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Since 2008, I have noticed that many otherwise rational people seem to be doing what I call "investing by faith." I use this term to describe people who seem to invest significant amounts of money into one type of asset. But these investments seem to be based on articles of faith - no matter what the actual objective state of the market or asset class may be, certain people seem to just keep plowing more money into them. The best example I can think of is gold, but its not the only thing - bit coins is another good example.

I note that the goldbugs (and bit coins), as irrational as their behavior has been, have made out quite well and no one can deny it. But for a real goldbug - someone who just keeps buying gold because they think hyperinflation/economic doom/etc will be "any day now" - that return on investment in gold over the past few years has really just been a function of pure luck. Because they'll buy it under any condition, its an article of faith. In reality, the party can't last forever, and what surprises me is how many goldbugs I've encountered that bought at 1800-1900 and are still burying physical bullion in their backyards - meaning that even if they wanted to sell it (and they wouldn't remember - gold's price going up is an article of faith for them) they couldn't do so quickly.

I realize in making this post that the people who are doing what I am talking about are going to try to say that index investing is a "act of faith" in the stock market. And broadly speaking, you are correct. But I am talking about irrational investing via faith in some asset class vs. rational, data based investing. Its true rational, data based investing involves some sort of "faith" in its broadest terms. Index investing is based on the objective evidence that - over long time periods and with enough diversification - you can get a reasonable return on investment. That is a belief. But its a very different sort of belief than say thinking you should plow all your retirement into gold because the economy is going to collapse (ignoring all objective indicators of the economy because obviously the government is making up the unemployment number) and were going to have hyperinflation (ignoring CPI because obviously the government is making it up that inflation is not really a concern right now).

So my question is - is this a trend anyone else has noticed? Any way to profit off it?

EDIT: jerosen at the bottom of page 1 suggests a better term for what I am describing, which is irrational religious-like fanaticism for an asset. I think that term is a better descriptor of the behavior I am trying to describe.

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magika said:   Since 2008, I have noticed that many otherwise rational people seem to be doing what I call "investing by faith." I use this term to describe people who seem to invest significant amounts of money into one type of asset. But these investments seem to be based on articles of faith - no matter what the actual objective state of the market or asset class may be, certain people seem to just keep plowing more money into them. The best example I can think of is gold, but its not the only thing - bit coins is another good example.

I note that the goldbugs (and bit coins), as irrational as their behavior has been, have made out quite well and no one can deny it. But for a real goldbug - someone who just keeps buying gold because they think hyperinflation/economic doom/etc will be "any day now" - that return on investment in gold over the past few years has really just been a function of pure luck. Because they'll buy it under any condition, its an article of faith. In reality, the party can't last forever, and what surprises me is how many goldbugs I've encountered that bought at 1800-1900 and are still burying physical bullion in their backyards - meaning that even if they wanted to sell it (and they wouldn't remember - gold's price going up is an acticle of faith for them) they couldn't do so quickly.

I realize in making this post that the people who are doing what I am talking about are going to try to say that index investing is a "act of faith" in the stock market, but its not. Index investing is based on the objective evidence that - over long time periods and with enough diversification - you can get a reasonable return on investment.

So my question is - is this a trend anyone else has noticed? Any way to profit off it?


This isn't a new thing. Did you miss 2000? Tulip mania? People irrationally invest every day.

Also, "Past performance is no indication of future growth".

The only sure way to profit from a gold rush it to sell shovels. So find suckers and resell supporting equipment, safes, bitcoin miners, ect...

Index investing is likewise an act of faith. It is a belief that past returns will be an indicator of future results, even as the world shifts into uncharted territory and sovereign debt crises and energy supply contractions emerge.

It's a scary world out there. Currencies are being devalued. Depositors are being bailed in. Sovereign debt levels all over the developed world are in frightening territory. Economically recoverable petroleum reserves are growing nowhere near as fast as the extraction rate. The global population is exploding. Technology is fundamentally altering the nature of society and of the labor market.

