we have now is a bear market rally - merely a bump in the road down.

I, too, am investing a small amount in gold, but only a small amount. What I see is more of a deflationary event on the horizon. If correct, gold will drop in value (along with everything else but cash). So the gold is merely a hedge.

FWIW, I am also investing in a firearm and some ammo. Also a hedge going the other way.

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I'm just bragging here, really, but I'm still 15% up on the S&P. Only now, I'm down for the year on gold, silver and precious metals mining. I can't decide if I should buy or sell. ;)

post-1-1239403765_thumb.gif

What I see is more of a deflationary event on the horizon.

Huh?! What about the 10 trillion just created out of thin air by our Infallible Great Leader? Why would the political class allow that - the threat of deflation is the best excuse they have for more looting.

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Seriously, a few months is not meaningful. I don't even think most fund manager's five-year figures can be taken as a measure of performance; 10 years would be a minimum. Not trying to rain on your parade, but it's too easy to be carried away by the effect of some one or two good guesses or lucky timing.

In particular, if you look at your chart almost all the over-performance happened in the last two weeks of January. If you take the green line and drop it down to match the S&P around the last two weeks of Jan, you'll see that it mirrors the S&P. post-1227-1239413493_thumb.jpg

As for gold, are you wondering that it might have peaked? peaked for the short-term? If you sell, will you buy it back at some particular price? if so, what would be that ball-park price? I'd advise thinking along those lines, to set yourself a long-term set of what you expect and how you will act/react. Otherwise, greed and fear will take over (which is an imprecise way of saying you might react emotionally to the short-term fluctuations of the market, if you haven't thought about your longer-term expectation.)

Edited by softwareNerd
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Rationally, I know that I don't have the expertise to make any short-term moves. But it's very tempting to do so something, given my tinkering nature and what I have at stake. Realistically, I don't intend to do anything right now, but discussing potential moves makes me feel more involved in the process.

I'm kind of uncertain about gold because I was sure that we would have dramatic inflation sometime this year, but that isn't happening yet, and gold seems to have deflated and stabilized.

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I'm kind of uncertain about gold because I was sure that we would have dramatic inflation sometime this year, but that isn't happening yet, and gold seems to have deflated and stabilized.

Much of the bailout money has yet to materialize into the market. Also many nations are still holding onto US dollars. China has already hinted that they are going to stop. Also, foreign markets are still buying our bonds and holding back inflation. This can only go on for so long. Once China and the other counties realize that we can't pay them back they will cut their losses and leave us to our own devices and people will be looking for "real money".

I don't think you would end up sorry for buying gold. You should do your own research but I would not be surprised to see Gold 2000 within the next two to three years.

Edited by Rearden_Steel
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Things like inflation can be very difficult to predict. Several years ago I was writing about gold being at about $300 per ounce. It is now around $900 per ounce, but I don't think prices have gone up by 300% across the board and inflation is only about, what is it 3%? As some have already mentioned, there are ways of keeping dollars out of circulation in the short run, but in the long run, I bet we do have high inflation (over 10%) and gold may continue to go up. I don't see gold coming down unless something drastic happens to a lot of dollar bills or electronic dollars -- like they get destroyed somehow, especially in the United Sates. One reason you diversify, however, is the inherent risk in investing in anything. If one thing doesn't pay out another might. Can't say I think gold will go all the way up to $2000 per ounce, but then again, there have been people predicting $3000 per ounce for quite some time. If I had some discretionary money, I might invest in gold mining stocks that made a profit at $300 per ounce, but those prices are probably already factored into the market. Also, timing is a big element. What you might want to do is take a look back at the 1970 when inflation was around 15% and see if you can correlate that with what the Fed was doing at the time and years before that; this would give you a retrospective time-line to better judge when inflation will kick in. Basically, all those trillions of dollars in extra cash thrust on the market are not there yet, but when they do, I expect high inflation -- but that might not even happen until the next Presidential election, since current administrations always try to hide negatively impacting economics as much as they can.

Also, yes there is a lot of dollars floating around off shore from the Continental United States. I asked Yaron Brook once years ago what would happen if they all came back at about the same time and he said that would not be good at all. If those kinds of signals happen, look for rapid inflation right around the corner.The point is that if those extra dollars are not circulating in our economy, it's not going to create inflation.

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I'm kind of uncertain about gold because I was sure that we would have dramatic inflation sometime this year, but that isn't happening yet, and gold seems to have deflated and stabilized.
The problem with the inflation thesis is that most money in the modern economy is credit money, and it takes two people to play that game: the one giving credit and the one taking it. Just because the Fed pumps credit into banks does not mean that people want to take it. Everyone is either guarding or repairing their balance-sheets. Meanwhile, people are willing to work for less. Bids for the new government "stimulus" contracts in California are coming in at nearly 50%-60% of estimates.

