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  • Investment allocation

    Hi Guys,

    Ive been reading iTulip for a while and absolutely love this site.... I was beginning to see the writing on the wall several years ago and only about a year ago found iTulip... I have essentially stayed in all cash for the last 3-4 years.... As nothing made sense to invest in....

    But, i had overlooked gold as an investment (quite frankly never even knew about it).... After reading iTulip i woke up to it... So, i am now worried about inflation and im curious if iTulip still recommends gold at this price point of ~ $850.00.... As i keep looking at the charts and it seems to be in a down trend that is hard to swallow....

    I have read the Ka-poom theory, and IMHO, i still believe we will be in for deflation for the next year or so (average Joe is just starting to wake up to it, and there seems to be alot of skeletons in the closet; Madoff, etc...) but as the bailout money starts hitting the system then we will see inflation as EJ has predicted....

    But, i guess im trying to understand how long does iTulip think the deflation will last and how bad does iTulip think the coming inflation will be? With regard to USD official devaluation to happen it would have to be against another currency, correct? I m having a hard time seeing it against any other currency, right now as all countries seem to have swallowed the FIRE way of doing things.... Its all fiat and all have drunk from the same poison....

    Will inflation be so bad that all of the savings will be destroyed? If so, what are iTulipers allocations of assets?

    For someone like my self i unfortunately didnt get in on gold at a good price and i am trying to avoid catching the train midstation as it seems that it could go either way....

    I would love to hear peoples thoughts on this... Is Gold still something to buy at this price, or is it now too risky to jump in after a 4x increase in price in the last 3 years?

    Thanks,
    Karim0028

  • #2
    Re: Investment allocation

    BTW, my apologies, i just noticed this is the news forum and this is not news.. So, could an admin kindly move this to the appropriate location?

    Thanks

    Comment


    • #3
      Re: Investment allocation

      Originally posted by karim0028 View Post
      Hi Guys,

      Ive been reading iTulip for a while and absolutely love this site.... I was beginning to see the writing on the wall several years ago and only about a year ago found iTulip... I have essentially stayed in all cash for the last 3-4 years.... As nothing made sense to invest in....

      But, i had overlooked gold as an investment (quite frankly never even knew about it).... After reading iTulip i woke up to it... So, i am now worried about inflation and im curious if iTulip still recommends gold at this price point of ~ $850.00.... As i keep looking at the charts and it seems to be in a down trend that is hard to swallow....

      I have read the Ka-poom theory, and IMHO, i still believe we will be in for deflation for the next year or so (average Joe is just starting to wake up to it, and there seems to be alot of skeletons in the closet; Madoff, etc...) but as the bailout money starts hitting the system then we will see inflation as EJ has predicted....

      But, i guess im trying to understand how long does iTulip think the deflation will last and how bad does iTulip think the coming inflation will be? With regard to USD official devaluation to happen it would have to be against another currency, correct? I m having a hard time seeing it against any other currency, right now as all countries seem to have swallowed the FIRE way of doing things.... Its all fiat and all have drunk from the same poison....

      Will inflation be so bad that all of the savings will be destroyed? If so, what are iTulipers allocations of assets?

      For someone like my self i unfortunately didnt get in on gold at a good price and i am trying to avoid catching the train midstation as it seems that it could go either way....

      I would love to hear peoples thoughts on this... Is Gold still something to buy at this price, or is it now too risky to jump in after a 4x increase in price in the last 3 years?

      Thanks,
      Karim0028
      I may be able to answer some of your questions . . . .

      iTulip predects a 5-year period of inflation 10%, 20%, 40% 20% 10%. The start time of this is not certain. At this rate, $100 will shrink to about $31 over the 5-year period.

      As for gold, I believe that iTulip recommends a "rump" of gold (small amount?) as "insurance". Only a "rump" is recommended a diversification strategy, because gold carries the risk of government interference, such as confiscation or exorbitant taxes.
      EJ's allocation is primarily gold and short-term treasuries.

      I did some calculations on gold profitability, FWIW:
      How high must gold go to preserve wealth?

      Two scenarios . . . with a few hypotheticals (and assuming my math is correct):

      1) IF gold triples in price --

      Invest $100,000 in gold at $900/ounce.

      In 5 years, gold reaches $2,700/ounce (3x growth) . . . your gold is now worth $300,000

      You sell it, and take the 27% collectibles tax hit, so you've now got $244,000 [100,000 invested + (200,000 profit -28% tax)]

      In the next 5 years, IF inflation goes in a yearly pattern of 10%, 20%, 40% 20% 10%, your $244,000 will be worth $75,893 in today's dollars.