I believe human society is headed into uncharted territory.

I put my faith as such:

1. Vanguard 500 - there's a lot of dinosaurs in here, but also a lot of growth potential. I have faith that most well-run companies will at least be able to preserve capital over the long run.
2. Vanguard Small Cap Index - there's a lot of bad ideas in here, but it also give me exposure to the next big thing. I have faith that there will be a next big thing, even if I can't foresee the world 20 years out.
3. Vanguard Energy - I have faith that the world will continue to need energy and that any potential disruptive technologies are too impractical or too far out to upset the status quo.
4. PHYS/PSLV/physical - I have faith that, no matter how bad things get, gold will hold its status as money. This is perhaps the easiest act of faith, because over the longest of time periods - all of human history - that has been the case. Your dismissal of index investing as not being an act of faith is based upon a time period and set of circumstances which is a mere flash in the pan compared to gold's relationship with humanity.

Why am I holding equities as a pessimist? I have faith that QE is not going to stop any time soon. I put my faith in Saint Bernanke, such that whoever so believeth in him shall enjoy aggressive returns.

There's no such thing as a sure thing. On a long enough timeline, the survival rate for everyone drops to zero.

I see no difference than any other bubble except the area you mentioned above tend to have much longer staying power due to cultural influences.

Other bubbles - Housing in the 2000s, Dot Com in the late 90s. I remember many folks who told me about the sure money making scheme in tech stock in the 90s and brokers who suggested it's dumb to pay down the principle and go with interest only loans.

It's not hard to spot bubble, there's usually a lot of noise before it pops. The housing bubble thread here started in 2004, I believe. The trick is, as some FWFers found out, is timing. There's some cautionary tale right here in the forum.

I can think of a few rules to enforce self-discipline...

1. Set periodic re-evolution.
2. Set the rule on when to get out, and follow it regardless of emotion.
3. Diversify, always leave some money out, sure, you can hit it big and you can also lose the house.

Viewing a gold chart and seeing a bubble is a dollar-centric or Euro-centric point of view.

What if the currency itself is the bubble?

I'm not talking about investing in bubbles and then selling when things crash (which is what happens to most retail investors). Investing as an "act of faith" is when you invest in something (which may be a bubble or not), and no matter what happens to it, you keep plowing more money. Again, using gold as an example but noting that its not just something I see in gold - the faithful who invest in gold believe that every time gold prices go down its a conspiracy, and every time the price goes up its somehow a "real" gain in value. They have invested through this recent surge through the recession (and made a good return!), but as the price goes down those who invest by faith will just keep buying more because economic collapse is coming any day now. Thats investing by faith.

Investing "rationally" for example would be having a portion of your portfolio in precious metals and scaling it down (as the economy improved) or up (as the economy did not improve).

Does buying a home fit your definition of "investing by faith"? For instance my 1 bed apartment's value is directly tied to the health of New York City and professional immigrants wanting to live here. I have to have faith that they will stay strong.

tomjef said:   4. PHYS/PSLV/physical - I have faith that, no matter how bad things get, gold will hold its status as money. This is perhaps the easiest act of faith, because over the longest of time periods - all of human history - that has been the case. Your dismissal of index investing as not being an act of faith is based upon a time period and set of circumstances which is a mere flash in the pan compared to gold's relationship with humanity.

Yeah...

magika said: I realize in making this post that the people who are doing what I am talking about are going to try to say that index investing is a "act of faith" in the stock market. And broadly speaking, you are correct. But I am talking about irrational investing via faith in some asset class vs. rational, data based investing. Its true rational, data based investing involves some sort of "faith" in its broadest terms. Index investing is based on the objective evidence that - over long time periods and with enough diversification - you can get a reasonable return on investment. That is a belief. But its a very different sort of belief than say thinking you should plow all your retirement into gold because the economy is going to collapse (ignoring all objective indicators of the economy because obviously the government is making up the unemployment number) and were going to have hyperinflation (ignoring CPI because obviously the government is making it up that inflation is not really a concern right now).

