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How are you investing your money these days?

  • Cash: Mattress sounds best these days.

    Votes: 8 27.6%
  • Bonds: Deflation is just round the corner.

    Votes: 1 3.4%
  • Stocks: Stocks for the long run, right?

    Votes: 18 62.1%
  • Gold: The world is going to pieces.

    Votes: 2 6.9%

  • Total voters
    29
  • Poll closed .
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Discussion Starter #41
Its not hard to argue that the market failed to correctly identify the crash of 2008 coming, otherwise so many people would not have lost 50% of their portfolio assets (as the people are the market) in such dramatic fashion. The world's top economists, who mostly seem to work for financial institutions, did not see 2008 coming, and these are the same people advising policy makers now on the cure.

The other answer is, i think the markets are behaving irrationally. For example, why would BP rise 8 points based on the idea that the GOM oil disaster damage is quantifiable? (when it is clearly not).

For another example, i'll quote a BMO economist on the CBC news 4 weeks ago who said (paraphrasing) ' Canadians are going to have to adjust to the (new) reality that consumption is no longer going to be the main driver of the US economy going forward' .

I find myself in agreement with the above noted economist, but try as i may, i can't think of what will replace consumption as the main driver. Can anyone? Its not going to be manufacturing any time soon. My conclusion is that the market does not have an answer for this problem, and is buying into the idea that it will sort itself out going forward. I think the bulk of the market today is only looking 3 months ahead.
I did not say that the markets perfectly price everything. Of course, it doesn't. Otherwise, a guy like Warren Buffett wouldn't exist. Yes, most investors and economists did not foresee the depth of the stock market decline. But some did. And as documented in The Big Short, a handful of investors made truckloads of money. They did it by identifying risks the markets were ignoring. Every risk mentioned in this thread is already in the front pages. The markets are discounting it. I don't see a case here for why the market is wrong.
 

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Your allocation is right on with what I am working toward...

I'm currently at 10% metal (in precious metal mutual fund), and believe the Dow/gold ratio will continue toward 1:1.

May I ask what percentage of your total portfolio you dedicate to metals? Many of my trusted gold gurus (Peter Schiff especially) go as high as 20%+ but my stomach isn't strong enough just yet to make such a move...It's interesting to hear what other gold bugs are doing :cool:
Percentage-wise i am about 10% (just less than) however, i buy gold for other reasons than what is probably the norm. To explain, i treat gold as a way to lock in my wealth (think forced savings). I do not buy it to sell, and i buy physical only, i don't consider paper-gold as 'gold'. Schiff is a great cheerleader for gold, but i wonder how much he really understands gold. Owning gold has become a fad again. I recall the inflationary cycle of 1978-80 when gold took off, and people were emptying pop machines just to get at the real silver coins. Most people don't really understand gold and its place in society. For example, even Max Keiser is offering '28 grams' of gold as a prize on his website. (Troy oz =31.1gm).

My view is that gold is in the process of monetizing (again), which is a role it has played throughout human history.

I look at this chart as reflecting the purchasing power of USD as measured by a gold standard. ( a relative perspective). Using a case example, my father worked for about $100/mo in 1935. Under the US Gold Reserve Act the value of the dollar was fixed at $35 per ounce for the same period. One month of dad's wages in '35 would buy about 3 ounces of gold. Were my father alive today, a man in his job as a factory engineer would be making about $5,000/mo; and could purchase about four ounces of gold today with a month's wages. So gold at $1200 is not far off its 1935 value, relative to the purchasing power of my father's income. If we factor in that wages have lost ground over the past 20 years, relative to inflation, it could be argued that gold, if fully monetised, should be valued higher relative to the purchasing power of a dollar. (i argue that value is about $2400), in other words, taking the long view, gold is under priced historically.

PS: in '35 my mother was buying 2lbs of hamburger for 25C (i just asked her). Go figure..
 

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I did not say that the markets perfectly price everything. Of course, it doesn't. Otherwise, a guy like Warren Buffett wouldn't exist. Yes, most investors and economists did not foresee the depth of the stock market decline. But some did. And as documented in The Big Short, a handful of investors made truckloads of money. They did it by identifying risks the markets were ignoring. Every risk mentioned in this thread is already in the front pages. The markets are discounting it. I don't see a case here for why the market is wrong.
Agreed, a handful of investors made money in shorts by identifying risks that markets were ignoring; the average income to house price ratio, being one such relationship that was way out of whack in 2007 (and still is). You seem to support my point with that statement.

You go on to say, "Every risk mentioned in this thread is already in the front pages." and suggest its different this time round, because the risks are more in the media spotlight, therefore the hazards are priced-in.

My counter argument is that there are many professional money managers who have gone to cash aggressively in the last month, (profit taking as well) and that trend is part of the upward pressure we see on USD. Agree so far? Those in this camp (my pedestrian self included) are sitting on cash, low in risk, for a rational reason, and we form part of the market. This component of the market is expecting the next leg down, and hence that group's behaviour is affecting both the upward trend in T-bills and the downward trend in the DJIA.

If it suddenly looks like there is a sustainABLE summer rally occurring, the direction of these flows could turn on a dime. That might be what we see happening today in a very volatile market. I can't speak for others, but i'm not swayed by a 275+ day on the DOW, rather, it makes me think EXTREME VOLATILITY, even more reason to sit back and watch.
 

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Every risk mentioned in this thread is already in the front pages. The markets are discounting it. I don't see a case here for why the market is wrong.
Here's the other side of the bet, in agreement with you, from the Asian desk of Marketwatch

"Equity markets are bouncing from oversold territory and I think it will continue," said Macquarie Private Wealth Division Director Martin Lakos in Sydney. "There's no doubt that equities were discounting every possible worst case outcome. We are now starting to see some of those concerns unwind, in terms of the stress testing of banks in Europe, U.S. earnings and the U.S. economy."
 

