What's the next stock market bubble?

[Carolinian]

Here's a nice video essay on money flows and investing.

There is a lot of good information in that video, but what it misses in the gold market is that most of the big buying is coming from the world's central banks rather than retail investors. Given the debt problems with most fiat currencies, that is certain to continue. Central banks would rather hold a secure asset class than currencies which could collapse due to the debt bomb in many countries. That is why central banks are dumping dollars and euros and pounds and yuan to buy gold.

Even strong fiat currencies with good fundamentals can be forced to devalue to preserve national economies. I remember around 15 years ago when the Swiss franc was appreciating rapidly, and I had a good pile of them in my safety deposit box. The problem was that most of their exports went to EU countries and the strong Swiss franc was pricing their exports out of those markets. At a meeting I attended every month, another attendee who was a banking advisor mentioned the Swiss were about to take an unusual route to stop the rise of the franc. The next week, the Swiss central bank announced they were creating a big pile of new francs and investing them in the US stock market. This had the desired effect of halting the rise of the franc so that Swiss exporters could continue to sell their goods in EU countries.

 

[Ralph Sir Edward]

There is a lot of good information in that video, but what it misses in the gold market is that most of the big buying is coming from the world's central banks rather than retail investors. Given the debt problems with most fiat currencies, that is certain to continue. Central banks would rather hold a secure asset class than currencies which could collapse due to the debt bomb in many countries. That is why central banks are dumping dollars and euros and pounds and yuan to buy gold.

Even strong fiat currencies with good fundamentals can be forced to devalue to preserve national economies. I remember around 15 years ago when the Swiss franc was appreciating rapidly, and I had a good pile of them in my safety deposit box. The problem was that most of their exports went to EU countries and the strong Swiss franc was pricing their exports out of those markets. At a meeting I attended every month, another attendee who was a banking advisor mentioned the Swiss were about to take an unusual route to stop the rise of the franc. The next week, the Swiss central bank announced they were creating a big pile of new francs and investing them in the US stock market. This had the desired effect of halting the rise of the franc so that Swiss exporters could continue to sell their goods in EU countries.

I simply treat gold as another currency.

 

[Ralph Sir Edward]

He could probably show us a similar chart for the 1920's prior to that fateful day in 1929.

Yes, the 1920's chart looks like the 1990's chart. In the crash after the 1920's, the Dow Industrials fell 89%; after the collapse of 2000-2002, the Nasdaq fell 87%.

 

[Talent312]

I get that some rely on statistics and others on self-styled experts.
I use a less reliable approach: My gut instinct from 40 years observation.

Yes, stocks are overvalued, but they could stay that way for years.
For now, we're aging out with 65% in fixed income & 35% in equities.
So, absent a zombie apocalypse, I think we'll be okay.
.

 

[Carolinian]

I simply treat gold as another currency.

That is indeed what it is. Gold, silver, and platinum are monetary metals and have a foreign exchange cross with all other currencies in the FX market. Silver and platinum double as industrial metals. Gold is the only monetary metal that is held by central banks, however, except one outlier that also holds silver.

 

[Brett]

Yes, the 1920's chart looks like the 1990's chart. In the crash after the 1920's, the Dow Industrials fell 89%; after the collapse of 2000-2002, the Nasdaq fell 87%.

I don't think today's economy is similar to the 1920's. We have the FDIC, SEC and the Federal Reserve and ..... omg!

But we still have dividends and compound interest - they can't eliminate that can they?

.

 

[PigsDad]

after the collapse of 2000-2002, the Nasdaq fell 87%.

It was 78%, not 87%. Small typo, big difference. If you were the unluckiest person in the world and invested in a Nasdaq index fund at the peak of the dot com bubble in March, 2000 (and made no further investments), you would have an average annual return of 6.98%. Change that to March 2002, and that annual return jumps to 14%.

Bottom line is that stock market crashes might scare others, but they don't scare me. Even in the worst case above, the long term investment still beats out inflation, resulting in real purchase power growth, by a good margin. I know in the long term, equities are the easiest and safest way to obtain significant investment growth, especially for retirement investments. Pair that with some investment diversification to achieve the safety that I desire in my portfolio, and I have a winning plan that has allowed me to retire early with a nice nest egg.

Kurt

 

[emeryjre]

Will you market mavens tell us what nobody else seems to know
We are all waiting for your knowledge which is obviously from God's mouth to your ears

 

[Talent312]

Will you market mavens tell us what nobody else seems to know...

