patrick.net

tatupu70 says

Nope--I get it. You clearly don't. The other side of the trade ISN'T an inflation hedge, now, is it?? Nice try. Someone hedging against inflation is NOT speculating. End of story.

Really? If a retiree allocates half his savings to gold as inflation hedge in the current environment, that's not speculation on gold? How about if he lets a hedge fund do it for him? By your logic, is anyone speculating at all? LOL.

tatupu70 says

The vast majority of contracts on both sides on a commodity futures market are bought and sold by speculators.

And those speculative trades have NOTHING to do with the interst rates at the time. Or Fed printing.

Do you not realize FED printing and artficially holding interest rates low caused the explosive rise in volume and price in the commodity futures market both in the 1970's and in the past decade and half? Do you live under a rock? or on Mars? Do everything here on hearth sound like hypothetical to you?

tatupu70 says

Reality says

Buying is a speculation that the one-time purchase at a fixed price (usually translating into "fixed" installment payments) will come out ahead of paying rents on a comparable house.

That's not speculation. One knows the approximate rental price and the house payments. That is investing.

Investing is always speculating on the future. How is that Kodak stock working out for you?

Reality says

If a retiree allocates half his savings to gold as inflation hedge in the current environment, that's not speculation on gold? How about if he lets a hedge fund do it for him? By your logic, is anyone speculating at all? LOL.

Do you understand what hedging is? It doesn't sound like it.

Reality says

Do you not realize FED printing and artficially holding interest rates low caused the explosive rise in volume and price in the commodity futures market both in the 1970's and in the past decade and half? Do you live under a rock? or on Mars? Do everything here on hearth sound like hypothetical to you?

I realize that you believe everything is caused by the Fed. And that all problems boil down to one common theme. Government bad.

Reality says

Investing is always speculating on the future. How is that Kodak stock working out for you?

OK--here is a primer on what the term speculation means wrt economics.

http://glossary.econguru.com/economic-term/speculation

There are several others, but even you should be able to see how hedging and buying a home to live in it do NOT apply.

Reality says

You are the idiot who forgot the basic philosophy of distaste for government that led to the independence of America. Government being dangerous was the most fundamental understanding among the founding fathers and their literature.

Wrong. They had no distaste for government. They were almost all successful businesmen and landowners. They were well aware of the need for government for their own protection and success. They had a distaste for government that didn't reflect the will of the people. Go look up no taxation without representation. I will say your views of history are most entertaining however.

bob2356 says

Wrong. They had no distaste for government. They were almost all successful businesmen and landowners. They were well aware of the need for government for their own protection and success. They had a distaste for government that didn't reflect the will of the people. Go look up no taxation without representation. I will say your views of history are most entertaining however.

So is that why they rejected representation when the British government offered representation? "No taxation without representation" was a convenient slogan but what they really wanted was no taxation period (or at least much less of it).

Their distaste (i.e. lack of enthusiasm) for government was clearly expressed in:

"Governments that govern the least often govern the best"

"Government is a necessary evil, but evil nonetheless"

tatupu70 says

If a retiree allocates half his savings to gold as inflation hedge in the current environment, that's not speculation on gold? How about if he lets a hedge fund do it for him? By your logic, is anyone speculating at all? LOL.

Do you understand what hedging is? It doesn't sound like it.

Of course I know. Hedging is a counter-veiling speculative position betting in the opposite direction of the main porfolio exposure. However, since everyone is exposed to inflation in everyday life, an inflation hedge is a speculation on inflation.

tatupu70 says

Do you not realize FED printing and artficially holding interest rates low caused the explosive rise in volume and price in the commodity futures market both in the 1970's and in the past decade and half? Do you live under a rock? or on Mars? Do everything here on hearth sound like hypothetical to you?

I realize that you believe everything is caused by the Fed. And that all problems boil down to one common theme. Government bad.

Do you want to stick with the specifics of the 1970's and the past decade's commodity inflation, or do you sense that you are losing the argument and therefore would prefer switching to personal attacks instead?

