patrick.net

Burbed.com has a nice piece on Bay Area intangibles. Here is an excerpt:

New York has the Statue of Liberty and the Empire State Museum - we have the Winchester Mystery Mansion.
Washington DC has the Smithsonian - we have the San Jose Museum of Art
Egypt has the pyramids - we have the Fry’s in Campbell
Boston has the birth of America - we have Great America.
The Mediterranean has villages - we have Santana Row.
London has the Tube - we have Light Rail.
Alaska has glaciers - we have Valco.
China has the Great Wall - we have the Great Mall of Milpitas.
Everywhere else has an airport - we have Terminal C at SJC.
Paris has Champs Elysées - we have El Camino Real.
Asia has Shanghai, Hong Kong, Taipei - we have Cupertino Village.

See, no bubble. ;)

"Set against these hard assets (or necessary consumables), doesn’t gold strike you as a bubble?"

I'm putting my money in forged knives and tomato seeds...

Randy and Owneroccupier, check your gmail

I'm putting all my money in cushie toys and chick lit.

Peter P,

Too funny! Burbed? Now I've got to check it out.

George,

I agree. We can't compete with the efficiency of big operations. However, I think the dumb money will follow us. Gold is still quite cheap by historical standards. Furthermore, gold hasn't edged up much against the Euro. We're just hedging for the hidden depreciation of the almighty dollar.

SFWoman,

I am concerned about bird flu. We've dodged a replay of 1918 for a while now, maybe we're due for something.

Keep in mind that Tulipmania was happening in the shadow of Black Death.

Randy,

I suggest buying up worthless old coins of EU nations and melting those down if you want to - think Czech Korunnas, Swedish pennies, one franc coins etc.

If you can find some around and you want to melt them down, check this out:

http://tinyurl.com/nju9p

Also, if you want to melt down Canadian pennies, they need to be the old ones:

http://tinyurl.com/l5nu3

SFWoman,

Welcome back btw! Globetrotting? Anyway are sure that article wasn't writtem by Kim CARNES? Ma'am, there isn't a lot any of us can do about bird flu, landslides or gas prices but the one thing we can do is our checkbooks snug, safe and secure at home when it comes to fluffy RE prices!

Keep in mind that Tulipmania was happening in the shadow of Black Death.

Planetary influences.

Peter P,

When will the planets be aligned for a run on high carbon steel knives? :P

Conor,

I guess that's O.K. I sure don't want to get on a soapbox on a Friday. I have a 2:00pm appt. in the city and this will keep my "low beer warning indicator" illuminating intemittently a little longer. So forgive me if I seem a little "edgy". Anyway, that's the difference between representing yourself and representing a client. SQT (help me out here a little). When an individual miscalulates the entry point, it's no big deal b/c either he/she was going to hold it long term or; the were going to dollar cost average. Traders and brokers get flamed by their boss and fund managers are given a quarter to get it "cleaned up" or they are gone. I guess the question here is that if you were managing some kind of gold account for me what would be my index be to track your performance against? Anytime we invest, we have options so if you put me into gold and it's flat or only slightly up when the S+P 500 is taking off or REIT's are going through the roof you have my speculative capital in the wrong asset class. The relationship and your credibility are strained. TTIYF.

If a lemming wants to buy a house, he gets an absurd neg-amo interest-only ARM which he never intends to pay back. If a lemming wants to buy gold he pays for it with 100% cash.

With gold futures ont can control 100oz with as little as $2500 on eCBOT.

This amounts to a leverage greater than 1:25.

NOT INVESTMENT ADVICE

Conor,

I do get your meaning and your words have not fallen on deaf ears! Btw, the eCBOT players in Peter's scenario have more skin in the game than the avg. homebuyer today.

At least the commodities exchanges RAISE margin requirements during volatile markets, which sadly isn’t the case with equities or housing, as we’ve seen over the past several years.

Exchanges are more concerned over daily fluctuations when setting margin requirements. They do not care if speculators will lose money or not.

If anyone has to ask about whether or not a futures account is appropriate for them, the answer is no.

Unless that someone has some colored jackets in his closet. :)

Conor,

True. I try not to get roped into the "benchmark game" if at all possible. It leads to golden statements like; The R2K is down 28% YTD and your account is only down 26.5% so Mr. Client, you are actually outperforming the market. Ahem.

I’m worried about a sharp gold pullback to a certain extent — a quick drop to $550-600 is in the realm of possibility, imho, but in the long run I think gold is going much, much higher.

