2023-2024 NC/LC THREAD

If instead we started this comparison in 1930 compared to 1929 then you would be absolutely insane to want to invest in gold over stocks. Stocks would have made a killing if you invested at the dip.

I really don’t see a reason to cherry pick the peak right before an insane crash. It seems to be your best case scenario and yet stocks still come out the clean winner.
And yeah the top 30 companies are different, that’s to be expected. No one thinks a good strategy is to hold a company for 100 years. That’s not even how indexes work anyway, stocks will be taken out and put back in. Also the dow isn’t as good of a bet as the S&P 500.

Holding some gold isn’t a horrible hedge against market conditions, but completely ignoring stocks isn’t going to be a very good idea in the long run. There is such a thing as RoR and opportunity cost as well. Holding gold you will never be able to invest in the next tesla, apple, amazon, etc.

No tech stocks? You are missing out dude. At least if you are going to be investing in low risk you should do some indexes instead…

This sounds like you're playing a game of Civilization, lol.

If you ever want to have a good cry, calculate how much you would have invested if, instead of this allocation, you had dumped everything into VTSAX.

The first problem with indexes is that everyone owns them because they have figured out they perform better than most managed funds due to low fees. Because more people are inclined to buy them over stocks that aren't part of the index, they tend to be overvalued with relation to how many assets and much potential for future earnings they have.

The second problem is most US companies are reliant upon either borrowed money or government subsidies to survive. When the bond market and US dollar collapse, the government will have no further ability to subsidize them and their value will only be based on any of their assets that have retained value and any profits they can expect in the absence of a subsidy. Market intervention can provide a price for worthless assets for a while, but eventually the laws of economics will play out.

I won't begrudge someone else a gain whether it is through winning a poker tournament, buying the right lottery ticket, or picking the right penny stock. My objective is to position myself as well as I can for a credit collapse that appears inevitable to me, and to advocate for a free market in the wake of that collapse so that civilization can continue, and so that everyone has a better chance to improve their net worth and standard of living.

I'm sure you know that people have been burying gold in their backyard, etc. for decades and decades in anticipation of the financial end of days, and all those people would have been much better off financially had they instead participated in the market. It takes an absurd level of confidence in your prediction to go all in on a fringe view that is not shared by most experts in the field, and which hedges against an outcome that essentially every moneyed and powerful interest is incentivized to prevent. I guess I would understand keeping a certain percentage of one's assets in "collapse proof" investments, but all of them"?

I don’t understand your first point. The indexes are performing well because the US economy is performing well. You are betting on the US economy as a whole. That’s why they are considered to be low risk, because they take a huge sample of the strongest companies in order to lower risk. ETFs are similar and can oftentimes outperform the market indexes over long periods of time. Again, this is all based on the sure bet of the US economy.

The second “problem” is not a problem at all. Businesses have debts. To not use credit, and the lowest interest credit possible at that, would be foolish. To not subsidize our companies would also be foolish. No it is not an argument against the stock market that companies borrow money and the US supports its businesses… That’s like saying we should be suspicious of cops because they lock up murderers. There might be valid reasons to criticize the police but that’s not one of them.

Everything I own except gold is a speculation. A credit collapse could create a collapse in industrial demand for silver, for example, even if I'm correct about the weakness of the dollar and bond market. Priced in gold, silver could decrease, although I expect the increase in investment demand will overcome the decrease in industrial demand in that scenario.

I'm confident because I listen to the arguments of those I disagree with to determine why they believe differently to me. I could probably make a Marxist rebuttal to most arguments better than most Marxists could, because I've heard so many of them. Likewise, I got an A+ in every economics class I took in business school despite not believing half the Keynesian nonsense on the exam.

When professors failed to address concerns I had with claims that were presented as indisputable truth, I sought knowledge elsewhere and came across the Austrian school of economics which favors free markets in money and credit, rather than the centralized manipulation favored by the Keynesians. While I understood Keynes' idea to flatten what he saw as a natural business cycle through the manipulation of interest rates, I saw as the Austrian economists did that there would be long-term consequences to this seemingly benevolent policy. A dependency on credit would be developed and resources would be redirected away from sectors that would have used them in a free market and towards the recipients of the newly created credit (typically, the government and banks).

Debts continue to increase because they are the only way to make up for the shortfall between production and consumption as unproductive companies and governments are propped up and resources are prevented from reallocating to the portions of the economy where they could most efficiently be used.