If you are going to take "act of faith" as a term in its broadest sense, then I am trying to distinguish between:

Irrational act of faith investing vs Rational act of faith investing

tomjef said:   Index investing is likewise an act of faith. It is a belief that past returns will be an indicator of future results, even as the world shifts into uncharted territory and sovereign debt crises and energy supply contractions emerge.

It's a scary world out there. Currencies are being devalued. Depositors are being bailed in. Sovereign debt levels all over the developed world are in frightening territory. Economically recoverable petroleum reserves are growing nowhere near as fast as the extraction rate. The global population is exploding. Technology is fundamentally altering the nature of society and of the labor market.

I believe human society is headed into uncharted territory.

If you want to take the pessimistic-but-not-apocalyptic view, who's to say that economic growth is guaranteed to continue in the long run? Nothing keeps growing exponentially forever, and yet economics models and dividend growth rates are perfect examples of this implicit assumption. If you start plugging in flat or negative growth rates, you're not going to like the prospects for stocks much.

xerty said:   If you want to take the pessimistic-but-not-apocalyptic view, who's to say that economic growth is guaranteed to continue in the long run? Nothing keeps growing exponentially forever, and yet economics models and dividend growth rates are perfect examples of this implicit assumption. If you start plugging in flat or negative growth rates, you're not going to like the prospects for stocks much.

I didn't say it would. We know that perpetual growth cannot be sustained as t approaches infinty. Eventually we run up against physical limitations.

I like the prospect for stocks so long as QE continues. I have faith that QE will continue to levitate stocks and that election-bound politicians working for the world's largest debtor aren't going to stop it any time soon.

magika said:   tomjef said:   4. PHYS/PSLV/physical - I have faith that, no matter how bad things get, gold will hold its status as money. This is perhaps the easiest act of faith, because over the longest of time periods - all of human history - that has been the case. Your dismissal of index investing as not being an act of faith is based upon a time period and set of circumstances which is a mere flash in the pan compared to gold's relationship with humanity.

Yeah...

magika said: I realize in making this post that the people who are doing what I am talking about are going to try to say that index investing is a "act of faith" in the stock market. And broadly speaking, you are correct. But I am talking about irrational investing via faith in some asset class vs. rational, data based investing. Its true rational, data based investing involves some sort of "faith" in its broadest terms. Index investing is based on the objective evidence that - over long time periods and with enough diversification - you can get a reasonable return on investment. That is a belief. But its a very different sort of belief than say thinking you should plow all your retirement into gold because the economy is going to collapse (ignoring all objective indicators of the economy because obviously the government is making up the unemployment number) and were going to have hyperinflation (ignoring CPI because obviously the government is making it up that inflation is not really a concern right now).

If you are going to take "act of faith" as a term in its broadest sense, then I am trying to distinguish between:

Irrational act of faith investing vs Rational act of faith investing


You're using a loaded term to try and bash an investment strategy which doesn't fit your traditionalist world view.

A guy who belives that:

1. QE is devaluing the dollar (factual, quantifiable)
2. Fiat currencies throughout history always have a finite lifespan (factual, quantifiable)
3. Politicians have self-serving reasons to continue the spending binge and currency devaluation (factual, quantifiable)

and goes on to bury gold in the back yard is acting rationally.

What you're not grasping is that the guy who chooses to bury ten ounces of gold expects to have ten ounces when he digs it up. To him, 10 is 10, and it doesn't matter what traders in New York say it's worth in dollars. You're glossing over the fact that gold is money and the people who bury do so with anticipation that it will be used as such. If they have to dig it up, they'll be spending it for food and fuel, not rushing to their accountant to calculate the cost basis then decide if they can book a Caribbean cruise.