      Thats a loss of about 24% of your original investment

      _________________

      IF gold grows 6x in price --

      Invest $100,000 in gold at $900/ounce.

      In 5 years, gold goes to $5,400/ounce (6x growth) . . . your gold is now worth $600,000

      You sell it, and take the 27% collectibles tax hit, so you've now got $460,000 [100,000 invested + (500,000 profit -28%)]

      In the next 5 years, IF inflation goes in a yearly pattern of 10%, 20%, 40% 20% 10%, your $460,000 will be worth $143,078 in today's dollars.

      Thats a gain of about 43% of your original investment, in 5 years -- 8.6% a year

      The above scenarios do not include the possibility of government interference . . . .
      You might want to use the Search function to check out posts on these topics. In Advanced Search, you can enter "EJ" or "Fred" to get the official iTulip positions.
      raja
      Boycott Big Banks Vote Out Incumbents

      Comment


      • #4
        Re: Investment allocation

        Your scenarios, raja, for investing in gold to hedge inflation, seem to suppose that one has to pick an investment position now and hold it for say five years.

        My sense is that the most important investment strategy at present is to be flexible. Avoid, or disentangle oneself from, major investments that can't be changed quickly. Stay light on ones feet.

        We've been in a period of extreme volatility and asset class rotation for a year now, and it seems likely to continue. The winners will be the ones who hit one or two of the rotations well, or who at least avoid getting wiped out by any of them. The shifts can come more swiftly than one can safely adapt to after the fact. Old fashioned momentum investing doesn't work if the natural frequencies of the market are quicker than the adaptive speed of your market timing filters. So one will need not only to react fast, but even to hedge the anticipated next major market move (as in the currently recommended rump of gold) in order to minimize the risk of a financially fatal wipe out.

        This further means paying more than the usual amount of attention to ones friends, family, neighbors and health, thus essentially hedging against the risk of a financial wipe out by being able to come back even from that circumstance. It also means minimizing ones "run rate" (as we used to call it in Silicon Valley computer startups), meaning minimizing how much cash flow one needs to just continue getting by.
        Most folks are good; a few aren't.

        Comment


        • #5
          Re: Investment allocation

          Originally posted by ThePythonicCow View Post
          Your scenarios, raja, for investing in gold to hedge inflation, seem to suppose that one has to pick an investment position now and hold it for say five years.

          My sense is that the most important investment strategy at present is to be flexible. Avoid, or disentangle oneself from, major investments that can't be changed quickly. Stay light on ones feet.

          We've been in a period of extreme volatility and asset class rotation for a year now, and it seems likely to continue. The winners will be the ones who hit one or two of the rotations well, or who at least avoid getting wiped out by any of them. The shifts can come more swiftly than one can safely adapt to after the fact. Old fashioned momentum investing doesn't work if the natural frequencies of the market are quicker than the adaptive speed of your market timing filters. So one will need not only to react fast, but even to hedge the anticipated next major market move (as in the currently recommended rump of gold) in order to minimize the risk of a financially fatal wipe out.

          This further means paying more than the usual amount of attention to ones friends, family, neighbors and health, thus essentially hedging against the risk of a financial wipe out by being able to come back even from that circumstance. It also means minimizing ones "run rate" (as we used to call it in Silicon Valley computer startups), meaning minimizing how much cash flow one needs to just continue getting by.
          Yes, I agree with your idea about flexibility.

          My scenarios were calculated just to give me a general idea of what gold will be worth in the future. Of course, there are an infinite number of variables, so this little exercise is admittedly limited in value.

          The iTulip "recommendation" is to buy gold and hold . . . at least for now. If one expects gold to double in price, and that occurs, this strategy would be a losing proposition. But if one expects gold to go up 6x, it would be profitable.
          raja
          Boycott Big Banks Vote Out Incumbents

          Comment


          • #6
            Re: Investment allocation

            Originally posted by raja View Post
            Yes, I agree with your idea about flexibility.

            My scenarios were calculated just to give me a general idea of what gold will be worth in the future. Of course, there are an infinite number of variables, so this little exercise is admittedly limited in value.

            The iTulip "recommendation" is to buy gold and hold . . . at least for now. If one expects gold to double in price, and that occurs, this strategy would be a losing proposition. But if one expects gold to go up 6x, it would be profitable.
            But "losing" compared to what? CPI basket? Oil? Residential or commercial rental property? Farmland? Grain?

            If there is the prescribed inflation that implies that the US$ has depreciated in purchasing power by those estimated annual amounts. The key for an investor would appear to be figuring out against what. When iTulip says 20% inflation it has to be either against gold [EJ's inflation hedge] or some other external [to US$] reference, like oil or CPI basket.

