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Dump everything, BUY GOLD?

Discussion in 'Finance and Investment' started by LADoc00, Aug 8, 2006.

  1. LADoc00

    LADoc00 There is no substitute for victory.
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    Im hearing this everywhere, literally everyone. Dump real estate, stocks, bonds, the entire porfolio and buy bullion from goldline.com. This is scaring the crap out of me, anyone else in the market hearing this? Its almost everywhere I turn, some doc in my hospital just plunkered down $1 million to buy bullion....
     
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  3. etf

    etf
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    geez, you sure are frightened by a lot of things - better lay off the kiyosaki :laugh:
    anyway, "dumping" in panic is usually not the way to go. If you had invested $1 in the following assets in the early 1800's, by the 1990's your dollar investment would have grown to:
    U.S. Stocks - well over $500,000
    U.S. Bonds - about $400
    Gold - close to $0.85.

    gold is a hedge against inflation, but stocks, bonds, and real estate are what really allow your money to compound over time.
     
  4. LADoc00

    LADoc00 There is no substitute for victory.
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    http://www.dollarcollapse.com/

    Inflation is about to rip the bunghole of the entire banking system wide open.

    Hasta La Vista!
     
  5. LADoc00

    LADoc00 There is no substitute for victory.
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    GREAT ARTICLE:

    Americans never had it so good. Their assets have been appreciating several times the rate of inflation. The Dow and the S&P 500 tripled between 1995 and 2000. After the 2001 recession, they have recovered back to those levels. Housing is whole another story. House values have doubled on an average throughout the country since 1995. Americans have felt richer. They tapped the equity in their homes, to support lavish life styles.
    The Federal Reserve keeps creating more and more dollars. And then loans them out at record low interest rates to borrowers.

    Meanwhile, the cost of goods has been going down. As manufacturing jobs shift to Asia, and service jobs to India. The cost of most goods that Americans need has been going down.

    This has created huge imbalances in the World Economy. Americans are getting deeper and deeper into debt. While people in Asia keep adding to their savings. The M3 explosion since 1995 is beginning to show its effects. Inflation is rising more than the Fed would like to see.

    What we had for nearly a decade was a relatively rapid Asset Inflation, and Goods Deflation. As home prices stop rising and Americans can't borrow more. The US Economy which is 70% Consumer Spending will come to a screeching halt. Not to mention the effects of job losses in construction and mortgage sector.

    Recession is inevitable. And as the Economy weakens, foreign investors will reduce investments in the US. Which combined with the huge trade deficits, could collapse the dollar very fast.

    The cost of everything that is imported will go up. The assets will continue to deflate. While the cost of everything Americans need will go up, which is measured as the rate of inflation.

    Now this cycle of "Asset Inflation, Goods Deflation" will reverse into "Asset Deflation, Goods Inflation". Americans will feel a lot of real pain.
    Assets could be valued less than the outstanding debt used to purchase them. And this will also be the time to pay back those debts. Even though they will need to spend more and more on goods they need for everyday life.

    Are We Americans Ready for this?

    A weakening US Economy will continue to shed more and more jobs. More and more Americans will become unemployed. And this "multiplier effect" on Economy, could end in Another Great Depression.

    What about those manufacturing jobs in Asia, and service jobs in India? They too will disappear along with, as the US consumer no longer can purchase their products, or use their services. Also with dollar devaluation, it will make less economic sense to import them. Global Recession is very likely.

    The longest experiment with fiat currency and limitless credit expansion is coming to an end within a few years.

    Every time the dollar has been off the gold standard, it has resulted in a currency crisis. Every fiat currency in the history has had the same fate.

    The US has been off the gold standard for nearly four decades now. There is no reason why it will end differently this time.

    The never ending supply of fiat dollars is the core of problem. No Society has ever successfully printed its way into Prosperity.
     
  6. whopper

    whopper Former jolly good fellow
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    I've read many similar articles pointing exactly to what you mentioned.

    I've invested quite successfully in stocks for years, and I'm considering a precious metal portfolio, for the same reasons you've mentioned. I've also started to do research on precious metals.