The guy who buys and buries at any price is choosing to get out of dollars as soon as those dollars flow in (paycheck, SS, RMD, etc). His thought process is this:

1. I don't want to hold on to these dollars.
2. I'll take as much gold as I can get instead.

He's not masturbating to a chart or furiously recalculating a x-DMA.

You're trying to build up a diversified and valuable portfolio for retirement under the old normal. The guy with the shovel isn't.

Want to see speculative lunacy? Look to folks who dump their IRA into GLD. Or AAPL. Or whatever else is the "buzz" at the moment.

I would also like to point out that using past index results to project future returns is based on three enormous leaps of faith:

1. The growth rate remains a compound positive.
2. The rate of growth in energy consumption remains positive.
2(b). Sufficient affordable and economically recoverable crude oil reserves are discovered to replace the online near or past their peak.

2(b) is a substantial leap of faith. We haven't found them despite no shortage of effort trying. They probably don't exist. Everything unravels if we don't find them. Waiting for a few more Ghawars to materialize out of nowhere as an investment strategy is little different than waiting for the return of your deity of choice as a savior of the economy.

No discussion of the market a decade or more out is complete without discussing energy. Energy is the prime driver of economic growth. Right now, long-term index investing is an act of faith that petroleum geologists will find huge, cheap, and exploitable reservoirs they haven't been able to find thus far. Who is acting on faith again?

Gold isn't meant to be an investment. It is a store of wealth... an alternative to US dollars that depreciate over time.

Comparing it to an active investment such as the stock market makes no sense.

US dollars are the real asset backed by articles of faith... they are pieces of paper with no intrinsic value and the supply is increasing rapidly. If someone bought gold 100 years ago, it is still worth a huge amount of money... if someone held US dollars then it lost 96% of its value due to inflation over time. Fiat currencies come and go... but gold has been a proven medium of exchange that retained its value for over 5000 years.

brettdoyle said:   Gold isn't meant to be an investment. It is a store of wealth....

I don't know how you can call it a store of wealth. If it loses half of its value from your point of purchase, then from your perspective it would be a destroyer of wealth. You would now be able to purchase half as much with the same amount of gold.

I don't know what it is about gold that causes normally logical people to lose any sense of logic.

germanpope said:   brettdoyle said:   Gold isn't meant to be an investment. It is a store of wealth....

I don't know how you can call it a store of wealth. If it loses half of its value from your point of purchase, then from your perspective it would be a destroyer of wealth. You would now be able to purchase half as much with the same amount of gold.

I don't know what it is about gold that causes normally logical people to lose any sense of logic.


And if I choose to denominate dollars in barrels of crude oil, the dollar is also a destroyer of wealth.

tomjef said:   germanpope said:   brettdoyle said:   Gold isn't meant to be an investment. It is a store of wealth....

I don't know how you can call it a store of wealth. If it loses half of its value from your point of purchase, then from your perspective it would be a destroyer of wealth. You would now be able to purchase half as much with the same amount of gold.

I don't know what it is about gold that causes normally logical people to lose any sense of logic.


And if I choose to denominate dollars in barrels of crude oil, the dollar is also a destroyer of wealth.


what's your point?

germanpope said:   brettdoyle said:   Gold isn't meant to be an investment. It is a store of wealth....

I don't know how you can call it a store of wealth. If it loses half of its value from your point of purchase, then from your perspective it would be a destroyer of wealth. You would now be able to purchase half as much with the same amount of gold.

I don't know what it is about gold that causes normally logical people to lose any sense of logic.


Well if we're going to cherry pick numbers... gold went from around $250 an ounce when the UK and Gordon Brown stupidly decided to dump their gold at record lows... currently it is at $1377... so it is still up 550%.

brettdoyle said:   germanpope said:   brettdoyle said:   Gold isn't meant to be an investment. It is a store of wealth....