Prices will probably rise, but expect them to rise reluctantly at first. Also, don't make any large bets on a hyper-price-rise scenario -- you'd be better served assuming higher than normal price-rises, but over a 4-5 year time-frame and also not the 20% and higher levels that a few people predict. Can it happen in a year? Sure; but anyone who says so with confidence is like an astrologer.

If you're thinking hyper-price-rise, read this, this and this. Also, a lot of people are saying that the Fed will not be able to pull the money out of the economy. That is not true. The Fed will not be able to pull all the new money out of the economy; but, it can pull a significant percentage out.

In the final analysis, the prediction of what happens in the next ten years is primarily a question of politics, and only secondarily a matter of economics.

Finally, getting back to the theme of gold, consider this: people are being paid almost $7 if they agree to buy gold (approx) @ $700 per ounce, keeping that option open till Jan 2011. (source). You can view that as a warning that Gold is nowhere near being guaranteed to go up in the next two years. Or, alternatively, you can view that as free money for the picking.

Edited by softwareNerd
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The problem with the inflation thesis is that most money in the modern economy is credit money, and it takes two people to play that game: the one giving credit and the one taking it. Just because the Fed pumps credit into banks does not mean that people want to take it. Everyone is either guarding or repairing their balance-sheets. Meanwhile, people are willing to work for less. Bids for the new government "stimulus" contracts in California are coming in at nearly 50%-60% of estimates.

Your right, credit is retracting in the private industry but in other areas its exploding such as with the government. You can count on the government to spend every trillion dollars that they have borrowed. We have increased the supply of dollars but the demand for dollars increased because of a rush for liquidity. This is one of the reasons that the government has been able to pay for the bailouts its because we have had this influx of cash from out side sources. But this can only go on for so long.

Prices will probably rise, but expect them to rise reluctantly at first. Also, don't make any large bets on a hyper-price-rise scenario -- you'd be better served assuming higher than normal price-rises, but over a 4-5 year time-frame and also not the 20% and higher levels that a few people predict. Can it happen in a year? Sure; but anyone who says so with confidence is like an astrologer.

Whats going on right now is de-leveraging, and this is benefiting the dollar, so despite the terrible fundamentals for the dollar, it still goes up anyway.

But ultimately, when this "fools" rally runs out (and it will), the dollar is going to collapse, and that’s when we’re going to have a much greater crisis because now you’re going to have a collapsing dollar, which is going to push long-term interest rates up, commodity prices up.

If you're thinking hyper-price-rise, read this,

this and this. Also, a lot of people are saying that the Fed will not be able to pull the money out of the economy. That is not true. The Fed will not be able to pull all the new money out of the economy; but, it can pull a significant percentage out.

How is that exactly?

Finally, getting back to the theme of gold, consider this: people are being paid almost $7 if they agree to buy gold (approx) @ $700 per ounce, keeping that option open till Jan 2011. (source). You can view that as a warning that Gold is nowhere near being guaranteed to go up in the next two years. Or, alternatively, you can view that as free money for the picking.

Has SPDR GLD not been doing great? PRECIOUS-Gold inches up, ETF unchanged near record One of the reasons your getting paid $7 is because of the inherited risk in that particular option. There is a lot of different Gold ETFs and they are sold in many different baskets. This one particular option says very little over the overall demand for gold. Have you seen Gold bug prices lately? Also, recently Goldman Sachs lifted its three-month gold forecast to $1,000 an ounce from $700 an ounce, citing safe-haven demand for gold.

Edited by Rearden_Steel
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How is that exactly?
The process itself is simple: they simply stop doing certain things and reverse certain others. A fair percentage of the new money is extremely short-term and will disappear if not "renewed". In terms of intent to reverse, it is the declared intent of the Fed to start the process when they see CPI stay well above 2% for a while. Still, even with total intent, the Fed will technically be unable to pull out all the supply, particularly of longer-term money that it has only recently begun to create. There's many a (political) slip between the cup and lip, which would make one suspect CPI will be allowed to rise rather than bearing the political cost of higher interest rates. However, at some place down that path, one is faced with both higher interest rates and higher CPI. (Think "Whip Inflation Now" buttons.) That point of reckoning is the key point, and it will likely not come in Obama's first term. Which route the U.S. takes at that point is a political estimate, not something economics can tell one.

