Barry Ritholtz: Sailing with Sea Monsters

Barry Ritholz has had a long career, both participating in the Wall Street machine operates and opining on how it operates. By any account, few understand the ‘street rules’ of modern investing better than he.

And he thinks many investors today, both individual and professional, are letting themselves get dangerously distracted.

In a May article titled Where Sea Monsters Live, he observed that many fund managers spend more time railing at Fed policy than on their own portfolio strategies. Yes, the seas have become more turbulent, admits Ritholtz, but that’s exactly when the captain’s expertise is needed most. Simply cursing at the winds and tides will not get the ship to safety.

By the way, I do not want people to misunderstand this. It's not that people shouldn't be criticizing the Fed; it's not that people shouldn't be actively and vocally debating public policy and monetary policy. But if you are doing that instead of managing your assets, if you are doing that instead of paying attention to how you should be positioning your portfolio, you are going to be in trouble as an asset manager.

The priority, he says, is to accept that – for good or for bad – central bank intervention is an integral component of financial markets now. Whether you approve or not is immaterial; if you are a steward of capital, you’d better work quickly to develop an investing approach that takes the range of likely Fed actions into account.

Markets are driven by human nature; they are driven by psychology of fear and greed. Sometimes the fear is missing out on the rally. Sometimes the fear is uh oh, things are going lower.

What changed the game so dramatically post-2008 crisis is the footprint of the Federal Reserve and what they are doing. And so, if the Fed was not involved in this market I would be looking at decelerating macro economics, I would look at earnings peaking and reversing, I would look at a number of factors that would have me radically reduce my equity exposure.

We run an asset allocation model that uses a 60/40 benchmark. 60% equities; 40% fixed income. We came in to the year 80/20, way overweight in equities, and as the market has rallied – each time we rebalanced to take a little bit off the table. But we have also made a conscious decision to go to equal weight as opposed to overweight. Now, if this was a normal situation I would probably be 40/60. I would probably be 40% equities, but it is really, really challenging to say. Despite the fire hose of liquidity, despite the really low fixed income rates, I want to still sell stocks. In light of what is going on, I just cannot do it.

By making bond yields so low, you drive money out of bonds into equities, and by providing so much liquidity to banks, history has shown us that when that happens it seems to find its way into equity markets. When you look at that historically, when you look at when the Fed says we are going to increase liquidity, we are going to put a lot of cash into the system as a lubricant, the impact is that risk assets go higher. And that is pretty much stocks, bonds, and commodities - and the dollar weakens. Look at what happened under Greenspan and once Bernanke took over. From 2001 to 2007, the dollar lost 41% of its value, and I have no doubt that was driven by Fed policy.

If this was a normal situation, I would be battening down the hatches and waiting for this storm to come forward. Instead we are looking at a Fed with a fire hose and wondering every time there is a 10% to 20% correction in the equity market, they throw more cash at the system in order to generate some improvement. And I keep coming back to this from our original conversation about Where Sea Monsters Live. It's more than just being the armchair critic. The impact of this from an investment perspective is: “I want to own this and I do not want to own that for all of the above reasons.” Where people seem to falter is in taking it to the next step and saying, “Well, what does this mean from a risk versus reward perspective?”

Click the play button below to listen to Chris' full interview with Barry Ritholtz (48m:51s), including his his thoughts on gold:

This is a companion discussion topic for the original entry at https://peakprosperity.com/barry-ritholtz-sailing-with-sea-monsters/

The FED has played its last card, a two of clubs.
In the absence of information I am free to speculate. The petro-dollar is history. With a new, better source of energy who needs it? Impermanence and eternity.

Do you trust the FED? They say that they are going to print automatically. What happens if they are lying? Have they an ace up their sleeves?

It seems a good fund manager should begin his career in psychology.

And yet, so much of the policy we have seen from the Fed and from the government has been what can we do to avoid this next bailout, to avoid this next recession.
Hubris. They still operate under the delusion that recessions are a thing of the past. "Hey. We've got this vehicle under control. It is all here in the equations. I mean come on, What do you believe, the Model or Reality?"

It seems that Economists should begin their career with a solid pair of boots.

I am less convinced that I have any sort of insight as to guessing where gold is going to be.
Me too. Nicholle Foss said that silver should go down to $3 oz. I will keep mine on imperfect knowledge.
I have not really been keen on the end of the world scenarios
Amen. Neither am I.