I don't know how you can call it a store of wealth. If it loses half of its value from your point of purchase, then from your perspective it would be a destroyer of wealth. You would now be able to purchase half as much with the same amount of gold.

I don't know what it is about gold that causes normally logical people to lose any sense of logic.


Well if we're going to cherry pick numbers... gold went from around $250 an ounce when the UK and Gordon Brown stupidly decided to dump their gold at record lows... currently it is at $1377... so it is still up 550%.



it is not about cherry picking numbers --- I don't have any attachment to gold or this argument

I am just saying that if you enter any asset at the wrong price --- you can have wealth destroyed

gold is nothing different or special

germanpope said:   what's your point?

You're fallaciously confusing dollars with wealth.

tomjef said:   germanpope said:   what's your point?

You're fallaciously confusing dollars with wealth.



I am not confusing anything. There is a certain time period that you have on this earth. During that time period, you need to buy food, shelter, medicine, recreation, ect.

If you are able to buy half as much of that stuff because you lost half of your money in a speculative investment then you have half as much of that stuff that you need.

It is really that simple. Everything else is bullshit.

germanpope said:   it is not about cherry picking numbers --- I don't have any attachment to gold or this argument

I am just saying that if you enter any asset at the wrong price --- you can have wealth destroyed

gold is nothing different or special


Again, a fall in price is not a fall in wealth.

The dollar is not "wealth." Your use of it as a unit of wealth is a false premise.

I could show that almost any stock has seen quadruple digit returns since the late 90's if I denominated the share price in Furbies.

What if a stock which cost one Furby per share is now worth 100 Furbies per share. Is that a 100x return on investment? Sure, if you measure wealth in Furbies.

Think if you had spent 100 Furbies on 100 shares. Now you could sell it for 10,000 Furbies.

What would you do with 10,000 Furbies? Trade them to others for things you actually need, of course. Nobody has a personal use for 10,000 Furbies. Furbies by themselves are worthless.

What would you do with 10,000 dollars? Trade them to others for things you actually need, of course. $10,000 in cash has no use of its own, except maybe as fuel - though Furbies are probably a better source of heat.

If you believe this is a ludicrous analogy then you need to reexamine your understanding of currency, money, and wealth. There was a time when Furbies (something useless by itself) could be quickly liquidated for something useful. It seems silly now because Furbies have fallen to worthlessness.

The dollar has fallen 96% since 1913, with most of that loss since Nixon closed the gold window.

If the dollar collapses, people in future decades will see the sale of useful assets for worthless dollars and the use of worthless dollars as units of account as equally ludicrous as the use of the Furby.

They will look back and remark, "What a bubble. They should have seen it coming. Did people actually put stock in those things?"

I have to agree with the above. I don't hold gold, but I believe the individuals you are talking about who do hold gold are not doing so as an investment, they believe it is inherently risky to have their wealth stored in dollars. Depending on the individual the amount of risk they associate with dollars can fluctuate wildly, and as such some will wait to buy until they can get what they feel is the largest amount of gold for their money, while others will buy as much as they can every week when they get paid.

germanpope said:   tomjef said:   germanpope said:   what's your point?

You're fallaciously confusing dollars with wealth.



I am not confusing anything. There is a certain time period that you have on this earth. During that time period, you need to buy food, shelter, medicine, recreation, ect.

If you are able to buy half as much of that stuff because you lost half of your money in a speculative investment then you have half as much of that stuff that you need.

It is really that simple. Everything else is bullshit.


Do yourself a favor and price food, shelter, medicine, recreation, and most importantly, ENERGY in your precious dollars.

The prices of all of these are going up far faster than official "inflation."

Is everything becoming more "expensive" or is the dollar falling?

The dollar permabulls are like the free-range mental patients who stand at an intersection and accuse everyone else of being crazy.

Any investing, be it precious metals, stocks, or your own education, is a leap of faith.