There are many problems baked into the cake that arise from the legal and regulatory environment that exists. If a financial advisor tells people to buy bonds and index funds and those things go down, they can say it was a market-wide event in which everyone lost and that no one could have predicted. But if they suggest something like my portfolio and it goes down, now their clients can sue them and say "why didn't you invest me in bonds and index funds like everyone else?"

This is getting somewhat heavy for the LC/NL LHE forum but thanks for hearing me out. In other news, I heard there's a LHE tournament in Las Vegas next week.

Looking forward to seeing you all at the final table!

The price of gold was stagnant for many years and only recently started going up again due to speculation…

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To summarize, you disagree with the classes you took at business school and the professors who taught them, you disagree with typical professional investment strategies and portfolio constructions, and you disagree with the rationale behind the entire economic system that prevails in America. Accordingly you have constructed investment portfolios that adhere to your views and contradict those that align with the aforementioned parties. How have the results of your investment portfolios been? I've heard it said that to beat the markets you have to be "right and different" than the prevailing views. Your views are certainly different from the prevailing ones, but have they beaten the market?

I don't understand exactly what people think they are going to do with their gold if basically the entire world economy collapses. Do they think doing things that actually use gold (making jewelry, for example) is going to be a huge priority industry? There is nothing in the world that is an absolute store of value that will always be self-evident.
If the economy is falling apart and the banking system fails, I'm not going to trade anything I own for a hunk of shiny metal. Things that have higher priority in sustaining a minimum survival standard of living would be much more valuable to me.

Is anyone here a huge Twilight Zone fan like me? The best TV show ever, IMO. Anyway, there was an episode where some guys steal a lot of gold and, to make sure they won't get caught, they hide the gold and put themselves in suspended animation for a hundred years or so. When they wake up there are various shenanigans with people who don't trust each other trying to haul heavy loads through a desert, and then at the very end the viewers learn that...

I think you're not including dividends that are paid out each year and thus are drawing an incorrect conclusion that gold has matched the stock market in performance. Dividends have averaged 4%+ since 1929. Using this calculator: https://dqydj.com/dow-jones-return-calcu...

I used August 1929 as the start date, the month before the massive crash.

Total Dow Jones Industrial Average Return: 10854.185%
Annualized Dow Jones Industrial Average Return: 5.081%
Total DJIA Return (Dividends Reinvested): 417623.311%
Annualized DJIA Return (Dividends Reinvested): 9.198%

From the numbers you provided gold has increased by about 11,300% in that time, whereas the Dow has returned 417,623%. Yes, the Dow's return without dividends was 10,800%, lower than 11,300%. But including dividends and the power of compounding the Dow has returned almost 40x gold in that time.

This is what I was thinking for this whole conversation. If you think gold is the way to go because oh no the end of the world, maybe you'd be better off just hoarding guns?

It would take a long time to figure out my annual rate of return if I even have all the information I would need available, but I expect I'd have beaten a bond-heavy strategy and lost to a stock-heavy one. However, the market corrections I expect, and on which I based my original investment thesis, have not yet played out, even though I still expect them to. Twelve years ago, I asked a professor if a $14 trillion national debt with a $2 trillion social security trust fund was an accounting transaction away from $12 trillion of debt with no trust fund. I felt at that time like US debt was unsustainable and would never be repaid. Now that the numbers are $34T and $3T, my conclusion seems even more likely, even if the crowd has not yet thrown in the towel on bonds, or on the many companies that will collapse if bonds collapse.

I agree that other things like food will be more immediately important in a collapse scenario. I am all in on advocating for a peaceful transition to a free society when the collapse occurs because I believe practically no one would survive without it, including those who have prepared. Without free markets, conducting business will be entirely impossible within the constraints of the current law that was written with a stable currency in mind. Bankruptcy courts wouldn't have the capacity to process the millions of failed businesses and the government wouldn't have the ability to pay their judges. There are far more people who are unprepared than prepared and I expect them to eventually organize into armies that would overrun the lone homesteaders and small communities that have done their best to prepare.

A free market will require money and since the US government claims to own 8,000 tons of gold, I advocate that a portion of it be distributed to the population upon the collapse to forestall starvation and panic as we begin to grow a real economy.