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After reading this thread my conclusions are:as many "opinions" as posters. Nobody knows what to do and just "talk their own book". Time for a workout.
 

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Buy and hold a diversified portfolio of broad-based index funds and go back to sleep. I guess that it is interesting to try to predict the eb and flow of the markets but the point is that nobody really knows. However, for some of us, it is a hobby.
 

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Priceless: a poster on calculated risk writes:

".. went to a local bank's shareholders meeting several weeks ago (Southern VA) and in the Q&A with the bank pres, someone asked why the bank was sitting on so much cash. Bank pres' response was that he'd never seen anyone go broke sitting on cash. "

;)
 

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For investors, rising rates are generally a positive sign that the central bank sees data that shows the economy is strengthening and growing again. And, in a growing economy, you should follow your plan and continue to invest with diversification and discipline. This is the formula that has rewarded investors since the market lows of March 2009.

Source: Scotiabank

Conclusion: Watch to see if the central bank raises interest rates another 1/4% the next time out despite all of the doom and gloom out there. If they do, it indicates that they feel that the economy is continuing to expand which is good for stocks.:cool:
 

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...Conclusion: Watch to see if the central bank raises interest rates another 1/4% the next time out despite all of the doom and gloom out there. If they do, it indicates that they feel that the economy is continuing to expand which is good for stocks.:cool:
I am puzzled.

While this in the common belief, why are the banks dropping their mortgage rates?

OK the GDP might be OK but the housing segment is in trouble. How long before the housing slump reflects itself in the GDP?
 

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OK the GDP might be OK but the housing segment is in trouble. How long before the housing slump reflects itself in the GDP?
Why do you say the 'housing segment is in trouble?' Have you ever lived through a period of real trouble in the Canadian RE market? Just wondering. 1980-to-83 comes to mind, and also 1990-92.
 

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A quick reality check:

Average annual income of economic family (2010) = $75,000

Average house price Canada (Jan '10) = 329,000

Ratio: 4:1

Its a bit on the high side, but still a comfortable ratio, and if adjusting for two localized bubbles, its almost dead-center normal.
 

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To continue the comparison with the US market, their average household income for '08 was 52K and the average house price (SOLD) 269K, a ratio of 5:1

In Jan 01 2007, the US number peaked at $322,000, so its already off its peak by nearly 20%, suggesting the ratio was 6:1 prior to the correction.

The forecast is for US housing to decrease in the near term. If US RE drops another 20%, it will be more in line with Canada's ratio of 4:1
 

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For investors, rising rates are generally a positive sign that the central bank sees data that shows the economy is strengthening and growing again. And, in a growing economy, you should follow your plan and continue to invest with diversification and discipline. This is the formula that has rewarded investors since the market lows of March 2009.

Source: Scotiabank

Conclusion: Watch to see if the central bank raises interest rates another 1/4% the next time out despite all of the doom and gloom out there. If they do, it indicates that they feel that the economy is continuing to expand which is good for stocks.:cool:
Not necessarily :eek:
It is possible, and has indeed happened many times in recent history of many countries including Canada, that interest rates rise without real GDP growth.
It is a state of stagflation.
Several variables that theoretically can cause stagflation are present today - very high fiscal stimulus, heavy deficit financing, high unemployment, etc.
Whether stagflation rears its ugly head or not remains to be seen.

So do not construe a rise in central bank lending rate as a sign of economic recovery.
It could very well mean the opposite forces are already in motion.

kcowan said:
I am puzzled.

While this in the common belief, why are the banks dropping their mortgage rates?
Maybe because 5 year bond rates have fallen slightly lower.
 

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Why do you say the 'housing segment is in trouble?' Have you ever lived through a period of real trouble in the Canadian RE market? Just wondering. 1980-to-83 comes to mind, and also 1990-92.
Yup I was moving from Edmonton to Toronto in 1981 and carried bridge financing of $250K when rates hit 22%. I rode the Toronto slump from 1990 to 1997 (and my house price dropped from $1050k to $535k). I moved to Vancouver in 1995 but did not unload my Toronto house until 1997. We are renting here in Vancouver because of the insane valuations.
 

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Yup I was moving from Edmonton to Toronto in 1981 and carried bridge financing of $250K when rates hit 22%. I rode the Toronto slump from 1990 to 1997 (and my house price dropped from $1050k to $535k). I moved to Vancouver in 1995 but did not unload my Toronto house until 1997. We are renting here in Vancouver because of the insane valuations.
i've lived in the same three cities as well, and approx, thru the same cycles, although, seems you missed Vancouver in the mid-70's, when the NDP wrecked the economy..that was fun. My experience in Vancouver, is that one should only buy (if one must) at the bottom of the crash, and Vancouver RE crashes are like buses, if you missed one, just catch the next.

Why do you say Canadian RE is in trouble? It looks pretty normal to me, (excluding the Van area lower mainland, which i never count as normal, by any stretch) although i haven't really looked under the hood lately. Are you suggesting that rates are going to take off? I can't imagine that.. I see that sales are dropping like a stone in a couple of cities, but that's not out-of-character with the scenario at large.
 

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This line in the article by David Weidner, MarketWatch sums up the current rally perfectly IMHO

"Not only does the emperor have no clothes, no one in the kingdom cares."

'Wall Street banks and brokerages are readying second-quarter numbers for mass digestion. They'll show healthy balance sheets, tolerable risk levels and have all the trappings of well-run companies.

Don't believe a word of it. '
 
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