I think you mistakenly lump everyone who is buying gold into the "Economy is going to collapse" crazy category.

What about the people that are buying it because the world's 2 most populous nations, India and China, are buying and using a great deal of gold for industrial uses?

What rational individual thinks that gold will have no value in 10, 50, or 100 years?

I understand Warren Buffet's point about a block of gold not producing anything.

There was one famous financial adviser who pointed out that if you honestly think the economy is going to collapse you don't buy gold, you buy a gun.

It's a precious metal - there is a limited amount available, and a lot of people want it.

tomjef said:    ... Again, a fall in price is not a fall in wealth....


You say a fall in price is not a fall in wealth. Well, if you need the money to pay your mortgage, it sure as hell is a fall in wealth.

Try tell the bank that you have gold worth $2500/ounce that you wish to pay your mortgage with when gold is sitting at $1000/ounce.

germanpope said:   tomjef said:    ... Again, a fall in price is not a fall in wealth....


You say a fall in price is not a fall in wealth. Well, if you need the money to pay your mortgage, it sure as hell is a fall in wealth.

Try tell the bank that you have gold worth $2500/ounce that you wish to pay your mortgage with when gold is sitting at $1000/ounce.


Wrong again! If the value of the dollar falls then the value of that dollar-denominated debt falls as well. The house is still a house and provides the same amount of shelter each night, regardless of the fluctions in the currency markets.

tomjef said:    ..... The dollar permabulls are like the free-range mental patients who stand at an intersection and accuse everyone else of being crazy.

I find this statement to be quite funny.

Largely because there are no dollar permabulls in this forum or in this discussion. The discussion is about asset pricing based on faith.

Don't assume everyone is blinded by a particular asset class like you. You are projecting your own situations. Any reader of your post can see that.

tomjef said:   germanpope said:   tomjef said:    ... Again, a fall in price is not a fall in wealth....


You say a fall in price is not a fall in wealth. Well, if you need the money to pay your mortgage, it sure as hell is a fall in wealth.

Try tell the bank that you have gold worth $2500/ounce that you wish to pay your mortgage with when gold is sitting at $1000/ounce.


Wrong again! If the value of the dollar falls then the value of that dollar-denominated debt falls as well. The house is still a house and provides the same amount of shelter each night, regardless of the fluctions in the currency markets.



you can't even read ---- I am done --- Aloha!

Isn't the dollar backed by nuclear bombs?

Besides being pretty and shiny, one nice thing about precious metals is that the government can't print it. People will kill for little pieces of paper, because you can trade them for food, health, shelter, recreation, etc. But they are still little pieces of paper, and not inherently scarce. And the people who control the little paper industry aren't necessarily competent or honest. A big bomb (literally or figuratively) could go off tomorrow and really undermine what faith we have in a lot of things. Perhaps it's prudent to have a lunch box with some silver lying around nonetheless, no? Emergency fund for when shit hits the fan, as it always eventually does.

germanpope said:   tomjef said:    ..... The dollar permabulls are like the free-range mental patients who stand at an intersection and accuse everyone else of being crazy.

I find this statement to be quite funny.

Largely because there are no dollar permabulls in this forum or in this discussion. The discussion is about asset pricing based on faith.

Don't assume everyone is blinded by a particular asset class like you. You are projecting your own situations. Any reader of your post can see that.


You don't get it. Everything else has not been in a long-term upward trend. The dollar has been in a long-term downward trend. It's a problem with the dollar, not with everything else the dollar measures.

Blinded? The vast majority of my wealth is not in metals. There will be a time to get in gold to get off the sinking dollar. For right now I am reaping the rewards of QE.

tomjef said:   germanpope said:   tomjef said:   germanpope said:   what's your point?

You're fallaciously confusing dollars with wealth.



I am not confusing anything. There is a certain time period that you have on this earth. During that time period, you need to buy food, shelter, medicine, recreation, ect.