    One problem I'm encountering is, 1) if I buy metals where will I store it? 1a) what are the costs of storing it? 1b) if I store it in my home should I be concered about the safety of doing so? (hmm let's see I got $300,000 in gold in my basement) 2) what is the monex, apmex or what have you metals exchange going to buy back the metal at? I don't want to buy a metal at for example $100 from a metal exchange, if they only buy it back at a severely lower fraction of the cost.

    I'm trying to figure this out right now. I should've bought gold a few years ago. I knew it was going to go up, but being a medstudent at the time, I had hardly any funds to do so.

    Another area I've considered going into is Forex, for the same reasons mentioned above.

    Just wondering but what are your experiences and advice in this LADoc?
     
  7. LADoc00

    LADoc00 There is no substitute for victory.
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    The cost of professionally "vaulting" metals is .75% of the total value/year. But realize if you plunked down 50 grand worth of gold, it is only a few pounds. There are tons of books written by survivalists on how to "cache" hidden items on your property that would be protected from discovery by anything but the most advanced ground sonar equipment. If you buy your gold from where people do in California (www.goldline.com in Santa Monica) then they guarantee to buy back your gold with only a 1% transfer fee. But if you tried to dump lots of gold in a bad market, it could cost you up to 15% (pure bullion) or even 30%(many non-bullion nusm. coins, which I DONT recommend) to liquidate. In a good gold market of course, the currency BECOMES gold. US Dollar fiat currency isnt worth the paper its printed on. I was told by reliable sources that this week the UAE and other Arab countries stopped accepting US Dollars as payment for oil. Purchasers are left with either Euros or Gold Coinage in the form of electronic gold transfers. That is a HUGE flag world gold supplies are about to be tapped like never before. In addition, there is big talk of China, India, Russia and the Middle East simultaneously going back on a gold-backed currency and dumping their entire US Dollar Supply. Regardless of our military strength, that would quite literally be the end of our little experiment in democracy.

    You almost wonder why the greedy bankers let it get so bad!

    Hasta
     
  8. LADoc00

    LADoc00 There is no substitute for victory.
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    Found a place that offers an even better spread than goldline,

    www.golddealer.com
    First price is the BUY, second is the SELL
    How pimping would it be to be liquid with Swiss Gold Bars?!
     
  9. etf

    etf
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    lol, i know you're crazy about this gold stuff, but this is something i actually did so i understand the "coolness factor". I bought a credit suisse ingotcard a while back when the spot price was like $450. i didn't buy it as an investment, or a hedge against inflation or anything - i bought it to commemorate an event and because it looked really cool...but i guess it all works out in the end.
     
  10. Buckeye(OH)

    Buckeye(OH) 5K+ Member
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    I spoke with two people today. One, my guy at Edward Jones. Two, my guy at Ameriprise.


    Both said buying into precious metals now is more or less pointless. We've missed the up and up.
     
  11. jefguth

    jefguth Senior Member
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    exactly...precious metals are selling at record prices right now, buying now is like buying stocks at their peak...

    If you really want to protect yourself from unstable currency markets, which in reality we are far from, consider moving your investments to ones denominated in another currency, or utilizind hedged mutual funds.
     
  12. LADoc00

    LADoc00 There is no substitute for victory.
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    Hahaha. Precious metals are WAY undervalued. Even after doubling in price since 2003, gold is still 200 bucks off its high mark in the 80s. Many are predicting gold will surge past 1000 before this xmas. Past 2700/oz by 2008-2009.

    Yeah of course you should listen to bond traders/stocks crowd about this, they have absolutely no self interest in keeping inflated US assets high, none, none at all. Yes everyone at Edwards Jones, Merrill Lynch, Dean Witter and Schwab are completely unbiased right? :laugh: :laugh:

    Most of the people in the investment industry at the small consumer end are IDIOTS. Why dont you read about this stuff for yourself:
    [​IMG]

    [​IMG]

    [​IMG]

    Here from the latest from www.TheStreet.com

     
  13. whopper

    whopper Former jolly good fellow
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    Exactly what I was thinking.