BTW, you have my main theme wrong. It's not that government per se is bad, but coercion is bad. I already stated numerous times that in my view there is one and only one legit role for government: keeping out an even worse version of itself. Whenever government strays away from that one role, its actions (i.e. coercions) are bad.

tatupu70 says

Investing is always speculating on the future. How is that Kodak stock working out for you?

OK--here is a primer on what the term speculation means wrt economics.

http://glossary.econguru.com/economic-term/speculation

There are several others, but even you should be able to see how hedging and buying a home to live in it do NOT apply.

Are you serious? I'm not an idiot that believes in everything that "is written." However, even by the definition cited by you above, inflation hedge is certainly a speculation: buying low now hoping to sell later at a higher price caused by inflation.

By that very definition, buying a home to live in is also speculation: how many people would buy homes if they do not hope to seller later for higher price than their own purchase price? If they truly believe price would go down during the entirety of their ownership, wouldn't they decide to rent instead? Like so many bears on this board?

Reality says

Of course I know. Hedging is a counter-veiling speculative position betting in the opposite direction of the main porfolio exposure. However, since everyone is exposed inflation in everyday life, an inflation hedge is a speculation on inflation.

Nope--you don't understand hedging at all. A hedge, by definition, is guarding ones portfolio. It's designed to reduce variability/risk, not produce gains.

It is not speculative under any scenario.
http://www.investopedia.com/terms/h/hedge.asp

tatupu70 says

Reality says

Of course I know. Hedging is a counter-veiling speculative position betting in the opposite direction of the main porfolio exposure. However, since everyone is exposed inflation in everyday life, an inflation hedge is a speculation on inflation.

Nope--you don't understand hedging at all. A hedge, by definition, is guarding ones portfolio. It's designed to reduce variability/risk, not produce gains.

It is not speculative under any scenario.

http://www.investopedia.com/terms/h/hedge.asp

What's there to "Nope" about? The very definition you cited was essentially a restatement of what I wrote above in my post.

Perhaps you fail to realize, hedging is part of most speculative strategies.

Reality says

Are you serious? I'm not an idiot that believes in everything that "is written." However, even by the definition cited by you above, inflation hedge is certainly a speculation: buying low now hoping to sell later at a higher price caused by inflation.

By that very definition, buying a home to live in is also speculation: how many people would buy homes if they do not hope to seller later for higher price than their own purchase price? If they truly believe price would go down during the entirety of their ownership, wouldn't they decide to rent instead? Like so many bears on this board?

Obviously--you don't believe a lot of what is written. You frequently make up your own definitions. I would argue about your first sentence though...

Sersiously--give it up. Buying a home is not speculation. If I'm saving $500/month owning over the life of my stay, I'd gladly sell it for no capital appreciation.

Regardless--you seem to think that any transaction that has a possiblity of loss is speculation. That is 100% incorrect.

Reality says

What's there to "Nope" about? The very definition you cited was essentially a restatement of what I wrote above in my post.

An inflation hedge is NOT speculation, that's what. Give it up already.

tatupu70 says

Obviously--you don't believe a lot of what is written. You frequently make up your own definitions. I would argue about your first sentence though...

Not everything that "is written" is necessarily valid. Otherwise, you might as well worship what I have written.

Sersiously--give it up. Buying a home is not speculation. If I'm saving $500/month owning over the life of my stay, I'd gladly sell it for no capital appreciation.

Because you do not know for certain what will happen over the life of your stay, you decision is based on speculation on future cash flow difference. Also, notice, you said "sell it for no capital appreciation" in your own Freudian slip; you are speculating on no (massive) price drop!

Regardless--you seem to think that any transaction that has a possiblity of loss is speculation. That is 100% incorrect.

Here is the Merrian-Webster definition of "speculation":

=========
: ideas or guesses about something that is not known

: activity in which someone buys and sells things (such as stocks or pieces of property) in the hope of making a large profit but with the risk of a large loss
===========

Looks like I'm 100% correct.

tatupu70 says

Reality says

What's there to "Nope" about? The very definition you cited was essentially a restatement of what I wrote above in my post.