I know you don't like Shedlock, but check out the other two links for more info.

Has SPDR GLD not been doing great? PRECIOUS-Gold inches up, ETF unchanged near record One of the reasons your getting paid $7 is because of the inherited risk in that particular option. There is a lot of different Gold ETFs and they are sold in many different baskets. This one particular option says very little over the overall demand for gold. Have you seen Gold bug prices lately? Also, recently Goldman Sachs lifted its three-month gold forecast to $1,000 an ounce from $700 an ounce, citing safe-haven demand for gold.
I don't mean to imply that gold won't go higher, even much higher. I'm net long gold myself. BTW: Investment demand has been strong, but the run-up to $1,000 was driven by a decent consumption-demand which is slackening. That will come back once people in India and China start to feel stable; however, if one is looking out a full generation ahead, one should also be aware that there are cultural factors (specifically a more modern world-view) that play a role in reducing the consumption-attractiveness of gold. Edited by softwareNerd
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Here is an interesting conundrum: How can we be living in an age in which the Feds are printing out more and more bills, and yet be in a deflationary time period? I think George Reisman's article on Deflation answers this question. Basically, he shows that so long as people are holding on to their money by saving it instead of spending it, then the total amount of dollars in circulation is decreased, leading to deflation. One might say that their savings is in banks and therefore in circulation, but that won't happen until more loans are being made. I would argue that we are not in a deflationary time period because the Feds have cut back on the amount of printed dollars that are out there, but rather those printed dollars are not in circulation, and therefore we do not yet inflation. However, at some point, those dollars will become in circulation, say as the economy picks up and people aren't as afraid of losing their jobs, or alternatively, if the trade imbalance goes from overseas dollars buying up American goods and services. Either way, more dollars will come flooding into circulation, leading to inflation.

I can tell you this, in today's market one cannot up one's prices and expect to make sales, because people do not want to spend their dollars. The Feds are trying to manipulate people into spending rather than saving, due to their false consumerism based economics, and if that happens, then there will be a whole lot of dollars out there driving up prices.

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The process itself is simple: they simply stop doing certain things and reverse certain others. A fair percentage of the new money is extremely short-term and will disappear if not "renewed". In terms of intent to reverse, it is the declared intent of the Fed to start the process when they see CPI stay well above 2% for a while. Still, even with total intent, the Fed will technically be unable to pull out all the supply, particularly of longer-term money that it has only recently begun to create. There's many a (political) slip between the cup and lip, which would make one suspect CPI will be allowed to rise rather than bearing the political cost of higher interest rates. However, at some place down that path, one is faced with both higher interest rates and higher CPI. (Think "Whip Inflation Now" buttons.) That point of reckoning is the key point, and it will likely not come in Obama's first term. Which route the U.S. takes at that point is a political estimate, not something economics can tell one.

If this was two or three years ago I might have agreed. However, too much of the Feds wheeling and dealing has changed the rules of the game.

Beneke has recently said in response to inflation fears something very similar to what you said. That it would be easy for the fed to remove all that excess liquidity. But recently there is a story out from Bloomberg that says the federal reserve may offer investors longer term loans at higher interest rates to buy commercial mortgage back securities.

Lobbyists in the commercial mortgage-backed securities industry say the Fed needs to provide loans of at least five years, rather than the current three-year limit, to avert a meltdown in the market. Fed officials, wary of granting the request outright, are considering a compromise in altering terms of its $1 trillion emergency-lending program.

The federal reserve received applications to borrow are down is 64% from March. The problem is that investors are demanding longer loans in order to join the TALF. Which raises the problem that FED normally raises the federal funds rate to fight inflation by selling treasuries that are on its balance sheet. This drains liquidity from the reserves of bank system.

The Fed normally raises the benchmark federal funds rate by selling Treasuries on its balance sheet, further draining reserves from the banking system. That task is tougher with the Fed’s commitment last month to buy more than $1 trillion in mortgage- backed securities, which are harder to sell quickly without roiling markets or potentially attracting political scrutiny. TALF loans in particular would be difficult for the Fed to move.

Beneke claiming that he can quickly remove this liquidity to fight inflation is completely wrong. Michael Pento recently pointed out he is wrong for exactly five reasons:

1 The Amount of securities that are on its balance sheet are much much greater than they have ever been before.

2 The types of securities that the federal reserves holds will make it absolutely impossible to sell them quickly without causing great disturbance in the market.

3 The duration of the securities on his balance sheet likewise will also make it very difficult to remove liquidity at the right time.

