Stocks vs. Precious Metals vs. Bonds vs. Real Estate

Shelby aka Jocelyn wrote:> recruit the work force of countries with a “surplus” of workers.
> How to get the people who work for us in 30 years to accept our currency?

Buy gold, effectively leveraging global labor. Gold has the highest stocks-to-flows ratio, thus has highest marginal utility of any commodity on earth. Next is silver. Platinum, Pd, Cu, etc have very low stocks-to-flows ratio and are not suitable for store-of-value function.

Problem is the nation-state doesn't like capital flight, and is "cooperating" with G20 to shut out tax havens. In USA at least, gold is taxed on capital gains, yet gold's function is only the remain level with the per-capita production, i.e. purchasing power. Thus gold can lose purchasing power parity value after taxes.

> That means that the retirement money must be invested in production capacity

The best strategy is to invest in productive assets that have pricing power in inflation and deflation. Buffett wrote about this criteria.

The best investment is in knowledge. It is portable, doesn't suffer from inflation, and can not be taxed.

Shelby wrote:Rick, I agree with you on tax risk, and of course the retirement accounts will be raided by the bankrupt governments eventually. Remember I wrote an article about that, "End Game: Gold Investors Destroyed":

http://www.marketoracle.co.uk/Article20327.html

However, TIPS will not help you in the end game, for two reasons at least:

1. They underperform the actual price inflation, because CPI is underreported: http://ShadowStats.com

2. At the end game, all bonds will be rendered effectively worthless, as will all fiat.

There is going to be a period of chaos between when the new world order gold-backed currency is established, and during that time, it is likely that gold will be expendable in black markets wherein people might choose to not report sales to tax authorities. I am not advising people to do that, it is an individual decision.

Of course, eventually the tax man will come looking at your assets (houses, etc) and try to determine if you avoided reporting taxes. There is even talk in UK now of accessing people taxes at what ever level the UK tax agency deems to be the "fair share" of that individual, regardless what the tax law actually says is due.

The bottom line is we are sliding into socialism with some fascism and theft and fraud is on the rise. This is the environment where individuals have to fight to survive and retain their net worth. Gold is the only way to do that, not even silver can be compactly hidden and transported.

We are all going to be illegal in the eyes of socialist and fascist slide into failure by the masses:

http://www.marketoracle.co.uk/Article23427.html#comment95419

This is a slide into war and chaos. This is the time you must own gold and pray.

The other suggestion I have is to leverage up on communications technology and try to have a cash income business on the internet which is based around some aspect of the social and fascism trend.

Mankind is going to have to fight his way through this period. TIPS are just paper from the socialist and fascist government. Don't expect your country to love you Rick. Your country is going to eat you up and spit you out. It is not personal, it is just that the citizens are bankrupt and will demand the government steal in order to maintain their retirement. I also suggest you read Gary North's latest article, he got most of it correct:

http://www.marketoracle.co.uk/Article23493.html

What he may not grasp is the level of chaos, teeth gnashing, fighting, stealing, etc, that he is writing about, that will occur before we come out the other side into renewed prosperity. That renewed world order is going to be from a much lower level, as the global economy will reset with a implosion of China due to their Yuan peg mis-allocation of capital, etc.. North is correct, we have about 1 to 2 decades of chaos ahead to correct the imbalances in the global economy and the youth to push the boomers over the cliff. I expect universal health care will turn into a form of universal euthanasia, which is basically what happened in Nazi Germany:

http://thegoldspeculator.blogspot.com/2009/09/case-for-killing-granny.html
http://www.shtfplan.com/howard-katz/socialized-medicine_03292010

[URL="http://www.theatlantic.com/magazine/archive/1982/02/have-you-ever-tried-to-sell-a-diamond/4575/"]Though the well-documented 1870 discovery of thousands of pounds of diamonds at the Orange River[/URL] in South Africa stripped the diamond of its status as a precious stone, millions of people worldwide today still willingly pay a price for diamonds that reflect their erroneous belief that it is a precious stone. Just as the diamond cartel sets false artificial prices for diamonds in the world market, bankers set false prices for many of the world’s most actively traded commodities.

Shelby wrote:Michael B. that is an excellent question. Nadeem may have a different opinion than me.

The backward-looking metric is when the interest rate paid on fiat sovereign bonds (an entity backstopped by the central bank printing press that can not default), is greater than the appreciation in the fiat price of gold.