    My problem is I'm currently making good money doing things outside of precious metals and forex. I got strong reason to believe that precious metals & forex are the way to go, but I'm trapped between sticking with what I'm doing which is making me decent money, not having time to do adequate research (I'm still a resident), and studying for the boards.

    If it was my choice I'd take off 2-3 weeks and just study up on precious metals & forex more. I'm trying to get my new wife to do it for me, but she lacks the economic savvy (oh well, I ought to just be happy that she's as hot as a supermodel, is one of the nicest people I've met, is a great cook, cleans up my place for me (we're not living together yet) and is my best friend rolled into one---its too much to ask her to take over my investment portfolio.
     
  14. LADoc00

    LADoc00 There is no substitute for victory.
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    How much $ do you have to play with as a mere resident?? Just curious.

    Just looked into Forex, is that online commodities trading essentially??

    Once again if anyone knows a good way to research this all so I dont lose my shirt, give me a heads up...gracias!
     
  15. Buckeye(OH)

    Buckeye(OH) 5K+ Member
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    Alright dude, you buy your gold, and we will compare in 5 years.
     
  16. etf

    etf
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    i love trading commodities, but stocks are what i "invest" in. too many people who don't know what they are doing are entering the commodities/forex game, which is why i'm eagerly awaiting the nymex ipo...
     
  17. whopper

    whopper Former jolly good fellow
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    Forex is basically buying & selling various currencies

    http://www.forex.com/

    This particular site appears to be the main one most people go to, although I have seen others that are cheaper. Forex.com's advantage is supposedly they'll teach you through it, but you got to pay money for lessons.

    Question....if you buy a precious metal, are there any concerns about keeping the metal from various aging factors such as oxidation? I saw some various precious metal bars covered in plastic as a selling point.
     
  18. etf

    etf
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    well for one thing, a lot of forex brokers are willing to teach you through it (often for free), and give you a practice account - they have a vested interest in this because the more you know (or at least think you know), the more you'll trade and generate commissions. i use interactive brokers and have had a good experience with them, and have also heard good things about optionsxpress. i guess it just matters what platforms you're comfortable with...

    oh, and precious metals like gold and platinum do not tarnish or "oxidize", which is one of the reasons they are prized in industry (like dental work, electrodes for brain, etc.). i think they keep them "wrapped" to ensure that the amt of gold you have for instance is exactly one ounce - so you can't scratch some of it off and sell gold dust. 24k gold is really soft.
     
  19. etf

    etf
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    one thing i should mention is that forex is arguably one of the most high risk things out there, especially with the huge amount of leverage involved. you need to be trading with tens of thousands if not hundreds of thousands of dollars per position in order to profit off of extremely minute differences in price. you can lose substantially more than you have invested. so watch out.
     
  20. LADoc00

    LADoc00 There is no substitute for victory.
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    That raises the ? of whether you go with 24K gold coins/bars or 22K (both have the same amount of gold, but 22K weigh more). The idea is that American Eagles and South African gold is alloyed with copper (and the US alloys with silver) to increase the hardiness. Some people laugh at this because modern gold was never meant to circulate, BUT if sh!t really does hit the fan I feel 22K is the way to go to protect against marring.
     
  21. whopper

    whopper Former jolly good fellow
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    Speaking of gold--the precious metals took a hit today. The day isn't over, but as of now--wow. Strange considering a terrorist plot IMHO would've drove gold up.
     
  22. LADoc00

    LADoc00 There is no substitute for victory.
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    Wait and see....I think with this new liquid explosive terror plan, all hell could break loose at any minute....gold=security.
     
  23. etf

    etf
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    it's because the plot was foiled, so the threat is less likely. plus oil prices are down, since they figure less people will travel because of this.
     
  24. etf

    etf
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    if you're from india like i am, you/ your parents have a lot of 22k gold sitting around as jewelry :laugh:
     
  25. LADoc00

    LADoc00 There is no substitute for victory.
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    Gold off 15 today!