I am investing in my pantry. That is guaranteed to go up.

At least he didn't say, "Well you can't eat gold can you?" wink
Actually he implied that 10-20% upside is already baked in the cake. I know a few pension funds that could use a piece of that action.

SS 

 

A quote from Barry:

"So, if sequestration takes place, all those cuts are likely to lead to a pretty significant recession. But, as we just said before, that would not be the worst thing in the world. In fact, in many ways, it has got a healthy cleansing effect.

Now, if I think that is going to happen, if we see signs that it is going to happen, then I am going to want to hedge my equity positions. I am going to want increase my fixed income positions. I am going to want to jettison any commodities I own, because that severe – or I should really call it significant – recession, you can see a 30-40% correction in equities. You could see a significant rally in bonds from already pricey levels, and it means that demand for a lot of commodities is going to fall off the cliff at least for six months and then everybody will figure it out and we will move forward."

Yes but........Barry's position assumes that the Fiscal authorities will trump FED policy. I would not be so sure. Bernanke knows that a recession could be the death knell of his tenouos recovery. 

 

So Barry is very honest here… he professes a very backward looking, normalcy-bias driven view of Gold's value.  Demand is driven by India/China buyers, etc, etc.  He indicates that he thinks Gold will be driven by the value of the dollar… and while this is true in some sense, it fails to recognize that Gold can and will rise against a seemingly stable dollar (relative to other currencies) in an environment where we have competitive devaluation going on, i.e. US printing, EU printing, Japan printing, UK printing…  all currencies will go down against commodities and Gold ultimately. 
As well, the dollar is slowly but surely losing it's reserve, petro-dollar status… and this is another strong driver (of relative Gold strength) that Barry does not acknowledge (at least up to the point where I just had to shut it off) .  He professes to have no metrics against which to predict Gold's future movement… well… while I can't say I have a quantitative model for such, I surely do watch every day for the next qualitative sign that the dollar has been or is in the process of being cut out of yet another inter-country Oil trade pathway… it really would not be all that difficult to sum up every known trading pair in the world, and model in a much more quantitative way the arc of reserve currency loss using that as the marker…  Maybe Gregor would be interested in a small joint venture   smiley

Barry said another thing that really caught my ear;  essentially asking the question, if armageddon hits, how am I going to collect on the value of my Gold?  Duh…   one does not need to "collect"… which is of course the beauty of physical Gold.  It will hold some semblence of value as money into whatever future takes place… and if I don't ever get a chance to "collect" or convert my Gold into other assets or things I need … then maybe (probably) my kids will.  All the other paper… including most stocks… would lose all value if commerce grinds to a halt.  While stocks are the paper assets most likely to hold some value through a major transition… most would be severely depreciated due to lack of commerce… Pepsi stock will always hold some value as the formula and the Brand would not be destroyed… but how much without commerce?  

In the end, I think Barry is just unable to imagine the US as Zimbabwe, or Argentina… and it is this failure of imagination that limits his ability to understand Gold better.  I remain about 4/5 allocated in my brokerage accounts in a diversified set of Gold and Silver miners, and PHYS/PSLV.   I believe these will perform much, much more rewardingly than any stock/bond allocation that Barry can conjure up… and I will be looking to get this out of the (paper) system and into hard, tangible things, not excluding the idea of property in another country that ranks higher on the scale of economic freedom  (http://www.alt-market.com/articles/1045-us-drops-to-lowest-rank-ever-in-economic-freedom), as the inflationary crash that is to come takes shape over the next few years.   

While Barry does not understand Gold… and I really do admire his being honest about this… there are many ex-Wall Street insiders that do;

http://truthingold.blogspot.com/2012/09/right-now-best-expression-of-our-macro.html

Dave's curriculum vitae;

Dave in Denver
I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance. Currently I co-manage a precious metals and mining stock investment fund in Denver. My goal is to help people understand and analyze what is really going on in our financial system and economy.
 

 
I actually think this is one of Chris’ better interviews.  There is no shortage of supposed gurus that claim gold is going to $5,000 or even higher, and these same so called gurus are also all too quick to blame market manipulation when things don’t go their way (which is most of the time), rather than concede their assumptions are way off base.