An inflation hedge is NOT speculation, that's what. Give it up already.

So you say, despite the standard dictionary definition, and despite the definition provided by your own citation: buy low in the hopes of selling high. What kind inflation hedge would it be if the hope is to buy high and sell low? That of a Moron?

Reality says

So you say, despite the standard dictionary definition, and despite the definition provided by your own citation: buy low in the hopes of selling high. What kind inflation hedge would it be if the hope is to buy high and sell low? That of a Moron?

Are you really this dense?? You're missing the key point of hedging. It's to reduce risk. Not capital gain.

tatupu70 says

Reality says

So you say, despite the standard dictionary definition, and despite the definition provided by your own citation: buy low in the hopes of selling high. What kind inflation hedge would it be if the hope is to buy high and sell low? That of a Moron?

Are you really this dense?? You're missing the key point of hedging. It's to reduce risk. Not capital gain.

You are the dense one here. Buying inflation hedges is hoping (nominal) capital gains from those hedge positions would offset inflation risks that exist in other aspects of one's life. Once a class of assets are identified suitable as "inflation hedges," even more speculators would come in and attempt to front-run the hedge positions themselves. That's the crux of the debate. Commodities are usually identified as inflation hedges, therefore not only speculative positions are taken up as hedges but also additional speculators coming in to bid on them. FED money printing make those speculative positions profitable.

Reality says

Because you do not know for certain what will happen over the life of your stay, you decision is based on speculation on future cash flow difference. Also, notice, you said "sell it for no capital appreciation" in your own Freudian slip; you are speculating on no (massive) price drop!

Not a slip--you asked how many people would buy if not hoping to sell for a higher price. I pointed out that most would if it was cheaper.

Reality says

Here is the Merrian-Webster definition of "speculation":

=========

: ideas or guesses about something that is not known

: activity in which someone buys and sells things (such as stocks or pieces of property) in the hope of making a large profit but with the risk of a large loss

===========

Looks like I'm 100% correct.

You know you are wrong. Just give it up.

Reality says

Buying inflation hedges is hoping (nominal) capital gains from those hedge positions would offset inflation risks that exist in other aspects of one's life

Wrong. Do you buy insurance hoping for an accident so that it will return more than you paid in??

tatupu70 says

Because you do not know for certain what will happen over the life of your stay, you decision is based on speculation on future cash flow difference. Also, notice, you said "sell it for no capital appreciation" in your own Freudian slip; you are speculating on no (massive) price drop!

Not a slip--you asked how many people would buy if not hoping to sell for a higher price. I pointed out that most would if it was cheaper.

What was cheaper, than what? Regardless, buying future cash flow is obviously a form of speculation: on future cash flow (or differential against mortgage payment).

tatupu70 says

Here is the Merrian-Webster definition of "speculation":

=========


: ideas or guesses about something that is not known

: activity in which someone buys and sells things (such as stocks or pieces of property) in the hope of making a large profit but with the risk of a large loss


===========

Looks like I'm 100% correct.

You know you are wrong. Just give it up.

Are you serious? That's how you debate? The dictionary definition obviously has me correct, and you wrong.

Reality says

What was cheaper, than what? Regardless, buying future cash flow is obviously a form of speculation: on future cash flow (or differential against mortgage payment).

OK--let me try this. What is the difference between investing and speculation, in your opinion.

Reality says

Are you serious? That's how you debate? The dictionary definition obviously has me correct, and you wrong.

How are you right? That defintion is more vague, but doesn't invalidate anything I've said.

Hedging is not speculation. Hedging is a risk reduction mechanism. Nobody hedges hoping to make large capital appreciation--by definition they will be losing on their main investment. You know, the part of the portfolio that is being hedged. They will have lost money overall.

tatupu70 says

Reality says

Buying inflation hedges is hoping (nominal) capital gains from those hedge positions would offset inflation risks that exist in other aspects of one's life

Wrong. Do you buy insurance hoping for an accident so that it will return more than you paid in??