    If gold dips below 600, Im considering going in for 20-30 oz. (2-3 10oz Swiss Bars).
     
  26. Buckeye(OH)

    Buckeye(OH) 5K+ Member
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    Amen. My mom has so many damn bangles and rings. I mean, I used to wear a necklace when I was a little kid witih a cross and what not. I mean, I lost like eight of them, but its like we had a storeroom of htem.
     
  27. etf

    etf
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    when it goes down to the $450-475 level, i might consider it...
     
  28. whopper

    whopper Former jolly good fellow
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    Some of the gold "experts" as ETF pointed out are saying they believe the effect was from oil going down, in addition to the price of the dollar going up.

    Speaking of the possible collapse of the dollar--I've also heard about buying up the yuan---the chinese unit of currency. The Chinese currency has gone up in value relative to the dollar, and their economy supposedly is exploding. The risk though that some speculate is its increasing so much, so fast that it may collapse from too quick a rise.
     
  29. LADoc00

    LADoc00 There is no substitute for victory.
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    I may start another thread, BUT for now, lets discuss foriegn currency training, Im not comfortable rolling with yuan, but what about more stable currencies like Euros and Pounds? Anyone know a solid reference for this type of trading, I know you can lose your shirt and I would like be well informed before I venture further.

    PS-Gold spot heading below 630 potentially!
     
  30. whopper

    whopper Former jolly good fellow
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    I'm wondering how much more metals will dip.

    Summer is cooling down, gas prices are projected to drop according to CNBC (despite the BP pipe burst), consumer confidence is up for now--which would lead me to think that metals will drop for the short term.

    I'm still thinking that metals are a good long term investment, but if I jump in, I want to do at the most short term advantageous time.

    Its still dipping today to my surprise.
     
  31. etf

    etf
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    the Chinese economy is growing "too fast", which some people predict will lead to overspending in capital expenditures and could lead to a glut of manufacturing facilities, which might be bad. I myself am investing in the Indian economy (not just because I am Indian), but because it's a more service oriented economy and the capital markets are far more developed.

    as for forex trading, i don't know how effective it is unless you are working with a lot of money (either your own or borrowed). i think that the way to start out in "extremely speculative" things like forex, commodities etc is to trade options - they are a bit easier to understand, and once you get a feel for it, you can decide if you want to speculate further...
     
  32. jefguth

    jefguth Senior Member
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    There would be absolutely no point in moving ot the yuan b/c its value is fixed as a multiple of the USD. The only way the value of the Yuan changes is if the Chinese central bank reevaluates the multiplier it used to tie itself to the USD. Realize that just buying up yuan and not investing it in chinese equities is proabably not much more advantageous than letting your dollars sit in a checking account.
     
  33. etf

    etf
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    with gold near $630, it won't be long until your order is filled...
     
  34. LADoc00

    LADoc00 There is no substitute for victory.
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    Jeebus, gold dropping again today! Yehaw!
     
  35. mshheaddoc

    mshheaddoc Howdy
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    $620, get it while its hot, errr, cold.
     
  36. whopper

    whopper Former jolly good fellow
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    You said you had some money invested in Indian Currency. Do you have any good web sources of info for this? I'm considering getting some indian currency myself. (I'm not Indian--but hey, money's money)
     
  37. etf

    etf
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    hehe, i don't remember saying that i invested in indian currency per se, but i invest in indian companies, who make their profits in rupees (same with investing in european companies that earn euros - an effective "hedge" against the dollar). the only reason i'd buy indian currency is if i was taking a trip to india, and even then you get a better exchange rate by using an atm...
     
  38. CameronFrye

    CameronFrye Senior Member
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    Cool, I didn't realize we had a new forum at SDN.

    Anyway, in general, precious metals are a horrible investment. As mentioned earlier, the cost of storing, insuring, etc will eat away at any gains. Sure, they can serve as an inflation hedge, but there are better/cheaper ways (TIPS or TIPS funds). That being said, if you absolutely have to have exposure to precious metals, then you're better off buying a mutual fund that invests in metals related companies (Vanguard has a very good fund, but I believe it's currently closed to new investors) and the fund should not make up anymore than approx 2% of your portfolio.