Rithotlz’ points out that no matter how compelling the story, someone still has to be willing to pay +$2000/oz, and I would agree with his skepticism and call that unlikely for a wide variety of reasons, despite the manifold doomsday proclamations to the contrary. This story of gold to infinity is being pumped by literally hundreds of web sites, many which profit or participate in some way in the “gold story”.  At the core of these belief systems (beyond the obvious profit motive of talking the book) is usually some Austrian monetary theory, some doomsday fetish, or some misguided belief that somehow the gold bug has figured out an element of the financial system that no one else has seen, some specialized, specific information that only he or she is privy to, and the call to action is to buy gold and (preferably) bury it in the ground.

Rithotlz blows that whistle on that nonsense, pointing out but a few of the many reasons why this is a bad idea, and kudos to him for doing so. I don’t like the financial system anymore than the Austrians or gold bugs, the point is that it is a fool’s game to bet against it- at least for now.

Fiat money can work if it's scarcity integrity is enforced by those who hold the power to do so.   We have had 40 good years with ours… with a small hiccup in the 70's that Volcker managed to squelch with ultra-high interest rates starting around 1980, at a time when the US was a creditor nation.  I would have sold my Gold at that point too.  Today, we are a debtor nation of the highest order, and most of the population is lulled into a belief system built around the infallability of our monetary masters… and the unfathomability of what it is they do.  Gold is simply the most ancient form of money… .an alternate currency if you will… whose scarcity integrity is enforced by nature.  If there was not Gold, I might tend to cheer for something like Bitcoin, whose scarcity integrity is enforced by an algorithm and strong encryption… but there Gold is.  Pretty too. 
Forget for a moment what value in today dollars Gold might go to… because that is really not the point at all… the point is how much can the buying power of the dollar shrink?  What does history say about the longevity of a fiat currency?  Have many of them have ever crashed and burned into hyperinflationary obscurity?  Is the dollar on that path, and if so, what are the signs?  

Gold will do what it will do… and I will be sure to remind Darbi along the way if it plays out the way I predict it will… and he (or she) can feel free to rub it into mine if the market decides Gold is a fool's game… and that the financial system as it stands (fiat, debt-based petro-dollar reserve currency) is worth maintaining one's confidence in.  I will start my rubbing at Gold > $2000…    

   

[quote=Jim H]In the end, I think Barry is just unable to imagine the US as Zimbabwe, or Argentina… and it is this failure of imagination that limits his ability to understand Gold better
[/quote]
Jim,
This quote is an idea that always makes me scratch my head.
In my mind, gold is insurance - at least physical gold.  Paper gold is an investment choice, unless you can choose delivery.  But physical gold, that's insurance.
But it makes me feel like we've got fathead sized tinfoil hats on when we use Zimbabwe as an example.  Even Argentina to an extent.  There is so much room between the US and those two countries that it's difficult to make the leap.
How are they a relevant example?  I enjoy your posts and the information you share, so hoping you, or anyone, can make sense of the example.  To me, it's simply scope that makes the example a bit silly.

There is a lot of misunderstanding on and around fiat money, with most of the fiat detractors not really comprehending the details.  Much of this confusion results in an affectation for gold, gold backed currencies, and alternate currencies. A review of endogenous money principles provides good discovery on why these related theories are not really meaningful.
I’ve had a sizable portfolio in physical gold and a mixed bag of junior mining stocks for some time.
I am very disappointed in the YTD performance, although to be sure the last few weeks have been quite good. My disappointment stems not necessarily from the yields, but from the lack of explosive action that was supposed to occur as theorized by the “gurus” over the last two years particularly. The various QE’s, volatility in Europe, Greece, etc, were all supposed to slingshot metals, and gold and mining stocks into the stratosphere. This never happened, and likely never will, Also, the recent bump due to QE 3 has been lackluster, at least in the context of all that was “predicted”.
I’ve lost confidence that there is any merit-at all- to the theories that are to propel gold and junior miners forward. It is sounding very much like the lottery of the middle class, with plenty of excuses centering around market manipulations and conspiracy theories.  I will likely hold on to the end of the year, and get out of the whole thing.
I accept the friendly “challenge” to reflect back on future gold and junior miner prices, I’d concede $2000 may well happen, but not much more.
As to Bitcoin, you do know they are insolvent……………
http://www.digitaltrends.com/cool-tech/bitcoin-robbery-exposes-the-currencys-flaws/