What does insurance have to do with this? What's wrong about my statement above? You don't hope for a (nominal) capital gain from the inflation hedge position to offset inflation in the event of inflation?

BTW, insurance is a form of gambling/speculation, and therefore is prohibitted according to quite a few religions.

tatupu70 says

Reality says

What was cheaper, than what? Regardless, buying future cash flow is obviously a form of speculation: on future cash flow (or differential against mortgage payment).

OK--let me try this. What is the difference between investing and speculation, in your opinion.

There is none. The perceived difference is only a psychological mechanism to make the practitioner feel better about him/herself. It's like the difference between making-love/having-sex/fuck. They are all exactly the same thing, perhaps with different shades of lipsticks applied.

I asked this question several posts back: how did you feel about your investment in Kodak stocks? Do I need to add "pets.com" to make it more clear?

tatupu70 says

Reality says

Are you serious? That's how you debate? The dictionary definition obviously has me correct, and you wrong.

How are you right? That defintion is more vague, but doesn't invalidate anything I've said.

Of course I was correct. Any activity/decision of which outcome depends on future uncertainty is speculative.

Hedging is not speculation. Hedging is a risk reduction mechanism. Nobody hedges hoping to make large capital appreciation--by definition they will be losing on their main investment.

In the case of inflation hedge, exposure in the main portfolio is called LIFE. The choice is between having inflation hedge (against declining living standards due to inflation) vs. suicide.

You know, the part of the portfolio that is being hedged. They will have lost money overall.

When the government pursue an inflationary policy, most people indeed lose regardless what they do.

Reality says

Of course I was correct. Any activity/decision of which outcome depends on future uncertainty is speculative.

Yes, of course. When you make up your own definitions, you are always correct.

tatupu70 says

Reality says

Of course I was correct. Any activity/decision of which outcome depends on future uncertainty is speculative.

Yes, of course. When you make up your own definitions, you are always correct.

I did not make up the definition. I was going by the definitions in the Marriem-Webster dictionary, and by the definition that you supplied. You are the one inventing your own definitions.

Reality says

t's like the difference between making-love/having-sex/fuck

So there's no difference between a wife and a hooker? You must spend a lot of time worrying about hairy palms.

bob2356 says

Reality says

t's like the difference between making-love/having-sex/fuck

So there's no difference between a wife and a hooker? You must spend a lot of time worrying about hairy palms.

The difference between the two is a legalistic one, regarding inheritance and shared responsibilities / rights. Being a wife has a longer investment time horizon (also speculative) than that of a hooker. I'm sure many hookers are wives, to their husbands.

Reality says

I was going by the definitions in the Marriem-Webster dictionary, and by the definition that you supplied.

No, actually you weren't. If you'll remember, the definition I posted contained this phrase

"Those who engage in speculation have no reason for buying the asset, other than resale at a later time"

So that pretty much kills your theory that buying a house is speculation.

And the definition of hedging contains this phrase

"Making an investment to reduce the risk of adverse price movements in an asset"

Nothing about capital appreciation.

So, you're not right. By any definition.

tatupu70 says

No, actually you weren't. If you'll remember, the definition I posted contained this phrase

"Those who engage in speculation have no reason for buying the asset, other than resale at a later time"

So that pretty much kills your theory that buying a house is speculation.

No it does not, for not just one but two reasons:

1. It is not necessary to buy a house to live in a house. So the decision to buy instead of rent does not derive from the need to have a house to live in.

2. On cash flow basis, the new home owner then is reselling the house's use to him/herself every single month at the owner-equivalent-rent (a term coined by BLS, accounting for the largest share of CPI). If the decision to buy the house instead of renting is based on owner-equivalent-rent being higher than mortgage payement (after factoring the cash flow equivalent value of down payment) then the decision was obviously speculation on the future cash flow difference, not the need to have a house to live in. If on a cash flow basis it is negative, then the main motivation for buying is likely even more speculative: on future RE appreciation.

tatupu70 says

And the definition of hedging contains this phrase

"Making an investment to reduce the risk of adverse price movements in an asset"

Nothing about capital appreciation.