    This thread also demonstrates some dangerous investment behaviors (market timing, currency trading, etc). The key to success as an investor is to develop a low-cost well-diversified asset allocation (with domestic stocks, international stocks, bonds, TIPS, real estate, maybe gold) that you'll be able to stick with through thick and then. That way, you automatically buy when prices are low and sell when prices are high. Also, by investing in international institutions, you're spreading your risks around. I highly recommend such books as Bernstein's "4 Pillars of Investing" and Malkiel's "A Random Walk Down Wallstreet".

    As for all the doom and gloom predictions, I think it's best to ignore them. These cycles of pessimism come and go. I'd like to point out that there have been legitimate threats that could've destroyed this country (Civil War, WWII, Cold War nuclear proliferation, etc.) and we've always survived. There is no serious threat right now (that doesn't mean there are no threats, but there are no apocalyptic threats).

    And even if we do live to see this country and the world fall to ruin, I don't think some gold bars buried in my backyard will provide much comfort. I'll have much bigger things to worry about.
     
  39. ncalcate

    ncalcate Senior Member
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    I was thinking of making a very similar post, but Cameron summed it up very nicely.

    To somewhat complement Cameron's post, in general, when the mainstream media is screaming for everyone to do something, that is usually a contrarian indicator. It is usually a sign of what NOT to do.

    I can't tell you how many times both informed news commentators as well as random people kept on insisting back in 1999 that Cisco with a PE of close to 100 was a screaming buy. People who had no knowledge of technology or stocks were trading stock tips. I think we all know what happened then...

    In Boston, where I grew up, no one in the mainstream media was saying you should invest in real estate and flip houses.... not until around 2004. And if you bought in 2004 in Boston hoping to flip a house for a profit, chances are your investment is still on the market with a listing price that might be lower than how much you paid.

    And then there's the legend that back in September 1929, Joe Kennedy Sr. was getting a shoeshine. The shoeshine boy, not even 10 years old, gave him a stock tip. At that moment, Kennedy knew that there was a bubble, and he sold everything a month before the crash in October.

    The point is, by the time the mainstream media is touting some new idea, the big money has already been made. It is best to do what Cameron suggested - do your own due diligence and develop a realistic long-term investment strategy. Jumping on the latest investment craze being touted by Jim Cramer and the like is not investing... it is similar to gambling.

    Good luck to all.
     
  40. whopper

    whopper Former jolly good fellow
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    Gold got majorly hit today and last week. Now its under $600 an ounce? Anyone want to speculate if any when its going to make a comeback?
     
  41. etf

    etf
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    at 550 i might pick up a couple ounces, but if all the stuff in the middle east is (temporarily) resolved and the dow keeps going higher, gold will definately take a hit.
     
  42. mshheaddoc

    mshheaddoc Howdy
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    I wonder if the dow is really going to go up though ... there is talk that our current economic situation is similar to the tech crisis of 2000. Some think the stock market vs. actual economic value is inflated and are waiting for a "recession" back to normal valuation.

    Bull market 2007? as well as HSBC's analysis

    But those seem in the minority compared to some others.


    Anywho, about speculation of the drop in gold ...
     
  43. whopper

    whopper Former jolly good fellow
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    I think a lot of what's going on in speculation bull.

    There were news reports that there was a recent oil find in the gulf of Mexico. Supposedly the oil from this find won't be available for years, but news reports are saying this contributed to the drop in metals & prices.

    The middle east situation with Iran isn't resolved. There's talks going on. So what? There's been talks going on for months. There's been no mention as to why the talking going on now is supposedly better.

    But anyways, specualtion bull is the type of thing which can make you a quick buck.
     
  44. etf

    etf
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    lol, the quick buck is having picked up some shares of genentech today after people panicked for no good reason...
     