The comparison with Zimbabwe and Argentina struck me as inapt also.  There are factors that just get in the way of the kind of run away inflation they experienced.  The USD is still the world's reserve currency.  That status is beginning to fade, but is still intact until some other currency has the weight of an economy the size of the US's economy behind it.  That's not going to happen over night.  Much of the world still depends on trade with us and, ignoring the collective Eurozone economy, there isn't another one that is even half our size.  Can you imagine the Euro being the world's reserve currency?  Size matters, but so does some sense of legitimacy.  The USD has momentum that will keep us rolling for some time.We also have the world's largest military by a huge margin.  Many nations depend on us for stability in a world where the alternatives are grim.  That alone will dissuade many nations from rejecting the USD in favor of some yet to be named currency.
The obvious alternative at this point is the Renminbi, but it's going to be a while before a totalarian nation's hegemony is going to be accepted by the western world, which collectively (including Europe and Japan) are still the 800 pound gorilla in the closet (or whatever that metaphor is).
The nutjobs in the ME will continue to use oil to degrade the dollar, but they just don't have the horsepower to really destroy it. 
Although I accepted the apocalyptic view for the future of the dollar for a while, experience has shown, I think, that the USD is probably in for a long deterioration rather than a cliff.
Bernanke has said the ideal for inflation should be around 2%.  Not counting food and fuel, he has kept it close.  I don't think he can keep it that low, but I also don't think we will see Zimbabwe inflation any time soon.
That said, the reason I originally started buying PMs was to preserve purchasing power.  They have done more than that in the years since, but who's to say that will continue?  Keep your hopes a little lower than Kingworld News would counsel, and you'll probably wind up OK and may wind up in a much better economic position.
Doug
 

There is a lot of misunderstanding on and around fiat money, with most of the fiat detractors not really comprehending the details.  Much of this confusion results in an affectation for gold, gold backed currencies, and alternate currencies. A review of endogenous money principles provides good discovery on why these related theories are not really meaningful.
I’ve had a sizable portfolio in physical gold and a mixed bag of junior mining stocks for some time.
I am very disappointed in the YTD performance, although to be sure the last few weeks have been quite good. My disappointment stems not necessarily from the yields, but from the lack of explosive action that was supposed to occur as theorized by the “gurus” over the last two years particularly. The various QE’s, volatility in Europe, Greece, etc, were all supposed to slingshot metals, and gold and mining stocks into the stratosphere. This never happened, and likely never will, Also, the recent bump due to QE 3 has been lackluster, at least in the context of all that was “predicted”.
I’ve lost confidence that there is any merit-at all- to the theories that are to propel gold and junior miners forward. It is sounding very much like the lottery of the middle class, with plenty of excuses centering around market manipulations and conspiracy theories.  I will likely hold on to the end of the year, and get out of the whole thing.
I accept the friendly “challenge” to reflect back on future gold and junior miner prices, I’d concede $2000 may well happen, but not much more.
As to Bitcoin, you do know they are insolvent……………

[quote=darbikrash][quote=Jim H]
Gold will do what it will do… and I will be sure to remind Darbi along the way if it plays out the way I predict it will… and he (or she) can feel free to rub it into mine if the market decides Gold is a fool's game… and that the financial system as it stands (fiat, debt-based petro-dollar reserve currency) is worth maintaining one's confidence in.  I will start my rubbing at Gold > $2000…    
   
[/quote]
There is a lot of misunderstanding on and around fiat money, with most of the fiat detractors not really comprehending the details.  Much of this confusion results in an affectation for gold, gold backed currencies, and alternate currencies. A review of endogenous money principles provides good discovery on why these related theories are not really meaningful.
I’ve had a sizable portfolio in physical gold and a mixed bag of junior mining stocks for some time.
I am very disappointed in the YTD performance, although to be sure the last few weeks have been quite good. My disappointment stems not necessarily from the yields, but from the lack of explosive action that was supposed to occur as theorized by the “gurus” over the last two years particularly. The various QE’s, volatility in Europe, Greece, etc, were all supposed to slingshot metals, and gold and mining stocks into the stratosphere. This never happened, and likely never will, Also, the recent bump due to QE 3 has been lackluster, at least in the context of all that was “predicted”.
I’ve lost confidence that there is any merit-at all- to the theories that are to propel gold and junior miners forward. It is sounding very much like the lottery of the middle class, with plenty of excuses centering around market manipulations and conspiracy theories.  I will likely hold on to the end of the year, and get out of the whole thing.
I accept the friendly “challenge” to reflect back on future gold and junior miner prices, I’d concede $2000 may well happen, but not much more.
As to Bitcoin, you do know they are insolvent……………
[/quote]
 