So roughly 20%, although that has been 40% during past 2 years. This is why I wrote that at the "End Game, the Gold Investors Destroyed", the level of interest rates required to arrest the gold bull would be catastrophic to society and the compounded relative losses for gold investor who do not pay the taxes so they can't re-enter sovereign bonds at that time, would be extreme. And my thesis is that the level of taxes at this end game, will probably result in a loss of purchasing power greater than the appreciation of purchasing power during the bull run of gold:

http://www.marketoracle.co.uk/Article20327.html

However, that backward-looking relative metric (interest rates vs. appreciation of gold fiat price) may not help tell you when to sell gold, because by the time the metric gives a sell signal, any parabolic increase in the gold price may have reversed into a crash in the gold price.

Normally I would say we will be near the top when I will hear common people talking about buying investment gold at places where they are now oblivious (e.g. at the mall). However, in order to raise interest rates (whether it be via domestic currencies or a new international one, e.g. SDRs), it will be necessary for the global economy to implode (all the misallocation of capital will be erased).

Thus what I see likely is that SDRs will be (at least partially) backed with gold (recent BIS gold swap may be for this purpose), and that the domestic currencies will become like banana republics. The way the NWO currency will start is as an alternative to the broken (perpetual QE and halving of the interest rates) domestic currencies. Thus I can see interest rates rising for SDRs, while interest rates continue to fall for domestic currencies. In order to invest in SDR bonds (or national bonds indexed to SDRs), you will have to pay your taxes (prove where your cash came from). Initially SDRs will not be available to the average person.

Over time as more capital moves into SDRs, and as national govts are forced to borrow in SDRs (i.e. inflation or maybe even hyper-inflation relative to SDRs and gold), the SDRs will gradually become the world's reserve currency. At that point the world's central bank will have complete control over the world, as every person will be preferring to buy and sell using SDRs instead of the nearly worthless local currencies:

https://goldwetrust.forumotion.com/economics-f4/shelby-s-newsletters-t38.htm#3834

Then as the interest rates paid on SDRs come down, and the appreciation of gold relative to SDRs stagnate, it will be time to trade gold for SDRs, but you will still have that huge tax loss problem. The SDRs will also be debased over time, stealing from the world in inflation. This will be the death march for humanity (as predicted in Revelation).

My philosophy on this is different. Gold is money and nothing more. My ideal period of time to hold gold is never. As the Bible says, wealth grows wings and flys away. Never do I want to feel secure in wealth. The point of having wealth is as per the Parable of the Talents, that more wealth is given to those who know how to put it to productive use and enrich the lives of the most people. The Bible is clear about this, don't plant a single fruit tree, it implores us to plant a whole acre and trade.

Thus ideally we want to constantly be recycling our wealth as investments in productive businesses. In that case, you really don't care what is going on with the currencies (especially if you are in software development like I am where the incremental changes in currencies are irrelevant to the bottom line).

For any insurance savings, then I never want to sell it. My holding period for that gold and silver is forever.

So the answer to your question is you should sell gold as soon as you can find a productive use for your wealth. This is why Buffett said he thought digging gold out of the ground to bury it again in a vault, was stupid.

However, I will never again invest my money in interest bearing fiat instruments (and insurance) as Buffett has done, because it is very clear from the math, that such actions by society lead to slavery and socialism:

http://www.marketoracle.co.uk/Article21650.html

The man who becomes so wealthy that he can no longer invest his wealth in productive business, but rather has to rely on the slavery system of usury compounding (insurance and futures contracts are similar), has sold himself and society to slavery.

Rather if I am getting wealthier than my ability to reinvest in productive business (and I am already so), then I will structure my businesses to share more of the profit with my employees and customers. In that way, making the world more prosperous, as they can invest the money more rapidly and wisely than I can. A centralized decision maker is the antithesis of success, prosperity, freedom, and free markets. Are you reading this Warren Buffett?

It is really just the Henry Ford principle:

http://en.wikipedia.org/wiki/Henry_Ford#.245_day

Hope that helps.

re: stocks are high risk

...and any western stock index plotted again gold since about 2001 or so, show gold outperforming.

Remember in secular cycles of negative REAL interest rates, DJIA/gold ratio returns to 1 (or below). It is now around 9 and has been falling since the secular peak of stocks in 2001.