So, you're not right. By any definition.

Inflation hedge has more broad ramifications than typical asset portfolio price movements. We were talking about commodities as inflation hedges. In that context, nominal capital appreciation in the commodity is the mechanism through which risk to inflation is reduced.

When I think of word "speculation" to me it means basically gambling. So for example, going all in on a company stock of a recent start up or going all in on a fund that's full of companies that have not shown any profit is "speculation." Investing on the other hand means to me accepting some risk and designing portfolio based on funds and companies within funds that have been around for a while where the fund performance can be judged relative to an index for a number of years. Also investing can be investing in an index fund itself. It essentially means accepting a reasonable level of risk inherent in a portfolio design and believing based on precedent that portfolio will outperform keeping that same amount of money in savings or CDs over an X number of years. Additionally, careful investors will dollar cost average to lessen the risk of going all in at the top which is something that people automatically do through their 401Ks. So, speculators are more like gamblers who bet in a sports book or blackjack while investrors have history and data on their side in their decision making process.

tatupu70 says

Reality says

70's was not a unique time

Of course it was. Do you understand the effects of demographics?

Reality says

Inflation hedging is of course speculation on inflation. Practically everything a person does with uncertain future result is a speculation, including buying a house (instead of renting and reserving the flexibility to move). FED money printing just makes certain one-way bets more profitable than they would be in the absence of FED money printing.

You need a primer on the difference between investing and speculation. Hedging, by definition, is NOT speculation. Buying a house to live in is almost never speculation.

When you're doing the buy vs rent math, your assumptions for house value appreciation and rent increases, are by definition, speculation.

Dublin,

The Wall Street and mutual fund industry have done a very good job brainwashing the masses, as your eloquent regurgitation shows (nothing personal). It is crucial that they paint a line between investing vs. speculation in order for people to part with their money. In reality, there is no clear difference between the speculation vs. investing (which is speculating on asset growth and returns). People understood that before the invention of 401k corralling people's money into trust funds for Wall Street banksters, and probably soon that of the treasury.

Reality says

No it does not, for not just one but two reasons:

No matter how much you try to muddy the waters and distract from the fact that you are 100% incorrect, you continue to look the fool.

Here's the bottom line--in your opinion, when someone buys a house, are they only buying it for the capital appreciation??

If the answer is no (which it is), then it's not speculation.

tatupu70 says

Reality says

No it does not, for not just one but two reasons:

No matter how much you try to muddy the waters and distract from the fact that you are 100% incorrect, you continue to look the fool.

Here's the bottom line--in your opinion, when someone buys a house, are they only buying it for the capital appreciation??

If the answer is no (which it is), then it's not speculation.

You are just incapable of logic. The decision to buy vs. rent is not based on the need to have a house to live in, but speculations on future cash flow value and resale value.

Reality says

The decision to buy vs. rent is not based on the need to have a house to live in, but speculations on future cash flow value and resale value.

In some cases, yes. But it's not the only reason. And it's irrelevant to the fact that it's not speculation. Almost nobody buys solely for capital appreciation.

tatupu70 says

Reality says

The decision to buy vs. rent is not based on the need to have a house to live in, but speculations on future cash flow value and resale value.

In some cases, yes. But it's not the only reason. And it's irrelevant to the fact that it's not speculation. Almost nobody buys solely for capital appreciation.