I share the same sentiment.

It is frustrating that GLD does not have options. It would be nice to setup a collar now.

NOT INVESTMENT ADVICE

Bork, it is often irrational behavior that bring prices to a new high. Gold is still mostly a precious metal and a form of currency. If you want industrial uses, look into silver.

NOT INVESTMENT ADVICE

35$ to 850$ over 10 years: 37% annual growth
670$ to 5000$ over 10 years: 22% annual growth

(rough figures)

Conor,

Exactly! I think the next time I get an earful from a fund manager about "upside/downside" capture I'm going to go off!

$850 to $270 over 15 years factoring in inflation: losing your shirt

You guys are supposed to be contrarians in your housing position. Why follow this gold rush crowd?

Gold will form a bubble sooner or later. There are not many places left for dumb money to roam free.

NOT INVESTMENT ADVICE

SQT: I think it’s an acknowledgment of another bubble combined with the hope of taking advantage of this one.

Gold fell from that $850 peak to $490 in less than 6 months followed by a suckers rally.

Best of luck. Anybody want to buy my remaining Eagles?

Gold fell from that $850 peak to $490 in less than 6 months followed by a suckers rally.

So?

SQT Says:

You guys are supposed to be contrarians in your housing position. Why follow this gold rush crowd?

I think it’s an acknowledgment of another bubble combined with the hope of taking advantage of this one.

It could be true. The Gold bubble hasn't even begun by most definitions of the bubble. We are still in the doubt phase, questioning why it is moving higher, and how it is going to crash. It will be bubble when everyone is defending why it will continue to go up. That has been mentioned quite a few times.

But isn't a good diversified portfolio supposed to have SOME exposure to precious metals, commodities etc ? The % amount would be different for different fold depending on the circumstances.

Some may be trying to cash in on the next big thing. But there is now a new sense of urgency that is in large part driven by the fear of imminent devaluation of US$ over LONG term, and taking a hedging position. In this aspect, it is consistent for bloggers here to evaluate Gold as the hedge.

Other hedges are other commodities and bonds/stocks in other currencies. Again, a diversified portfolio should have SOME exposure to other currencies.

NOT AN INVESTMENT ADVICE

I guess I’m still not seeing the gold bubble. Other than chatter on some blogs and late-night infomercials I don’t see the gold mania anywhere.

It is too early to tell if there is a gold bubble. It is impossible to ascertain whether there is a gold bubble now, although there may be regional gold froth.

Peter P,

Didn't the same old wise sage also said "Bubble can be identified only in retrospect" or something like that ? Or who said it ?

Or who said it ?

That green wise sage.

There are not many places left for dumb money to roam free.

With pergraniteel in every kitchen, the discerning homeowner needs a way to stand out from the crowd. As any executive chef will tell you, the quality of a cook can be seen in his knives. With a set of Japanese blades hand-forged in the traditional matter, you too can send a message to your visitors that you can afford the very best. A good set of knives, like a good home, can last for a lifetime, and prices will only go up.

etc., etc.

Peter P: So?

High Beta -> High Return in the stock market.

Normalize gold by dollar inflation and its return doesn't justify these spikes.

So where do you hide your loot against dollar inflation? I confess I'm not sure although oil stocks have been pretty good. Eurobank trims too much off the top. Go gold if you want for a small part of your portfolio, but if you bank the nest egg, you're as risk-taking as the ARM interest only crowd. I bet you'd sleep more soundly with 5% short-term CDs.

NOT INVESTMENT ADVICE

Notsomuch “contrarian” as doomsday

You'd be better off with that 1000lbs rice-equivalent. Best case, you can eat it. If Bird flu or worse event hit, it'd be a lot more valuable than 1 oz of shiny stuff. Those knives aren't a bad idea either.

It's all game-theory. You can prepare for total worldly disaster and if you're wrong, you've wasted a lot of money. On the small chance that you're right, you've got lots of other problems as well. What's the table payoff?

That being said, definitely go out an buy your 72+ hour earthquake kit. Don't forget the dog/cat food. That will happen.

SQT: And you may be right, there might not be a gold bubble in the making. I only speculate that there is because of all the talk going on. It seems as if it could be the new “hot thing” in the making.

I had IB friends in NYC calling Gold in 2000. I wish I'd listened.

Normalize gold by dollar inflation and its return doesn’t justify these spikes.

This is exactly the problem with gold as a portfolio variable. The volatility is too high to justify the expected returns.