4 The amount of leverage in the economy will be so great that any attempts to raise interest rates will cause horrible and significant damage.

5 Bank assets are collecting money now at a little over 4% because were buying long-term treasures and coupon passes and keeping rates artificially low. So the federal reserve can't raise rates significantly without turning banks balance sheets upside down.

So the bottom line is the Fed and the government has dug themselves and us into a very deep hole and there is no way out except through inflation. I would position myself and my portfolio to counter act the coming inflation.

Edited by Rearden_Steel
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What is your investment objective?! Are you a long- or short-term investor? Can you tolerate daily/weekly/monthly/annual market fluctuations or are you having trouble sleeping at night?

And to answer your question about whether you should sell or not, buy low/sell high.

It sounds like you're being an emotional investor (which is typical of people who go at it alone, I might add.) You need to figure out what your plan is and stick with it, assuming you're a long-term investor.

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  • 1 month later...

I have a little investment story to tell.

When I opened an IRA in late 2007, my broker suggested some nice, high-yield dividend paying ETF's and closed-end funds. (High dividends are good for retirement funds because they are non-taxable.)

During the crash of 2008, I had about 45K in my portfolio, and about 80% of that vanished in a few months.

When I decided to invest on my own in 2009, I sold the obvious losers in my portfolios, but did not investigate some funds until today. When I did some research, I realized that most of my portfolio was invested in sub-prime mortgages! This seems really dumb today, but even then (though I am a young, aggressive investor), it was probably not such a good idea.

Doing some research today, I read from some newsgroups, that the funds in question were basically created up by firms that wanted to get rid of them, and then sold to investment advisors by paying them fat kickbacks when their clients invested in them. The posts claim that the investment firms and advisors knew that the funds were overvalued, and basically defrauded the clueless individual investors.

Does this apply to me? I have no idea - maybe my broker was just incompetent, or didn’t care about me - but it certainly seems like a risky strategy to invest such a large portion of my retirement funds in such a scheme. I think the lesson here is to never take the advice of an “expert” for granted.

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Your advisor sounds like someone who wanted to get money rather than make it. Unfortunately there are all too many financial advisers who are actually salesmen for specific investments.

I agree often times brokers tried to push these stocks while while the banks their "real clients" were trying to get rid of them.

Edited by Rearden_Steel
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Getting a good, honest broker is probably a big task in and of itself.

Like finding a good dentist, doctor or mechanic. Just because they have a title doesn't mean they won't either rip you off or are just plain incompetent.

As far as gold investments...I am always wary of potential weimer/doomsday scenarios as justifications for investing in gold. Gold and gold mines seem to be the perfect target to be nationalized/confiscated in such an event, and if things ever get really bad (riots, civil unrest, civil war, whatever - I am not advocating that these would actually happen, but assuming such does,) and the US sees a big hit in production, people will want to barter useable goods - food, water, spices, guns, ammo and the like. So I never thought of the stock market or any investments that aren't both tangible and safely stored in a place I can physically access as worthwhile for preparation of that sort.

Regardless, I am glad you are up at this time, David. I hope your strategy works out.

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  • 1 month later...

I promised to provided details of my strategy, so here is a quick mid-year summary:

(Green is me, blue is S&P 500)

post-1-1249244892_thumb.gif

Details:

post-1-1249244713_thumb.gif

I also have GDX in my other account, which is 13.78% up.

As you can see, the only dissapointment is gold.

Edited by GreedyCapitalist
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Excellent returns. How did you pick your stocks? Mine have tanked so much it's not even worth keeping my account open :dough:

I didn't really pick stocks. I just decided which sectors of the market would do well, which sectors would counter-balance those sectors if I guessed wrong, and then invested in index funds (ETF's) for those sectors. Just so I wouldn't have everything in ETF's, I went to E-trade's "hot picks" section, and picked a stock and a fund (CHNR, FCNTX) which matched my objectives.

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As you can see, the only dissapointment is gold.

I had the good fortune to attend a small Q&A with Warren Buffett a few years ago and one of my fellow students inquired about investing in physical gold. He gave a rather memorable reply which I will attempt to paraphrase from memory. "You pay a guy to dig it out of the ground. You pay another guy to smelt it down. Then you pay another guy to dig another hole in the ground. Finally, you pay a guy to stand guard over it. It has no utility just sitting there. Anyone watching from Mars would be scratching their heads."

If you are looking for a good book to read on investing I would recommend "The Intelligent Investor" by Benjamin Graham. One other word of advice that comes from painful experience. You can learn just as well from a $500 mistake as you can from a $50,000 mistake.

Edited by Mixon
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