You are still muddling water by drawing in all sorts of ancillary feelings. We are not talking about getting a house or not, but buying vs. renting (that's the real fundamental issue in a house purchase). That decision is pure speculation on comparing cash flows and comparing residual/resale values. It's just like buying/financing cars vs. leasing cars. It's a numbers games. You can get a car and a house either way. Both renters and owners get to send their kids to the local school, and both get to vote in local elections.

spydah_hh says

Your argument is that creating more money gets people to supply more pizzas. No it doesn't work that way. When demand exceeds supply then the prices rise. Therefore, if more money is created, thus people go out and shop more (driving up demand) then prices will rise do to inflation (money creation). This actually drives down the people's purchasing power. Is that what you want?

This is a total misunderstanding of how the basic balance between supply and demand actually works.

Prices only increase if the demand CANNOT be met. If you have a fixed amount of something, then yes, increasing the money supply just raises the price. But in most cases this is not the situation.

If the supply CAN rise, then the equilibrium can be done at the same price. If you were producing 100 widgets and now the demand is 120, but you can easily produce 120 and raise your profit by 20%, then you will do that, or your competitor will do it for you and you will lose market share.

Given a large supply of idle labor and a large supply of raw materials, you simply can't explain why extra demand would cause prices to rise. They wouldn't. They would just cause more production. People would just do more of what they are doing.

Reality says

The very purpose of more money printing is raising price; it is this raising of prices that allegedly brings out more production. There are always bottlenecks at any given time. We live in a world of limits; otherwise there wouldn't be a need for economics.

There are very few bottlenecks when the world just added hundreds of millions of new workers to the global economy and the economy is coming out of a crisis that cut demand massively.

In such a world, the lack of demand is the main obstacle to more economic activity. And if you print money and give it to people to do some work, you don't increase inflation, you increase activity.

spydah_hh says

FortWayne says

lower taxes on middle class

raise them on the wealthy

impose tarriffs on offshoring or evasion partnerships, while provide tax write offs for hiring within US.

these are all policies that will create long recessions or depressions.

How so? Incentivising companies to hire in US and to actually hire, instead of hoarding cash would increase monetary velocity. That would be opposite of "recession and depression".

You'll get recession and depression when middle class gets wiped out and rich end up holding all the money.

Don't forget, nature of capitalism is that all the money ends up at the top. Now you can either tax it away to make it flow, or you can print it away which leads to problems. I prefer the taxation at the top.

Heraclitusstudent says

Prices only increase if the demand CANNOT be met. If you have a fixed amount of something, then yes, increasing the money supply just raises the price. But in most cases this is not the situation.

At any given time, the production capacity for almost every thing (of economic value; i.e. not "abundant" like air in most places) is limited. Capacity increase takes time. That's why any commodity has any market value at all. The fact that there is a practically economically infinite amount of iron at the core of the earth does not drive iron price to zero in current market, nor does the practically economically infinite quantity heavy metals and helium in space do to those respective markets.

If the supply CAN rise, then the equilibrium can be done at the same price. If you were producing 100 widgets and now the demand is 120, but you can easily produce 120 and raise your profit by 20%, then you will do that, or your competitor will do it for you and you will lose market share.

It's usually a mistake to presume equilibrium when analyzing a market. In a real equilibrium, no business can make any real profit, so no business would even exist. Businesses exist because of transient arbitrage opportunities. When those opportunities are gone, the businesses often cease to exist. Look at Kodak.

Given a large supply of idle labor and a large supply of raw materials, you simply can't explain why extra demand would cause prices to rise. They wouldn't. They would just cause more production. People would just do more of what they are doing.

Economies enter recessions / depressions because old ways of doing things (turning raw material and labor to various stages of products in existing business models) were found to be unprofitable. Perhaps a sudden shortage of a specific input factor is discovered; perhaps that proverbial equilibrium point is reached and "destructive competition" has scaled to such a level that nobody can make enough profit to service loans that had been taken out on more rosy projections in the old days.

The cure to this problem is not asking people to do more of what they were doing (as that was already found to be unworkable), but finding new ways doing things that can break the logger jam, and reduce the debt burden. That's the difference between Soviet Lada factories turning out in the 1980's more and more cars of 1950's old designs vs. newer and better cars showing up in the relatively free competitive markets.