Of course, if you're wanting to patiently accumulate gold over a very long period of time as a personal hedge, that is reasonable in my opinion...so long as you have no credit card debt, no variable home equity debt, and no other "free money" obligations (like student loans or 0.9% auto financing).

Randy H: This is exactly the problem with gold as a portfolio variable. The volatility is too high to justify the expected returns.

Phew. Now that the Amazing Randy has backed my stance, I can relax and get back to work. ;-)

So far it looks like the board is roughly evenly divided on the Gold bubble issue:

--pro-Gold--
George
Conor
rat patrol
Owneroccupier
Astrid
re_2_au

--anti-Gold--
Randy H
Peter P
Mr. Vincent
FRIFY
nomadtoons2

The rest are (like me) not well informed enough at this point to make any big financial moves on precious metals without more understanding of these markets.

Here are some of my observations and questions:

1. Many pro-golders insist that today's valuations (against USD) while high vs. a few years ago are still historically low, with lots of upside potential. Anti-golders insist prices today are already too high, and are primed for a pull-back.

Q: As a gold-novice, how do I evaluate/reconcile these opposing positions based on empirical bias-free data?

2. There seems to be some confusion in terms of buying gold/metals to use as a capital/savings preserving HEDGE against Fed inflation vs. SPECULATION to make a quick killing and cash out. Big difference. I think most pro-golders here are being unfairly accused of being speculators, when they are hedgers just trying to guard their savings against the ravages of off-the-books inflation.

3. Anti-golders insist metals have little value outside their industrial/commercial use (jewelry, speculation, etc.) and could --theoretically-- fall to a fraction of today's prices. Pro-golders insist that much gold production is already for commercial/industrial use, and that any decline in gold's value is inherently limited, due to practical limits on physical extraction/mining.

Q: Who's right? What % of annual gold production is used for commercial/industrial purpose vs. jewelry or speculation? How can we go about determining a bias-free "fair market" or "fundamental" value of gold & other precious metals? Is there some kind of P-E or Rent-PITI ratio for metals?

too bad gold is too soft for knife making...maybe I should invest in a platinum knife...

According to my old National Geographic, gold pans make a superb omelet.

George,

What you're referring to was known as the era of the "Strong Dollar Policy". It's generally acknowledged now that the effects of that policy were to essentially wreck the US as a manufacturing base. Remember, strong USD = weak US exports. This is exactly why the Chinese keep buying (and will continue to keep buying) USD, to keep the RMB cheap enough for us to buy their stuff.

A weakening of the USD can have very strategically positive effects. The ZIRP guys aren't morons, just radical in their proposal. Mind you, I'm against any kind of dollar policy, weak or strong. That said, a weak dollar would eventually cause a huge rebalancing in the US trade deficit, capital flows, and current account balance. Moreover, it would force the host of nations that peg, fix and tie their currencies to the USD to either (a) subsidize us heavily, which politically won't cause anyone here to lose any tears given that the US consumer has essentially built their nations, not to mention the lost US labor and service jobs; or (b) break from the USD and pay the full price of inflation themselves; they're now essentially free riders on the back of US inflation.

Maybe I'm too much of a contrarian, but I'm not all so desperate and negative about the future of this country. Someone earlier said we make nothing here anymore. This is categorically false, even though it is the popular perception. US manufacturing is extremely capital efficient, productive and flexible compared to the Asian Tigers. Compare US mfg productivity to Korea, for example. US agriculture is unparalleled. The US is still creating (yes creating) more engineering and info-comp jobs than it is offshoring. The US is, despite the attempts by the current administration to destroy our progress, the unchallenged world leader in biotech, genetic R&D and related therapies.

The US engine of innovation is still very much alive, even if not as much so as last century. It will take a long long time for the sun to set on the US. Look, even Europe still produces things of value from time to time, and their empires have been dead for over a century now.

I think we're undergoing a major global economic rebalancing right now. And, if that is the case, the US is not a bad place to be. This is even more true as the world very much seems to be balkanizing, if anything. The future probably holds less globalization, more trade barriers, and lots of state-controlled industries in most countries--mainly related to energy. I say, let them try. They didn't learn their lesson the last 3 times they tried that, let them have another whirl -- it'll hurt them a lot worse than us.

Randy,

That's an argument to stay out of the exporting countries, but not for staying out of commodities. Even if US is in a relatively stronger position compared to those countries, we can still see our living standards degrade or stagnate in the coming years.