Hi darbi,
You've been listening to the Gold Cheerleaders like Kingworldnews, and have unreasonible expectations. Remember Gold is your insurance policy. Junior miners are for gambling not investment or insurance. Senior miners with proven reserves and dividends are the place to be. If you insist on being in the Junior space, you need to hire an advisor to pick companies for you. I stronly advise you to reduce your risk in the sector and hold on to long term Gold and Silver positions. Remember Gold has way outperformed the S&P during the last 10 years.

Great dialogue here…  and I am frankly surprised to find that Darbi and I are so closely positioned market-wise in Gold and Miners, being that we often seem to be polarized on other topics.  Anyway, I agree with Oliveoil that the juniors are very risky, and have not performed well in general.  Anything with a market cap below about $400M is really dangerous.  That being said… the miners are now showing strong movement, and I believe this to be the early phase of a very strong bull market.   
My reading over the years has left me with the following worldview regarding the metals… you are welcome to disagree, but you are unlikely to dissuade me;

1)  Gold and Silver markets are structured in a way that allows the monetary authorities to exert strong control over price, especially over the short term (see Friday's market action).  The Comex is a paper futures market, where only a very small fraction of contracts traded ever get settled in physical.  In this way, the Comex market allows for a disconnect between supply and demand.

2)  The entire market structure is one of fractional reserve… i.e. a system that allows for many more liabilities than exist real metal.  This benefits the monetary masters in that they can blunt the price movements of Gold and Silver, in their roles as a check-and-balance on monetary debasement.  The mechanisms behind this are several;

       a.  Gold and Silver leasing;  Gold can stay on the books of one entity, say a bullion bank, or central bank, and at the same time be sold out (leased) into the market.  Amazing stuff here. 

      b.  The GLD and SLV, huge ETF's, allow for investment demand to be siphoned off to these fractionally reserved, hypothecated paper vehicles… such that true physical stores are not stressed.  Again, really cool if you are trying to keep the dollar from looking bad.  

      c.  Unallocated Gold accounts.  This is simply a naked scam… sucking investment demand in to "pooled" accounts with the lure of lower storage fees… duh… paper Gold is much easier to store than real Gold.  Note that there have been rumblings that allocated Gold accounts are now being raided… hypothecated… whatever… and that this is an especially ominous sign if true.

 

Now you can feel defeated… and start believing up is down, as Darbi seems to indicate he is about to do before year end… or you can hold on with the belief that nature will eventually intervene, and that the true dynamics of supply vs. demand will ultimately win.  I believe we are very close to a point where the bankers will lose control of these markets due to overwhelming physical demand.  They can only sell so many paper contracts into a rising price Comex market before they get slaughtered.  They cannot print Gold and Silver.      

As for the idea that the dollar could eventually go the way of any other fiat currency that has been debased away to nothing throughout history… I stand by my statement that if you can't see the possibility of this happening here…  then you simply have a failure of imagination.    

No doubt that the current reserve currency status will make debasement a much slower process… but while our military can work to keep teetering ME nations reasonably friendly to our pertrodollar wishes… the rest of the oil pumping world is slowly but surely figuring out other ways to do business;

Brazil?  A lot of people might dismiss commentary like that from Brazil's Government.  But Brazil is one of the faster growing economies of the world right now, it's a large trading partner with the U.S. and it has begun to economically and financially ally itself with China/Russia.  This China alliance includes the implementation of a currency swap facility which enables China and Brazil to conduct trade in their respective currencies, thereby bypassing the U.S. dollar as the trading medium and rendering the dollar irrelevant for such purposes. The point here is that the U.S. dollar is losing its status as the world's reserve currency.  And more quickly than most realize, I might add.

source:  http://truthingold.blogspot.com/2012/09/right-now-best-expression-of-our-macro.html

There will come a time.. and Chris has mentioned this in his writings as well.. when the huge hoard of paper and credit dollars held overseas begins to come back to chase goods that we are also chasing with our dollars... and this will be a new dynamic.  RETURN TO SENDER.  This will be officially held dollars... less being needed due to the waning reserve currency status... and privately held dollars.. held in matresses around the world in places where local currencies have not historically been good stores of value.. when the word goes viral, around the world, that the dollar is being debased... watch out! 