            Comment


            • #7
              Re: Investment allocation

              Originally posted by GRG55 View Post
              But "losing" compared to what? CPI basket? Oil? Residential or commercial rental property? Farmland? Grain?

              If there is the prescribed inflation that implies that the US$ has depreciated in purchasing power by those estimated annual amounts. The key for an investor would appear to be figuring out against what. When iTulip says 20% inflation it has to be either against gold [EJ's inflation hedge] or some other external [to US$] reference, like oil or CPI basket.
              My unexamined assumption was that the dollar would lose value against everything that could be purchased by dollars.

              Take the desert island example, where everything is purchased with clam shells. If a new bed of clams is suddenly discovered, thereby increasing the shell supply, it would seem that clam shells would inflate against all things proportionately.

              Maybe I'm being too simplistic about this . . . or not. But assuming that prices of "things" are at some kind of market equilibrium before the swelling of the dollar supply, it would seem to me that the relative value of all things would rise proportionally with the increase in the dollar supply.
              raja
              Boycott Big Banks Vote Out Incumbents

              Comment


              • #8
                Re: Investment allocation

                Originally posted by raja View Post
                My unexamined assumption was that the dollar would lose value against everything that could be purchased by dollars.
                Perhaps not everything?

                Other currencies, of America's trading partners, might remain relatively constant to the dollar, as they are forced to inflate their currencies in rough lock step with the dollar, in order to preserve trading advantages. They might continue to keep their currencies weak in order to sell (once again) to us Americans.

                Of course, eventually, that game too will end. But perhaps not right away. Clearly, trading has fallen off a cliff. But perhaps the world still fancies itself as rock climbers. I once drove by a rock cliff outside of Boulder, Colorado on which several healthy young men were climbing. One of the climbers had a full cast on his left leg. Some folks just don't quit.

                And the price of Treasuries could continue rising, further lowering interest rates on U.S. debt, as the Fed and Treasury Department and money center banks work mightly to make Treasuries the next great bubble, by printing dollars to purchase Treasuries hand over fist, even faster than Treasuries are being printed to finance more U.S. federal debt. Surely that game too will end some day; it sounds like fighting a fire in your home by aggressively setting backfires. But, as above, perhaps it will not end right away. Perhaps we need another Bubble for the Ages - this one in U.S. Treasuries.

                For the above to work, inflation must continue to be disguised. Wage inflation is being held down nicely, by global competition and by fears of being the next one laid off. The prices of manufactured goods have been held down during the last couple of bubbles by bringing online increasingly less expensive labor and by continuing to improve manufacturing, shipping, retailing, and inventory efficiencies (thanks in part to those nifty computers I spent the last three decades hacking away on.) The prices of manufactured goods and commodities are now being held down, neigh - driven down hard, by rampant price declines due to the collapsing credit markets. The price of gold is being kept in check, for reasons that vary depending on the proportion of aluminum in the hat of the respondent. The interest rates of Treasuries, another common inflation marker, could be driven even lower by what could become increasingly blatant purchasing of them by the Banksters accomplices at the Fed.

                Likely, the only reason we will run out of bubbles will be that we have run out of asset classes to blow up. Perhaps we have not run out yet.

                (Just don't look for any consistency between the above speculations and anything I might have posted here some other day. I can imagine various futures, more or less all of which will never come to pass ;).)

                In brief summary of the above, perhaps the Dollar denominated price of Everything is not yet ready to rise, for if it did, that would discredit the dollar, and perhaps only after we run out of bubble material do we see the dollar discredited.

                Was not the Ka-Poom theory proposed before the recent late great housing bubble?

                Perhaps, as someone (who?) far more famous than I once noted, we know what will happen (the Poom) but not when (how many Bubbles will come first.)
                Most folks are good; a few aren't.

                Comment


                • #9
                  Re: Investment allocation

                  Originally posted by GRG55 View Post
                  But "losing" compared to what?
                  I was going to ask the same question of raja.

                  Do not dismiss an investment strategy because it sucks (loses real wealth.) Only dismiss a strategy because it sucks more than some other possible strategy being considered.

                  In other words, the best strategy might be the one that sucks least.
                  Most folks are good; a few aren't.

                  Comment


                  • #10
                    Re: Investment allocation

                    Originally posted by ThePythonicCow View Post
                    I was going to ask the same question of raja.

                    Do not dismiss an investment strategy because it sucks (loses real wealth.) Only dismiss a strategy because it sucks more than some other possible strategy being considered.