I will... On a scale of 1 - 10, the answer is 5.

 

[Ralph Sir Edward]

Will you market mavens tell us what nobody else seems to know
We are all waiting for your knowledge which is obviously from God's mouth to your ears

God does not take time out of HIs busy day to tell me anything. All investing to about modeling the future, of which none of us have any certain knowledge. All I can do is make educated guesses, based on human patterns over the millennia.

Patterns like:

People always want something for nothing.
There is always someone who cheats.
There's a sucker born every minute (or more often).
No fiat currency succeeds over the long haul. Sooner or later they become worthless.
Buying things of long term value when they are cheap makes wealth.

PS. Trees don't grow forever. . .

 

[emeryjre]

I am not a big gold bug
Can anyone show me an example of how holding gold when a currency collapsed was a boon to the holder in the new distribution of currency
The only currency revaluation I ever experienced was when Mexico replaced the old peso with the new peso
I was not involved as anything other than an outside observer
I do not remember if gold played any part
It could have
I just was not involved as a peso holder or gold holder

 

[Ralph Sir Edward]

I am not a big gold bug
Can anyone show me an example of how holding gold when a currency collapsed was a boon to the holder in the new distribution of currency
The only currency revaluation I ever experienced was when Mexico replaced the old peso with the new peso
I was not involved as anything other than an outside observer
I do not remember if gold played any part
It could have
I just was not involved as a peso holder or gold holder

How many do you want?

France. Post WWI, WWII, post WWII currency revision.
Germany - The great granddaddy of them all, the 1923 hyper inflation. The 1949 currency revision.
Argentina - Continual hyperinflations, one after another.
Various other Latin American countries and hyperinflations.

Note. Gold did not make anybody "rich" in these examples. But it allowed the ability to maintain purchasing power as those currencies took the "big dive".

 

[Carolinian]

How many do you want?

France. Post WWI, WWII, post WWII currency revision.
Germany - The great granddaddy of them all, the 1923 hyper inflation. The 1949 currency revision.
Argentina - Continual hyperinflations, one after another.
Various other Latin American countries and hyperinflations.

Note. Gold did not make anybody "rich" in these examples. But it allowed the ability to maintain purchasing power as those currencies took the "big dive".

The classic is probably Zimbabwe, but in Europe there has also been Serbia, Moldova, and Turkey. I remember one of my early trips to Turkey where it was very cheap in dollars to be a millionaire in lira. People I know in Moldova have spoken of one day soon after the fall of the Soviet Union where the amount of money that in the morning would buy an apartment, in the afternoon would only buy a bicycle.

Holding gold means your money's value does not evaporate with inflation. I have a pile of Imperial German gold 20 marks. The Germans who possessed those coins in 1923 still had money of real value. If they had paper marks, bank accounts, bonds, etc., they might as well have used them as toilet paper. The stock market of the day did better than paper money but not anywhere near as well as gold and silver.

 

[emeryjre]

So what happened to gold and gold coins in these countries
You keep saying they made out ok
Can you give me a factual example of what happened to an ounce of gold in these situations
Not some generalization

 

[ScoopKona]

Can you give me a factual example of what happened to an ounce of gold in these situations

I can.

1) There wasn't enough gold in those hyperinflation markets to make a difference. And the people who had a lot of personal gold, skedaddled from these countries for more-pleasant locations.

2) Gold is the epitome of flat. The cost of a good toga in the Roman forum was one Aureus. The cost of a nice suit today is the same equivalent weight as the old Aureus.

With two exceptions, the only thing I have ever done with precious metals is sell it and then invest in something useful. (Mel Fisher gave me some interesting Atocha loot and I keep that for sentimental reasons.)

The only people who do well with gold are people who own gold mines; people who buy and sell for a living (taking a bite out of each end of the transaction) and people who inherit gold and then sell it. Most gold bugs hoard until they die. And then an heir does something useful with it. If I found a sack of gold coins in the attic, I'd take a repositioning cruise to the mainland and dispose of the windfall -- and buy more land.

 

[Ralph Sir Edward]

So what happened to gold and gold coins in these countries
You keep saying they made out ok
Can you give me a factual example of what happened to an ounce of gold in these situations
Not some generalization

What happened is that you had a lump of gold. It could be sold for whatever new paper money there was, at a purchasing power similar to what the purchasing power of that lump of gold in the world market. Usually more, as there was less trust in the new money. Think of it as portable real estate, in very small units.