If you are able to buy half as much of that stuff because you lost half of your money in a speculative investment then you have half as much of that stuff that you need.

It is really that simple. Everything else is bullshit.


Do yourself a favor and price food, shelter, medicine, recreation, and most importantly, ENERGY in your precious dollars.

The prices of all of these are going up far faster than official "inflation."

Is everything becoming more "expensive" or is the dollar falling?

The dollar permabulls are like the free-range mental patients who stand at an intersection and accuse everyone else of being crazy.


This is what I mean by irrational - every piece of evidence against your article of faith (gold bars) is simply dismissed. The CPI shows that, no, inflation is notan issue and has not been even though goldbugs like yourself have been predicting it would be for years. But you don't actually accept the data - you suggest that it somehow must be manipulated or incorrect ("official inflation"). All data points against your faith in gold are dismissed immediately as a conspiracy or made up.

Its like the reddit college students who dropped $20,000 in student loans to buy bit coins at $250 a piece. Surely the price drop to $100 was a federal reserve black op (I'm not kidding - people are suggesting this)...surely it will go back up.

magika said:   This is what I mean by irrational - every piece of evidence against your article of faith (gold bars) is simply dismissed. The CPI shows that, no, inflation is notan issue and has not been even though goldbugs like yourself have been predicting it would be for years. But you don't actually accept the data - you suggest that it somehow must be manipulated or incorrect ("official inflation"). All data points against your faith in gold are dismissed immediately as a conspiracy or made up.

Its like the reddit college students who dropped $20,000 in student loans to buy bit coins at $250 a piece. Surely the price drop to $100 was a federal reserve black op (I'm not kidding - people are suggesting this)...surely it will go back up.


CPI is a farce in both how they calculate it and what it represents.

Housing, food, education, health care, child care, automobiles, utilities, and energy are all becoming more expensive in dollar terms far above stated CPI. Can you point to a single one of these things which hasn't substantially out-inflated your precious headline number?

CPI is held down by statistical trickery. The weighting is incorrect and stuck in the 90's. Worse yet, they're masking commodity inflation by quantifying utility (economic) increases and price decreases and using it to hold down inflation in necessities.

Yes, CPI is manipulated downward by absurd foolishness such as Apple being able to crank out a new and improved gizmo every release cycle. The fact that a gizmo with a marginal cost of production at a fraction of its sticker price is substantially more capable over prior releases is actually used to justify a lower CPI.

CPI diverged from tracking the real things a long time ago.

Are you familiar with the statistical trick known as the quality adjustment method?

magika said:   I'm not talking about investing in bubbles and then selling when things crash (which is what happens to most retail investors). Investing as an "act of faith" is when you invest in something (which may be a bubble or not), and no matter what happens to it, you keep plowing more money. Again, using gold as an example but noting that its not just something I see in gold - the faithful who invest in gold believe that every time gold prices go down its a conspiracy, and every time the price goes up its somehow a "real" gain in value. They have invested through this recent surge through the recession (and made a good return!), but as the price goes down those who invest by faith will just keep buying more because economic collapse is coming any day now. Thats investing by faith.

Investing "rationally" for example would be having a portion of your portfolio in precious metals and scaling it down (as the economy improved) or up (as the economy did not improve).


I think what you're seeing is the irrationality of a bubble.

People will keep irrationally pumping money into an asset as long as its in a bubble. That is one of the signs of a bubble.

Are the goldbugs you know of old enough to have seen anything but the recent bubble? Were they buying gold from 1970 through today?

I think its likely that a lot of the goldbugs will not be goldbugs after the bubble really bursts. They're still looking at what gold has done for the past 10 or so years and still have faith it will recover and return to double digit annual growth. If it were to drop to $500 and stay there for a few years then they would eventually change their minds.

Magika, mind if I throw my augment onto your post.