                    In other words, the best strategy might be the one that sucks least.
                    I don't plan to make money in the coming years. My strategy is to lose as little as possible by hedging the various unpleasant scenarios that may lay ahead.

                    When I was talking about investing in TIPS several months ago, some folks here pointed out that TIPS lose money (for various reasons). My response was something like, "I agree, but it's still a good idea?"

                    I've also made another allocation that has been criticized, RE. We'll see how that turns out . . . .

                    In a Great Great Depression, with a meddlesome government, it's a lose-lose situation. Maybe I'll get lucky, though . . . and my chances are certainly improved by reading iTulip.
                    raja
                    Boycott Big Banks Vote Out Incumbents

                    Comment


                    • #11
                      Re: Investment allocation

                      Originally posted by raja View Post
                      My strategy is to lose as little as possible by hedging the various unpleasant scenarios that may lay ahead.
                      Sounds like a good plan to me. If you figure out the way, let us know.
                      Most folks are good; a few aren't.

                      Comment


                      • #12
                        Re: Investment allocation

                        Originally posted by ThePythonicCow View Post
                        Sounds like a good plan to me. If you figure out the way, let us know.
                        I think we've entered a new era of investing. The old ways don't work any more: relying on outside investment advisers, buy-and-hold, technical analysis, etc. There's too much manipulation in the market, not enough disclosure by counterparties, and too much random and unpredictable intervention by government (too many Black Swans).

                        I'm still in the process of refining this idea, but my current thinking is that the best strategy for today's markets is to invest with an eye toward "hedging" personal expenses. For example, to offset potential increases in food expenses, buy agricultural commodities. For energy expenses, buy oil, etc. Those investments might go down, but if they do, then my monthly costs should go down too, so the net impact on my standard of living should be minimized.

                        Of course it's difficult to hedge all aspects of one's personal expenses and asset values, but with some effort, it seems possible to come close enough that the impact of big market disruptions could be reduced -- and even with a hedged portfolio, it should still be possible to improve purchasing power over time.

                        Comment


                        • #13
                          Re: Investment allocation

                          that the best strategy for today's markets is to invest with an eye toward "hedging" personal expenses
                          This might be similar to my sense that one must become more light on ones financial feet, more flexible.

                          EIther way, the point seems to be to cope with a wide, unpredictable, range of possible futures, rather than heavily optimizing for one particular future.

                          We must convert from being big investing dinosaurs to small mammals. The big meteor has arrived. The ability to survive in a wide range of conditions will trump being optimized for one particular condition.

                          If a particular future need can be hedged, so that for most likely future states, it has relatively constant and manageable cost, then that's one way to factor out that need from ones analysis.
                          Most folks are good; a few aren't.

                          Comment


                          • #14
                            Re: Investment allocation

                            Originally posted by ThePythonicCow View Post
                            This might be similar to my sense that one must become more light on ones financial feet, more flexible.
                            Yes, exactly. However, that agility requires a higher level of due diligence and general market awareness than most people currently seem willing to accept. Unfortunately, I think their portfolios will suffer greatly as a result.

                            Originally posted by ThePythonicCow View Post
                            We must convert from being big investing dinosaurs to small mammals. The big meteor has arrived. The ability to survive in a wide range of conditions will trump being optimized for one particular condition.
                            Great analogy. I definitely agree.

                            Comment


                            • #15
                              Re: Investment allocation

                              Originally posted by Sharky View Post
                              I think we've entered a new era of investing. The old ways don't work any more: relying on outside investment advisers, buy-and-hold, technical analysis, etc. There's too much manipulation in the market, not enough disclosure by counterparties, and too much random and unpredictable intervention by government (too many Black Swans).

                              I'm still in the process of refining this idea, but my current thinking is that the best strategy for today's markets is to invest with an eye toward "hedging" personal expenses. For example, to offset potential increases in food expenses, buy agricultural commodities. For energy expenses, buy oil, etc. Those investments might go down, but if they do, then my monthly costs should go down too, so the net impact on my standard of living should be minimized.

                              Of course it's difficult to hedge all aspects of one's personal expenses and asset values, but with some effort, it seems possible to come close enough that the impact of big market disruptions could be reduced -- and even with a hedged portfolio, it should still be possible to improve purchasing power over time.
                              How were you planning to invest in these?

                              If through stocks, is there a direct correlation between stocks and the underlying commodity? Seems to me that a stock is only worth what someone is willing to pay for it. Yes, there are underlying fundamentals, but in a market crash, isn't it common for everything to go down? :eek:
                              raja
                              Boycott Big Banks Vote Out Incumbents

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