Diversification into a stock index won't help, just buy gold instead. And if you have a long term frame, silver is even better (silver is not better if you hold short-term, because the volatility can murder you). Traders who think they can trade silver better than a long-term hold of silver, are going to get an education into the value of gambling. One might be able to trade the gold/silver ratio effectively (one trade every year or two), but not the silver fiat price. You can prove this to yourself by comparing the increase of your networth since 2003, as compared to if you had purchased silver and held it with no trades.

Brian,

What would I do with 2 million lbs of beans in times of crisis? If there was really a crisis that caused food production to shut down, then many forms of transportation and distribution would also shutdown. My 2 million lbs of beans (or whatever mix of food stuffs) would be illiquid.

Ditto farm land, illiquid.

Yes enough unperishable food for 6months is not horrible idea. I have 500 lbs of beans stored, etc.. But that hardly helps me with the other $999,500.

Becoming a farmer is extremely inefficient. It is a waste of precious years, when I could instead be developing a new computer language, and potentially raking in another few $million. Look at Google Android sales growing 800% per year compounded since launched in 2009. In 2 years that has been 6400% sales growth to now the #1 market share smartphones in the 100s of millions of unit sales per year.

Besides there isn't going to be any shortage of food. There is going to be plenty of food, but most people won't have any money to buy it, because they didn't buy gold & silver.

All these Mathusians are going to be sitting in their bunker or farm waiting for the attack that never comes, and instead they will be watching gold go to $5000 and silver to $500 by about 2021 or so.

Life does not reward people who waste their talents or waste capital on things that don't help society become more productive. The most efficient thing to do now is to work hard in your area of talent, knowing full well the huge opportunities as 6 billion people are joining to the modern world. And taking your excess profits and buying gold and especially silver, in order to halt Bennie before he burns down all the Jets.

Lets sing a toast to that:

https://www.youtube.com/watch?v=QjUk3Bp16zs

P.S. I agree that money is not the answer to salvation. The globalists have too much of the gold, it won't hurt for us to call it back it in (as they did to us in 1934).

Cheers.

Harness the volatility, and you can consistently grow your accounts. Operate in a crisis that will last for decades with only with the gold stocks leverage tool is dangerous and could be financially fatal. The gold stocks leverage tool has failed to work properly because we are in a crisis, not a boom! All crises are about destruction of wealth through destruction of leverage, and that means destruction of “houses on a credit card” leverage, as well as destruction of “gold stocks to bullion” leverage. All leverage is hammered, with no exceptions.

shelby in 2008 wrote:Let's review the logic I presented in this thread. Is there a net divestment of capital from juniors along with a dilution as number of juniors proliferate? If yes, then when and why will that change?

shelby in 2011 wrote:If there is cash flow, agreed that won't be ignored. But you are likely to see P/E ratios fall to historic lows, as the boomers have no more leverage nor cash to invest. And imo we must factor in a $200 oil price and every thing 3 or 4 times more expensive too. And factor in increased taxation and nationalization of mines, possibly labor strikes, etc.

I think most of the moves in stocks will be liquidity based. When QE increases, stocks increase, and vice versa. Because the P/E ratios have always been sustained by leverage in the fiat system. What most people don't realize is that on a gold standard, there is no appreciation of stocks above the return on capital in a bond! Bam! It just hit me why stocks are failing!

The first real time stock index in American history was an index of rail stocks constructed by Charles Dow in 1885. This index moved sideways from 1885-1896, when it was replaced by the Dow Jones Averages. From 1896 to 1933, the Dow Jones Averages also moved sideways (the bull move of 1922-29 being offset by the bear move of 1929-32). That is, for almost half a century real time stock indexes moved sideways.

This is indeed what stock indexes do in a free market economy (which includes a gold standard). The wealth created by the productive geniuses of the country flows through to the average person. The large gains in the productive genius’ stock are offset by the declines in his competitors’ stocks. The people get richer, and the stock market goes sideways. The only reason that the stock market has gone up since 1933 is that F.D.R. introduced the printing of money and the easing of credit. As [REAL] interest rates go down, stock yields go down along with them, and this of course means that stock prices and P:E ratios have to go up. (F.D.R. knew this. His motive was to rob from the poor and give to the rich. So you see, pretty much everything you have been taught is a lie. And we are now very close to the point where that lie is going to cost you dearly.)

So you are buying into a very overbought stock market. If Bernanke has to tighten, then it will drop like a stone.