I already acknowledged that stocks earn dividends in addition to capital appreciation but did not bring the 1929 price up to argue that gold was a better investment, but to point out that the supposed gains in the market have been largely due to inflation. When priced in gold, there has been no gain, even though the gainless asset has provided income. And the current S&P 500 dividend yield is only 1.35 percent.

I don’t understand why we would need to pay off all the debt if we are meeting our debt obligations? The only things in recent memory that has threatened our credit rating internationally is when insane republicans try to use the debt as a political tool by threatening not to pay off the obligations that we already have (ie the debt ceiling debacles we’ve had in recent memory).

Increasing debts are not really a problem because there’s not a one to one comparison to government finances and personal finances. The idea that there is may be pervasive, but it’s not backed up empirically.

The more debt that needs to be issued, the higher the interest rate needs to be to attract buyers. With a constantly increasing supply of debt due to fiscal deficits that have no political chance of ending, it is only a matter of time until the government becomes unable to pay the interest on the debt.

The Fed has already monetized trillions by creating money to buy bonds that would not otherwise have found a buyer at the same interest rate. The prospect that this expansion of the money supply will be reversed, as was originally intended, is now impossible, because the fair market value of the bonds owned by the Fed is less than they bought them for, due to interest rates rising upon the completion of QE. And, the bond price would crash if the Fed actually took its balance sheet to the market.

Equally impossible is the prospect that the bond market can continue in perpetuity without the Fed once again becoming a buyer through additional monetization.

When money is created to fund a government, the currency that is created can be expected to hyperinflate, because money creation does not increase the amount of real goods available in the market, it only increases the money chasing those goods.

When inflation expectations increase due to the Fed's purchases, this will put more upward pressure on the long end of the bond yield curve as investors price increased inflation risk into long term bonds. Thus, the long end of the bond market will collapse despite the Fed's intervention and if the Fed buys up the whole bond market, bonds might retain a dollar price but the dollar itself, and thus that price, will be worthless.

Why do you think it foolish? If the godfather makes you an offer you can't refuse, what do you do? Uncle Sam is the world's godfather, or was for several decades anyway.

I mean this is clearly just not the case. The ability to pay will never go away, just the value of the dollar will go down. You can always just print the entire 32 trillion and make your currency worthless of course.

That’s assuming creditors would be stupid enough to demand all the money back from you at once and send the entire world into a global economic meltdown for entirely zero gain whatsoever.

This paragraph has to be misworded somehow. Do you mean that our monetary policy is bad or do you think that any creation of new money is always going to lead to hyperinflation and can never add value to an economy?

Like it just seems obvious to me that no we don’t always need there to be a one to one correspondence between tax dollars collected and government money spent.

Let’s remember that the US is doing stuff and not just sitting there printing money hoping the world doesn’t notice. We have actual businesses, manufacturing, finance, entertainment, administration, military, natural resources, engineering, education, medicine, tech, etc. Our economy isn’t just built on paper like a house of cards, there is real value being added in these endeavors, real productivity.

In many instances it is true that individuals, businesses and governments have been threatened with violence for disobedience to the empire but there have also been entities both foreign and domestic that have voluntarily purchased US debt with no such threat.

It has been evidenced that is possible to survive with a government deficits for some time. But, politicians are more popular when they spend money and lower taxes, and popular politicians tend to get elected, so it's unlikely for a government to find the political will to dig out of debt.

I agree there is real value in the US...not just businesses that produce goods with real value but physical equipment, land, buildings, roads, commodities, inventory, supplies, weapons and individuals who bring value to the table in many ways including skills, experiences, knowledge, emotional strength, and beauty. But, our current productive capacity is insufficient to maintain our current standard of living. Free markets can allow value to be exchanged as necessary without individuals needing to deal with government red tape. A massive restructuring will be necessary because many smaller restructurings that have been needed for decades have been prevented as otherwise insolvent governments, businesses and individuals have been bailed out with artificially cheap credit.

I would think that if any of this started coming to pass, the US would just say all foreign debts are no longer valid and stop paying anything on them.

I would guess that many countries would still want to trade with us, but if not, the US can survive on its own. The standard of living would go down and we might not be able to have as many cool new toys, but we would be more able to get by alone than any other country.

Yeah it’s just not going to happen. The US is too big to fail on the world stage. Maybe 100 years from now when other economies and militaries are more powerful, but I mean you’ll probably be dead by then.