IMO an 'investment' is an 'act of faith' when there is no method to fundamentally value you it at all. How do you value gold? Well 1 believed way was that it would stay an inflation hedge and either meet or exceed annual inflation rates. Yet that relies upon the participants to believe that everybody will continue to hold that belief with such an asset. Instead the only rational way I can value gold is based on it's industrial and retail use prices.

When it comes to equities in general it's not an 'act of faith' because that asset is spinning off an income. As long as people are willing to trade labor for goods and services it will continue to have value. And quite frankly I don't give a $hit what anybody else thinks that asset is worth just as long as the income and earnings keep on coming in.

Similar to if I own a home that I live in instead of renting. If my home is cheaper cost of ownership than renting do I give 2 $hit's about what it's market price is? No! All I care about is that I get to avoid paying rent expense as long as it's higher than my housing cost.

So when it comes to Bitcoins, Beenie Babies, Baseball Cards, etc. it's an act of complete faith because you can't value these things at all. Gold at least has commercial use and at least to it's case it has a several thousand year history of being treated like money and I have no idea how easy it is for a world to break that idea from their mind, but A) It's possible and B) I have no idea if it's justified to break that idea or not.


Index investing is only an act of faith to the extent that it's expected to outperform some other method of investing. The actual ownership of bonds and equities itself isn't an act of faith since again they are income producing assets and can be rationally valued by participants.



As to tech stocks in the late 90s. Hmm...I would say it's an act of faith to invest in a stock that has no earnings, little revenue, but "cool internet company", high expenses, and no viable model to turn profitable all because of some stupid notion about how 'the world has moved past market crashes because of how technologically efficient we are'.

But investing in Coca Cola is not an act of faith, it's an exercise in valuing a business. It's a very different thing.

Rathipon said:   Besides being pretty and shiny, one nice thing about precious metals is that the government can't print it. People will kill for little pieces of paper, because you can trade them for food, health, shelter, recreation, etc. But they are still little pieces of paper, and not inherently scarce. And the people who control the little paper industry aren't necessarily competent or honest. A big bomb (literally or figuratively) could go off tomorrow and really undermine what faith we have in a lot of things. Perhaps it's prudent to have a lunch box with some silver lying around nonetheless, no? Emergency fund for when shit hits the fan, as it always eventually does.

The problem with precious metals is they have no value when economies collapse. Think Germany in 1923-24. You could not buy bread with gold. Germany was in a barter economy and neither currency or PM had any store of value. Dollars and Pounds were worth something. Sec of the Treasury Mellon made the problem worse by refusing to buy gold with dollars. My grandfather and great Uncle lived through that period in Germany. They got by on dollars sent by family members here in the US. Germany recovered because the US government panicked afraid that the communists would take over. The DAWES Plan propped up Germany with US Dollars not gold. The problem you have now is that Cyprus has announced a sale of gold reserves. What happens if the PIIGS announce gold reserve sales as well. Gold will fall through the floor. Gold only has value so long as governments don't sell reserves. Think what would happen to the price if the US sold what is in FT. Knox. Gold is no different than fiat money. Germany in the 1923-24 time frame proved that.

Magicka, rather than an "act of faith" do you mean people who display what you'd call a "religious fanaticism" in an asset?

I mean I have 'faith' in the US dollar. Not an excessive faith, but I don't think its going to crumble next week or anytime soon.

Someone with 'religious fanatcism' for the dollar would deny it could ever do anything but go up long term and any drop is a short term stumble and argue passionately against any opposing view then start calling you names. etc.

Looks like we have some inflation deniers here.

The latest annual CPI-U is 2.1%.

CPI is a weighted and adjusted average.

Housing, food, education, health care, child care, automobiles, utilities, and energy have all increased by more than 2.1% YoY.

For the statistic to be valid, something else must have decreased. Can any of the inflation deniers point to it? What counterbalanced the increases I mentioned?

Skipping 187 Messages...
Hey, goldbugs Get to buying!!! Quick before gold hits 1200



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