• Free cash flow, or cash on hand after covering costs, of at least $250 million. Without strong free cash flow, a company would find it tough to expand its business, develop a new product, pay dividends, or reduce debt.
Net profit margin of 15% or better. Net profit is net income divided by revenue, and can indicate whether a company has control of its costs.
• Return on equity, which is the amount of profit returned as a percentage of shareholder equity, or a firm’s total assets minus liabilities, of at least 15% for the past three years and including the most recent quarter.
• A dollar’s worth of earnings creating at least a dollar’s worth of shareholder value over the past five years.
• Ample liquidity — meaning only stocks with a market capitalization of $500 million or greater, though the American Association of Individual Investors believes that number should be greater than $1 billion.

http://www.financialsense.com/contributors/lance-roberts/2012/01/26/why-home-prices-have-much-further-to-fall

As gold returns as money, if we assume Mortgage payment as $ of DPI must decline to pre-1971 level of 7% (before dollar was detached from gold), then house prices must fall -50%.

If we assume the interest rises return to norm, then house prices must fall another -50%. So that makes a -75% price decline possible. Interest rates must rise to finally arrest the rise in the gold price (as in 1980):

http://www.financialsense.com/contributors/bruce-krasting/2012/01/26/bernanke-goes-all-in

Tangentially, Fed targets the incredibly shrinking prices of personal products:

http://www.google.com/search?ix=heb&sourceid=chrome&ie=UTF-8&q=shrinking+size+of+grocery+products

To the extent that inflation raises the cost of materials (which is a small % of cost of home), it will be offset by declining wages and demand as UNemployment skyrockets.

Rising property taxes will further increase the mortgage payments and thus decrease the amount of available (7% of) DPI, thus further declines in house prices.

Thus I maintain the conclusion of\ the original title of the article on this page. See the link to the gold-to-house price charts in the article on this page.

House prices to decline -75% or more

Sorry couldn't find the following articles on marketoracle, so will link the versions that appeared at another site.

I understand that Nadeem thinks inflation will lift all boats including houses, but the math below is fairly convincing. Perhaps the only factor I didn't include below is Asians coming in to provide additional demand.

As usual, this is written in terse style, good for people with a high IQ that can connect the dots. Not good for people who have less than 130 IQ.

http://www.financialsense.com/contributors/lance-roberts/2012/01/26/why-home-prices-have-much-further-to-fall

As gold returns as money, if we assume Mortgage payment as $ of DPI must decline to pre-1971 level of 7% (before dollar was detached from gold), then house prices must fall -50%.

If we assume the interest rises return to norm, then house prices must fall another -50%. So that makes a -75% price decline possible. Interest rates must eventually rise to finally arrest the rise in the gold price (as in 1980):

http://www.financialsense.com/contributors/bruce-krasting/2012/01/26/bernanke-goes-all-in

Tangentially, Fed targets the incredibly shrinking prices of personal products:

http://www.google.com/search?ix=heb&sourceid=chrome&ie=UTF-8&q=shrinking+size+of+grocery+products

To the extent that inflation raises the cost of materials (which is a small % of cost of home), it will be offset by declining wages and demand as UNemployment skyrockets.

Rising property taxes will further increase the (total) mortgage payments (costs) and thus decrease the amount of available (from the historic 7% of) DPI, thus further declines in house prices.

Thus I maintain the conclusion of the original title of my article on this page. See the link to the gold-to-house price charts in the article on this page.

Martin Armstrong has also had a terrific track record. Here were his predictions he made in 1998 (see the [URL="http://www.martinarmstrong.org/files/1998%20fall%20Seminar%20Tour.pdf#page=38"]last slide of this presentation[/URL]):

1998 = Collapse of Russia
1999 = Low Gold & Oil
2000 = Technology Bubble (Like Railroads in 1907)
2002 = Bottom US Share Market
2007 = Real Estate Bubble, Oil hits $100
2009 = Start of Sovereign Debt Crisis
2011-15 = Japan Economic Decline
EURO begins to crack due to debt crisis
2015.75 = Sovereign Debt Big Bang

All of those predictions up till 2011 have come true. If the last one also comes true, then the above targets for Gold and Silver would become extremely likely as faith in paper currency would likely smelt like snow in the sun.

My thought from that interview is that being in debt and/or having liquid assets in any form other than physical gold, will lead to bankruptcy and enslavement at the time the elite complete their takeover.

Everything else is speculation.

A basic law is that "over a long enough timeline, every debtor and speculator loses everything" (this is similar to ZeroHedge's byline)......