  45. The White Coat Investor

    The White Coat Investor AKA ActiveDutyMD
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    Amen. Incidentally, anything that makes up less than 5% of the portfolio will have almost no effect on the portfolio.
     
  46. etf

    etf
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    absolutely not true. i once had a small position that just blew up, and went from being like 2% to 30% of my portfolio.
     
  47. whopper

    whopper Former jolly good fellow
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    The price of metals for the last week has been acting almost completely dependently on the price of oil.

    As for the price of oil, its current price seems to be right now mostly on speculation.

    So again its all speculation bull.

    Interesting thoughts. I've been avoiding actual physical metal but using metal mutual funds. E.g. slv---IShare's fund for silver.

    This morning oil has been up, but right now its in a hovering pattern. There's no way to tell if it'll go up or down because its reacting to a lot of BS.
     
  48. Jocomama

    Jocomama Make 'em bleed!
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    Everything we invest in follows this rule:

    I did mortgage banking for 8 years; anytime I heard a client try to explain to me that rates were going up or down, and ask me what I thought I simply replied, "Anyone that can tell you rates are going up or down, that you actually listen to, ought to be calling you from their 100+ ft yacht in the Caribbean. If they know where the rates are going, they better be that rich"

    The same is for oil, or "oil shale" that I have seen on this post. I laugh when I see such dogmatic advice.

    Now, there are key indicators that help one get an idea, based upon key market occurrences, like the following:

    National Association of Purchasing Manufactures Figures
    Beige Book
    PPI (before CPI)
    Weekly Jobless claims
    Housing starts
    Etc
    Etc

    I used economic calendars which would tell me what time key figures would be released. Then there were predictions, which did not always hold true. However, if I needed to lock a client in on a 1mil+ loan, all I could do is let them know what is coming, but I couldn't predict the outcome.

    However in my 8 years, the closest prediction on the trends of real estate, mortgage-securities, treasuries and Muni bonds was Bill Gross.

    In terms of market - that's a cycle, like the 5yr survival rate on cancer. Why Oil was <$16/barrel 4 yrs ago, and why more likely than not, it will be < $40/barrel in the next 1.5-2 years, regardless of Iraq, Iran, Syria, Israel, etc.

    **** happens. The housing market - who would ever have thought it would decrease? Well, we go back again to the Dutch tulip market, 1927/29 and 1999/2000 NASDAQ. Not since the 80s in Orange County or the Houston Oil crisis in the late 80s did we see real estate fall.

    So - while I don't give advice, just remember; finances and economics occur in cycles, and we cannot predict the future. Who would have thought 911 was going to happen. Yeah - I got a call from a client about the rates dropping: I told that client he should use another banker - I was not going to help him with his opportunistic view on the day the tragedy occurred.

    Anyway - keep it simple; unless you take 8 yrs off and go into business, just do the basics. If you want to trade gold - make sure you have a friend that buys and sells $100k per month and ask his advice. I have that friend; but I choose not to buy Gold because I am back in fellowship and have no time to look at price/ounce on a daily basis.

    Diversify:
    1) Mutuals for equity; include mixed, income, aggressive
    2) Mutuals for bonds - mortgages, treasuries, mixed bond: yield
    3) Foreign Mutuals
    4) Reits
    5) You home as real estate
    6) Private equity if you have $50K to risk
    7) Your own office or equipment

    Good luck to all.
     
  49. whopper

    whopper Former jolly good fellow
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    I'm going to reverse what I mentioned before. I'm thinking not to touch metals now.

    THe price of metals is tied to the price of oil which has dropped tremendously, and there's no way to determine exactly when it will level out.
     
  50. etf

    etf
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    good. now go out and picked up some beaten up, undervalued oil & gas stocks...valero, anyone?
     
  51. Apollyon

    Apollyon Screw the GST
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    http://articles.moneycentral.msn.com/Investing/CNBC/TVReports/HedgeFundDropsFiveBillionDollars.aspx?GT1=8579

    How do you lose $5 billion in one week?

    Risky bets on natural gas prices threaten to swamp one of the nation's biggest hedge funds.