I have no idea what the timing of all this will be… probably a few years at this rate… but maybe faster given the instantaneously connected nature of the entire world today.

There is one other point I want to make regarding the near to mid-term future… and that is that the next way station on the road to inflationary hell is most likely going to look and feel like a recovery.  What I mean by this is that, barring some kind of black swan that takes down the system… Europe imploding, etc… the extreme measures Bernanke has now embarked upon may very well create some acceleration in housing.  As well… as more folks wake up and see the writing on the wall… they will start spending more NOW vs later… and this will effectively increase the velocity of money.  The early stages of inflation will feel good to the economy, and the official CPI will understate the true nature of what is happening.  These factors will be interpreted via MSM propaganda feeds as economic recovery… and this may help perpetuate some degree of upward spiral.  At this point, real inflation will set in… and remember… Bernanke specifically stated in his QE3 announcement that he will not take away any of the punchbowl until well after the party gets going again… he has basically promised to blow another bubble.  When we finally get to this point… I will be looking to get out of the pool for good.    

 

 

 

 

     

I just had to repost this comment from Turd's blog tonight - I don't know whether we will get to hyperinflation myself… but I have to hand it to this guy for his logic ;

source:  http://www.tfmetalsreport.com/comment/216046#comment-216046

$ may not go to hyperinflation?

Submitted by Louie on September 22, 2012 - 4:57pm.
The dollar will go to hyperinflation.  There is no other alternative.  Too many people in the US receive a monthly check or benefits from the government.  People on the payroll, on SS, on disability, SNAP, military suppliers, and on, and on, and on.  When inflation begins to kick in, more government employees will strike and demand........more money!

The $400 per month of SNAP benefits will no longer buy peeled shrimp-cocktail platters and NY strip steaks.  SNAP recipients will demand…More Money!

When SS recipients begin to fall further and further behind, they will demand…MORE MONEY! (Please don't be mad at me Katie! Not questioning if SS recipients "deserve" it, or if they "earned it".  Just commenting on the economics and human nature)

Federal govt CAN'T cut spending.  At they same time, they CAN'T raise taxes enough to cover the spending. 

Only options are to borrow the money, or to print the money. 

Nobody wants to lend us money at 2%, and if we let the interest rate rise, that also blows the budget.

The ONLY option available to the Federal govt is to print.  And print they will.  They will print to cover the spending, they will print to bail out the states, they will print, and print, and print, and print.  There is no alternative.

 

This is a very good interview, and Ritholtz impresses me as someone with broad knowledge and experience.  His perspective is more conventional than many of us here, but coming from him it is credible and I am glad to hear it.  The comments are also very good.  It is heartening to see a real dialogue among members.
Travlin

Ritholtz says he can tell us "historically" this and "anecdotally" that about gold's behavior, and makes it clear he doubts gold's potential because he thinks it will probably perform like it always has. Well, "always" in the context normal conditions anyways. But wait- the whole interview was about how the game has changed, the recessions that once redistributed capital into responsible hands are not allowed anymore, and the can has been kicked so far that we are much worse off than we would have been. He doesn't say what exactly makes him think that people will sober up and accept the hangover now, instead of suffering the liver failure later.
The idea that we are on some sort of a slippery slope towards some armageddon or another is tossed around a lot, and probably always has been. The crazy thing is, armageddon happens everyday in the world. It can come in the form of local natural disasters, wars, whatever- it's the breakdown and violent collapse of over-stressed systems we depend on as they release tension. Imagining that armageddon has never happened before is silly, and to imagine that you will always sit unperturbed through the chaos of nature is silly too.