Only in Communist countries (and the US under FDR) was gold actually seized by the government from individuals. Otherwise, as the purchasing power of paper money dropped, (and ever went to zero in some cases) the gold holder could always sell pieces of gold for the current medium of exchange, at open market prices. The same for all metals.

For a long-winded, and very depressing, book on the subject of Germany 1923, read When Money Dies. Not only did it discuss "the big picture", but gave the historical record of a war widow post WWI. https://www.amazon.com/s?k=when+money+dies

 

[Brett]

I can.

1) There wasn't enough gold in those hyperinflation markets to make a difference. And the people who had a lot of personal gold, skedaddled from these countries for more-pleasant locations.

2) Gold is the epitome of flat. The cost of a good toga in the Roman forum was one Aureus. The cost of a nice suit today is the same equivalent weight as the old Aureus.

With two exceptions, the only thing I have ever done with precious metals is sell it and then invest in something useful. (Mel Fisher gave me some interesting Atocha loot and I keep that for sentimental reasons.)

The only people who do well with gold are people who own gold mines; people who buy and sell for a living (taking a bite out of each end of the transaction) and people who inherit gold and then sell it. Most gold bugs hoard until they die. And then an heir does something useful with it. If I found a sack of gold coins in the attic, I'd take a repositioning cruise to the mainland and dispose of the windfall -- and buy more land.

Still plenty of Mel Fisher's gold in Key West shops!

https://www.macrotrends.net/2608/gold-price-vs-stock-market-100-year-chart

 

[Ralph Sir Edward]

Still plenty of Mel Fisher's gold in Key West shops!

View attachment 116000
https://www.macrotrends.net/2608/gold-price-vs-stock-market-100-year-chart

I'm tired of your bl**dy chart. So I'm going to stop being civil for a moment and shove it back down your throat.

If you read the legend of that chart, it says "Click and drag in the plot area or select dates". So I am going to do that from Jan 2000 to date.

IT'S THE SAME BLEEPING CHART! Stocks outperformed gold from 1980 to 2000. Gold has outperformed stocks from 2000 to date.

I expect and someday in the future stock will outperform gold dramatically. But that ain't today!

(Off my soap box. . . )

 

[Brett]

I'm tired of your bl**dy chart. So I'm going to stop being civil for a moment and shove it back down your throat.

If you read the legend of that chart, it says "Click and drag in the plot area or select dates". So I am going to do that from Jan 2000 to date.



IT'S THE SAME BLEEPING CHART! Stocks outperformed gold from 1980 to 2000. Gold has outperformed stocks from 2000 to date.

I expect and someday in the future stock will outperform gold dramatically. But that ain't today!

(Off my soap box. . . )

Don't get upset !

You and I are both multi-millionaires with good pensions and diversified investment portfolios
so if the economy collapses and the "bubble" breaks we'll survive ... and live long and prosper

 

[Ralph Sir Edward]

 

[easyrider]

Yes, the 1920's chart looks like the 1990's chart. In the crash after the 1920's, the Dow Industrials fell 89%; after the collapse of 2000-2002, the Nasdaq fell 87%.

It might be interesting but probably not as severe. The differences between 1920, 1990, 2002 and 2008 regarding personal property and technology are huge. Still, losing a good portion of accumulated wealth could screw up many things.

Bill

 

[Ralph Sir Edward]

It might be interesting but probably not as severe. The differences between 1920, 1990, 2002 and 2008 regarding personal property and technology are huge. Still, losing a good portion of accumulated wealth could screw up many things.

Bill

It was called "The Great Depression".

 

[Brett]

It might be interesting but probably not as severe. The differences between 1920, 1990, 2002 and 2008 regarding personal property and technology are huge. Still, losing a good portion of accumulated wealth could screw up many things.

Bill

But if one has a "balanced" portfolio ... no worries

(The Fed will save us )

.

.

 

[easyrider]

But if one has a "balanced" portfolio ... no worries

(The Fed will save us )

.

View attachment 116025


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It was save yourself in 2008 with some retirees. My main clients were people getting ready to retire of which many had huge retirements accounts. In 2008, some of these retired guys had to take jobs that were beneath them until they were Medicare eligible.

Bill

 

[Brett]

It was save yourself in 2008 with some retirees. My main clients were people getting ready to retire of which many had huge retirements accounts. In 2008, some of these retired guys had to take jobs that were beneath them until they were Medicare eligible.

Bill

Just wanting to help others in (unpredictable) times of need. .... Bless your heart, Bill

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