    Amaranth Advisors violated a cardinal rule of investing: Never make a trade that could put you out of business.

    The Greenwich, Conn.-based hedge fund was scrambling to raise cash after a wrong-way wager on natural gas cost it roughly half of its $9.5 billion portfolio.

    Losses swelled by another $1.4 billion this week as the firm unloaded assets at a discount to avoid a shutdown, Bloomberg reports.

    The firm gave its energy-trading portfolio to other investors and sold unidentified investments, according to Bloomberg. The transactions eliminated further losses on natural gas and "helped us avoid termination of our credit facilities and the risk of a consequent forced liquidation by our creditors," Amaranth founder Nicholas Maounis said in a letter sent to investors on Sept. 20.

    Amaranth made about $1 billion last year, when energy prices were going up. But its energy desk failed to predict the extent of the recent downturn in natural gas prices.

    The trade that led to the huge loss was attributed to 32-year-old Brian Hunter, an experienced energy trader who headed Amaranth's energy desk for the past five months. His trades brought in $800 million for the firm last year, and Hunter pocketed at least $75 million in compensation, according to Trader Monthly magazine.

    Hunter's downturn was as sudden as it was shocking. He was up about $2 billion as recently as the end of August, The Wall Street Journal reports. Then Hunter's trades lost $5 billion in about a week.

    Hunter thrived on volatility, reaping profits on price declines and surges alike, the Journal reports. But late last week, Hunter watched with growing alarm as gas prices took a steep dive, particularly in futures contracts for delivery of gas for this coming winter.

    "(Hunter) thought he knew what the market was doing," says Journal editor Phil Kuntz, who worked on the newspaper's coverage of the Amaranth debacle. "The commodities market is very, very volatile. You make a lot of money very, very quickly but you can lose a lot of money very quickly," Kuntz adds. "(Hunter) made about $1 billion in April. He lost a bunch of money in May, then he made a bunch of money back. He had a great August -– by the end of August (the Amaranth trading desk) was up upwards of 20% (year to date) but then they took a big hit in the course of a week in September."

    Fund investors feeling the sting of Amaranth's recent losses include Morgan Stanley, Credit Suisse, pension funds and individual investors.

    Amaranth is the second hedge fund in the last month to be whipsawed by the volatile energy markets. MotherRock, a $400 million fund run by former New York Mercantile Exchange President Bo Collins, lost all of its investors' capital last month when it mistimed the natural gas markets.

    Wall Street was waiting to see where the next shoe would drop.

    "You're going to see (a ripple effect) in September results, when the funds of (hedge) funds start reporting results," says the Wall Street Journal's Kuntz. "You're going to see it in other institutional investors, like pension funds. They're going to be taking huge hits from this."

    "There are also winners on the other side of it," Kuntz says. "Some of the big Wall Street firms were taking essentially the opposite side -– not of specific bets that Brian Hunter and Amaranth were taking but taking basically the opposite view of the market. They made a lot of money in the last month."

    Hedge-fund insiders say the sheer number of competitors chasing returns can lead some traders to assume outsized risks. "It's hard to find ideas that aren't picked over, and harder to get real returns and differentiate yourself," says hedge-fund manager Steve Cohen. "We're entering into a new environment. The days of big returns are gone."

    Other insiders point to what they see as a lack of talent running some of the 7,000 hedge funds in the United States. "There's $1 trillion, and possibly $1.5 trillion, in capital in hedge funds, and there's certainly not enough talent to shepherd that capital adequately, and certainly not talent to justify the fees," says Antoine Bernheim, president of Dome Capital Management, which advises European institutional and private investors on their hedge fund portfolios. Bernheim also publishes Hedge Fund News, a quarterly newsletter that tracks the industry.

    This week's implosion was not the first for Hunter, says Kuntz. "He had a previous blowup at Deutsche Bank that the CEO of Amaranth told us they were quite aware of when they hired him. They said they ran the checks and he completely checked out," Kuntz says. "They prided themselves on their risk management."
     

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