[quote=blk924s]Ritholtz says he can tell us "historically" this and "anecdotally" that about gold's behavior, and makes it clear he doubts gold's potential because he thinks it will probably perform like it always has. Well, "always" in the context normal conditions anyways. But wait- the whole interview was about how the game has changed, the recessions that once redistributed capital into responsible hands are not allowed anymore, and the can has been kicked so far that we are much worse off than we would have been. He doesn't say what exactly makes him think that people will sober up and accept the hangover now, instead of suffering the liver failure later.
The idea that we are on some sort of a slippery slope towards some armageddon or another is tossed around a lot, and probably always has been. The crazy thing is, armageddon happens everyday in the world. It can come in the form of local natural disasters, wars, whatever- it's the breakdown and violent collapse of over-stressed systems we depend on as they release tension. Imagining that armageddon has never happened before is silly, and to imagine that you will always sit unperturbed through the chaos of nature is silly too.
[/quote]
Granted disasters are everpresent, But much of the discussion on this site focuses on the scope and impact should a worldwide fiat monetary system self-implode. This would surely be a disaster of epic proportion. No country or person would be unaffected.
Zimbabwe and Argentina were instructive as models of hyperinflationary disasters, but the world barely noticed. (My only connection to Zimbabwe is the $10,000,000,000,000 bill that I have framed on my wall cause it is so mind-boggling to look at.)
If Katrina caused a ripple in your life, then you had better fasten your figurative seatbelt cause the storm that is brewing will knock you off your feet. 
 
 

I meant that it's truly like the world is ending when you’re in the thick of disaster, and just because most people survive doesn't mean it didn't crash their system effectively for the rest of a generation's lives, or even forever.
My view of the kind of armageddon that people here talk about is that elementally it's just another potential collapse. It has all the same potential components that have contributed to previous collapses (warmongers, overconfidence in our resilience, resource depletion, bubble mentality)- but magnified in scale. That, unless there's a nuclear war or we get plastered by that overdue asteroid from space, "armageddon" just means "the end of the world as we know it". What do you think? I feel like Ritholtz is of the camp who says "nope can't happen to me/us because…"

I have found this Podcast to be very useful too. I found the casual approach with an eye to what is being given us as sensible, and can be positioned to be profitable.
I have a need to be quite a bit more conservative in my approach as I feel I have enough information to recognize what may occur in economies world wide, and how I might  move on these incidences as they unfold. I do not believe that all is well, and I do believe a major incident is near, and will be extremely profittable if we are positioned to take advantage of it. 

Congress will have to actually make decisions after the election and into 2013, and an early guess would be a negative effect on our GDP but I do not need to decide now how that form will take place. I'll guess that it will be very contentious, and that will not be good for the market. 

The EU will have similar decisions to make, and Spain and Italy will have to make some decisions, and again I do not need to react to this just yet. I believe some serious problems will happen and effect the world economies in the very near term. Their banking system is so over leveraged that something must give. I will not bet on something I hope to happen but we react to what actually happens. 

China, if a hard landing, and it appears they are contracting strongly then I can afford to wait on this. I see a hard landing, I see some strange things happening in China that just don't jive with a country I favor as one going through their economy unscathed, on the contrary. 

Overall, I can afford to wait on everything, and the worst I can do is make money, the best I can do is make more. I will allow things to come to me.

All of this accomplished as I have no issues waiting. If we crash, move to an S&P 800 at some future near term time line then I'm set to walk away from this madness if I so chose because I will have more than I ever expected in my lifetime. I most likely would not because I enjoy this so much…

I have Gold and Silver because it is money, that simple. I like it as an Inflationary hedge and Deflationary hedge. My position is significant. I DO NOT own it as an armageddon hedge as that world is not even a visual for me just yet, and one I would hate to be apart of. I have the imagination to see a catastrophic outcome but I'll keep that in the recesses of my mind until such a day comes where perhaps I should prepare far more than is expected by me today.

I WILL NOT leave the United States for any reason are my thoughts. I just am not wired for that. I have an emotional attachment to my country that I am willing to fight  through the vote, protest, and actionable causes. Mostly, I prefer a quiet existence, loved ones near and tended too.

Finally, I enjoyed the debate by all here as I learn from each and every one of you. My sole focus is creating a sincere and realistic way of life that satisfies the very basics of needs leaving just as much room for the pleasures our family enjoys. I will always attempt to treat others as I wish to be treated.

Be Good

Go Tigers

BOB 

Thanks Bob, nice sentiments expressed, and they mirror mine, albiet my alegience is to Canada. But your message is one of rational contemplation tempered with a bit of hedging the bets, while keeping an eye on what is truly important - those who are close to you. What else is there? If everyone did this things sure would improve in a hurry.
I'd end with "go Blue Jay's" to counter you, but they look about as shaky as the EU these days, so I won't embarass myself ;) 

Cheers!

Jan :slight_smile: