Inflation: please explain

[MfA]

Keep in mind, people have been saying that about precious metals for 10 straight years now. It's a stupid investment

For 7 of those years real estate was a far far better investment. Hell, during some of the recent QE fueled stock rallies stock were a better investment as well.

It's all about predicting the movements of retarded sheep, in government and in the market ... gold is not a value investment.

If you're expecting a real economic collapse invest in a farm in the middle of nowhere with access to water, a good machine shop, solar panels, vegetable oil extraction machines, a diesel generator, toilet paper and lots of lead. Or in other words somewhere you can be self sufficient.

[Doom]

You know I keep hearing this crap about how dollars become "worthless" over time. That's crap. Yes a 2011 dollar bill is worth a lot less than a 1901 dollar bill, but that 1901 dollar bill is worth something today, especially since paper currency has a greater destruction rate than coins and gold.

The only book I have at my fingertips is from 1990, so it's 20 years old but that said ...

For uncirculated versions of dollar bills.
1862 US Note: $610
...1985 Fed: $1.60

Yes, for absolute mint condition crisp bills, you can buy them from a dealer for those prices with little difficulty. You can sell them to a dealer for around 25% of those prices (or face value), if you're lucky enough to find a dealer willing to buy it (there's not a huge market, so they move slow). Even 25% might be a bit high, go on e-bay and you can see 'buy it now' crisp 1862 confederate money at $45...you can buy counterfeit money of those years for around $4 a pop.

(I'm sorry to use confederate, but Federal money doesn't have quite the market, although I'm sure some old bills are on e-bay somewhere. I promise you, civil war era 'confederate' stuff is collectible, which is what the price is about).

To be fair, though, most people don't have absolute perfect condition dollar bills in their pockets (or when they're stuffing mattresses).

On the other hand, people often have circulated coins, so it's good to compare. An 1862 $1 gold coin in utterly crap condition is worth around $75--and I can't emphasize enough how terrible condition that would be--and you'll have little difficulty getting that price, give or take a few bucks. If there's just a hole punched in it (honest, that's a bad thing for collectors), it's $125, in extra fine condition, $195, and well over $600 in proven uncirculated condition (again, half that if you want to instantly sell to a dealer, and still well above what you'd get for paper). Double that price again if it's in a condition comparable to those old paper money prices, above.

It's really a non-sequitor ot compare collectible prices to circulating sovereign currency 'value'. I mean, the US Mint sells gold coins that have face values of $50, but nobody in their right mind would actually spend them for $50 (well, there's a hysterical video on YouTube of a guy trying to trade $50 Canadian gold for $50 of US currency, and being unable to find anyone who knows enough to think that's a good deal...not much a suprise to anyone reading this thread).

[Username17]

Gold is not an investment, it is a gamble. An ounce of gold does not grow or produce things like a company or even acquire history like a building or a table. An ounce of gold now is exactly the same as an ounce of gold yesterday or thirty years from now. You can't even eat it or do anything with it in the meantime. It just sits there.

The entire point of buying gold is that at some point in the future you intend to sell it to someone else. That's it. And the way that works is that you pay money to a brokerage to exchange some more money into gold, and then in the future you pay some more money to a brokerage to exchange your gold into some money with other people doing the same thing in reverse. The only people who actually make money out of this equation are the brokerages. everyone else is just paying real money to play a zero sum game where they try to guess how long other suckers continue bidding the price of old up before the music stops.

And keep in mind: whenever you join the game, the music may have already stopped. If you bought into nickel in 2007, your metals are worth less in nominal dollars than they were when you bought them, and will continue to be for the foreseeable future.

Anyone who tells you to "invest" in metals has the same amount of reason and sense as someone who tells you to "invest" in their poke system.

-Username17

[Doom]

Keep in mind, people have been saying that about precious metals for 10 straight years now. It's a stupid investment

For 7 of those years real estate was a far far better investment. Hell, during some of the recent QE fueled stock rallies stock were a better investment as well.

It's all about predicting the movements of retarded sheep, in government and in the market.

Certainly true, but it's funny when someone says "I'm buying real estate as an investment", people nod at the wisdom even though taxes and maintenance and natural disasters can destroy such an investment, in addition to the market.

But when someone says "I'm buying gold", there's always someone to stand up and say what a stupid idea that is...even though it, too, has the same market vulnerability as real estate (and is far more resistant to taxes and the other things).

That said, paper is not an investment, it is a gamble. That's a pretty meaningless thing to say, of course, since all investments have risk, and thus are gambles. Allow me to elaborate: a paper bill does not grow or produce things like a company or even acquire history like a building or a table. An paper bill now is exactly the same as a paper bill yesterday or thirty years from now. You can't even eat it or do anything with it in the meantime. It just sits there.

The entire point of having paper bills is that at some point in the future you intend to sell it to someone else (i.e., trade it for something else, or 'buy' something else). That's it. And the way that works is that you trust your government to exchange your work for paper bills and then in the future you hope that other paper bills haven't been created out of thin air, so that your paper bills won't compete with the 'fake' paper bills. The only people who actually make money out of this equation are the folks that run the printing press, everyone else is just paying real work to play a rigged game where they place their faith and trust in the folks that have the printing presses not to screw them.

And keep in mind: whenever you join the game, the music may have already stopped. If you bought into Zimbabwe paper in 2007, your paper is worth less in nominal dollars than they were when you bought them, and will continue to be for the foreseeable future. Same for many paper currencies (basically all), eventually.

Anyone who tells you to "trust" paper currency has the same amount of reason and sense as someone who tells you to "invest" in their poke system, and I don't even know what a 'poke system' is.

Now, if you have money in a bank, paying essentially no interest (and, honest, 1% or less is basically no interest in human terms), you're basically holding paper. And considering how QE2 (3?) is going, maybe trusting the guys with the printing presses might not be the shrewdest thing to do.

Precious metals suck as an investment...everything else right now just sucks worse, is all. I've been telling people this since 2002 (I used to be a stockbroker and options principal, before I got into academia), and I really, honestly, hope to have something better at some point.

If you're expecting a real economic collapse invest in a farm in the middle of nowhere with access to water, a good machine shop, solar panels, vegetable oil extraction machines, a diesel generator, toilet paper and lots of lead. Or in other words somewhere you can be self sufficient.

Yowza...I just don't see it happening, or at least is any more likely than an alien invasion. A few years of disruption are possible, however.

[tzor]

Gold is not an investment, it is a gamble.

At the root core heart of finance. Everything is a gamble. Everything!

As my old former boss used to say about horse racing and horse betting, "The trick is to knowing the real odds for everything; then when you only bet those horses that are above the odds you know to be true. This way, over time you are guarenteed to make money. The trick is knowing those real odds."

In a perfect market there would be no investment possible because all the odds would be correct. Fortunately we don't live in a perfect market and there are both undervalued and overvalued investmewnts. Knowing which is which is the key. Knowing how much short term risk you are willing to consider is the second key.

In that sense, gold has some merit, because unlike companies or even government, if it becomes worthless, we passed the point of total collapse of the economic system a long time ago. It could be a part of a balanced asset allocation system, but you have to know what you are doing.

[Zinegata]

Keeping money as paper isn't a gamble unless your nation's currency fluctuates up and down like crazy. So unless you live in a place like say, fucking Zimbabwe or Weimar-era Germany, you're fine.

It's also worth remembering that the value of a currency goes up and down relative to other currencies. Let's say that tomorrow, you now need $3 US to buy a Euro. But because the amount of dollars within the American economy remains the same, then the price of American goods within America should actually remain mostly the same. A $5 haircut in America today will still cost $5 tomorrow.

What changes is when you want to buy stuff outside the US. If the dollar devalues to the above exchange rate, then it becomes much more expensive to buy stuff from the EU. Something that you used to buy for $10 from France may now cost something like $15 to $20. On the flip side, selling stuff outside of the US becomes much better with a devalued dollar.

Moreover, if your currency happens to be the American dollar, you're more than fine. Because most countries in the world don't want to see a devalued dollar. America is such a crazy consumer market that making Americans pay more for imported goods is a bad thing for them. The French don't want Americans paying double for their wines. That would just cause Americans to buy locally produced wines - and America has a fuckton of industrial capacity and natural resources to produce many of the goods it currently imports anyway.

tl;dr: Stop panicking about the dollar "devaluing" unless you plan to move to another country anytime soon.

[Zinegata]

Keeping money as paper isn't a gamble unless your nation's currency fluctuates up and down like crazy. So unless you live in a place like say, fucking Zimbabwe or Weimar-era Germany, you're fine.

It's also worth remembering that the value of a currency goes up and down relative to other currencies. Let's say that tomorrow, you now need $3 US to buy a Euro. But because the amount of dollars within the American economy remains the same, then the price of American goods within America should actually remain mostly the same. A $5 haircut in America today will still cost $5 tomorrow.

What changes is when you want to buy stuff outside the US. If the dollar devalues to the above exchange rate, then it becomes much more expensive to buy stuff from the EU. Something that you used to buy for $10 from France may now cost something like $15 to $20. On the flip side, selling stuff outside of the US becomes much better with a devalued dollar.

Moreover, if your currency happens to be the American dollar, you're more than fine. Because most countries in the world don't want to see a devalued dollar. America is such a crazy consumer market that making Americans pay more for imported goods is a bad thing for them. The French don't want Americans paying double for their wines. That would just cause Americans to buy locally produced wines - and America has a fuckton of industrial capacity and natural resources to produce many of the goods it currently imports anyway.

tl;dr: Stop panicking about the dollar "devaluing" unless you plan to move to another country anytime soon.

[Username17]

Gold is not an investment, it is a gamble.

At the root core heart of finance. Everything is a gamble. Everything!

As my old former boss used to say about horse racing and horse betting, "The trick is to knowing the real odds for everything; then when you only bet those horses that are above the odds you know to be true. This way, over time you are guarenteed to make money. The trick is knowing those real odds."

In a perfect market there would be no investment possible because all the odds would be correct. Fortunately we don't live in a perfect market and there are both undervalued and overvalued investmewnts. Knowing which is which is the key. Knowing how much short term risk you are willing to consider is the second key.

No. I a perfect market with perfect information, investment is still possible.

Let's say I purchase an extra building as an investment. Now I start renting it out to other people. Over time, I make the money back and more and in any case I can always sell the property if I need some cash later on. The person who sold it to me did so because he actually did need some cash right away (either to facilitate some other big purchase or to cash out for retirement). If both me and the person who sold it to me have perfect information, it still makes sense.

Now let's talk about risky investments, like starting a business. These have a chance of paying off big and a chance of failing. The risks involved are significantly more than buying a house and renting it out. But potentially, so are the returns. With perfect information about that risk, investing in that could be good or bad as an idea.

-Username17

[Zinegata]

Something to add about property: They are fantastic investments as long as you don't overstretch your finances, even if you're just buying a house for your own use even without renting it out.

An adult human being (say 18 years old) will live for about another 50 years before retiring or dying of old age. If you simply rent for all of those years, you're gonna pay 600 months worth of rent.

In comparison, the standard rental rate for a property is about 1% of the property's total value. Say you have a $100K house. Expect the rent for it to be around $1K a month.

So... if you just saved 100 months worth of rent, you can actually just go ahead and buy yourself a house and stop paying rent forever. You're gonna save yourself 500 months worth of rent over your lifetime, and if you have kids they'll never have to worry about paying for rent too.

Better yet, you don't even *need* to have all that cash on hand. As long as you have a steady income, instead of paying for rent buy a house and pay the mortgage instead. Depending on the interest rate you'll end up paying about 150-200 months rather than 100 (especially if you add stuff like renovation costs), but that's still a fantastic lifetime discount.

--------

Becoming a landlord is also a fairly good investment. As I noted, rent is usually around 1% of the property's value. As long as you keep a property occupied for 100 months (about 8 years), you'll make back what you spent and still own the house - essentially doubling your money.

That said, it's more realistic to wait for around 10 years before a property breaks even, because renovations and repairs are usually charged to the owner.

Moreover, you need to make sure your property is located in an area where people want to live. A house in New York City can reliably remain at full occupancy. A house in the middle of a desert? Not so much. It's entirely possible for a property to never break even if it's in a real shitty location.

[sabs]

This only works for you if you don't move. I haven't in the same STATE for longer than 80 months at any one stretch since I turned 18. (And if you have the money to afford a down payment in the first place)

[tzor]

No. I a perfect market with perfect information, investment is still possible.

Frank, I'm talking about investment in a company not in potential profits any commercial operation would generate. If you were a publically owned company dealing in loans, and the probability of every loan defaulting or not was known precisely, then the analysts looking at your books could predict with perfect precsion the revenue you will have generated at the end of the reporting period and your return on investment would be known with perfect percision as well. Your stock would then be bought up to the point when it no longer makes profitable sense to do so (well perhaps a bit more depending on how long term the perfect knowledge is).

But since no one knows the future, no one knows what stocks will fail, and what stocks will skyrocket, investment in the market is always a gamble. For similiar reasons investment in the bond market is always a gamble. For even more similiar reasons investment in anything is a gamble, the only thing is the relative odds.

[tzor]

Speaking of inflation, I just read this nice kick in the head this morning.

Are We Japan and Don’t Realize It?

Adjusted for inflation, stock prices topped out in the late 1990s and have never really moved higher. Is that a surprise?

Not to financial analyst Rob Arnott, chairman of Research Affiliates, who makes the case that debt-financed spending has taken over our economy. Credit and consumption isn't growth, says Arnott, explaining how “structural GDP” masks the underlying “real GDP” that really matters.

“Our structural GDP has grown nearly 100-fold in the last 70 years. Most of that growth is due to inflation and population growth; a truer measure of the prosperity of the average citizen must adjust for these effects,” he writes in a recent note to investors.

Arnott figures that our real GDP per capita is closer to the 2007 peak. As a result, the way the economy “feels” to people has been at a virtual standstill for several years now.

Subtract government spending, and the prosperity of the average American hasn’t improved since the middle of the second Clinton administration, 13 years ago.

“Few would argue that a healthy economy can grow without the private sector leading the way,” Arnott writes.

Erase federal, state, and local spending, and the resulting “private sector GDP” is “bottom-bouncing, 11 percent below the 2007 peak, 6 percent below the 2000–2003 plateau, and has reverted to roughly match 1998 levels.”

[Doom]

Now now, don't start saying things are different from what we're told, that leads to *shudder* conspiracy theories!

Becoming a landlord is also a fairly good investment. As I noted, rent is usually around 1% of the property's value. As long as you keep a property occupied for 100 months (about 8 years), you'll make back what you spent and still own the house - essentially doubling your money.

Back to renting, there is good money in it, but you've neglected a few things in your calculations. For example, when you take out a mortgage, you'll generally end up paying 3 times the buying price, once interest is factored in. You also need to consider real estate taxes--no small amount in Florida, where my father did it. You also need to consider taxes on your profits from charging rent over the mortgage. You also need to consider maintenance costs on that nice property (and you have to maintain it well, if you intend to keep it rented at all times). You also need to consider the inevitable bad tenant, that can easily cost you 2 month's rent (so keep a few thousand per house--a few hundred in my father's day--in reserve to pay for that). You'll also want to insure your property, and the rates will be high since you, the owner, won't be living in it. You'll also want liability insurance, lest one of your tenants trips and hurts himself on your property.

There's money there, but it's not as easy in reality as it is on paper.

[Zinegata]

I very much don't recommend renting out a property you are paying via mortgage, actually. The people who do that are usually overstretching their finances.

If you have enough money to buy a house outright, and still have enough leftover for emergencies, then go ahead and buy a house to be a landlord. But if you're gonna just blindly follow Rich Dad Poor Dad you belong in the "stupid get rich quick scheme" category.

[Doom]

Well, now you're in a 'mountain climbing is easy if you're at the top'....if you already have a few hundred thousand in cash lying around, having money IS a bit easier, after all.

[Zinegata]

Yes, but I'm not trying to give people stupid get-rich-quick-scheme ideas. I'm trying to give people advice on what actually works.

Save your money, and have enough to buy a house. Ain't easy, but a good invesment.

[Ancient History]

Buying a house is cheaper in the long term than renting, most of the time. As an actual money-making investment...never assume. The people that make big bucks in real estate are the ones that buy land, develop it, and sell it off at a vastly inflated price. Buying a house is highly dependent on the local market, and many houses in the US tend to deteriorate as they age, particularly if they aren't maintained properly. Rental houses in particular are prone to abuse because, hey, they're renters: they don't give a fuck.

So yes, you can make money with buying houses, but it's not sit-on-your-ass-and-let-the-interest-pile-up money. You generally have to work for it.

[MfA]

Are We Japan and Don’t Realize It?

US lacks solidarity at a political level (you're charitable at a personal level, but this only prevents people from starving ... it doesn't stop them from losing their income and tanking the economy in doing so). So things can get a lot worse than in Japan IMO.

[tzor]

Another point about people who do make money at real-estate ... they aren't really making money at real-estate. These people generally put a lot of work into improving the property. There are generally known ways to invest in ones property such that the value of the property is greater than the investment. When you make those improvements using your own labor * effectively paying yourself zero wages for working for yourself * then you can make a profit, but remember that you need to subtract the amount of money you might have gotten had you done the exact same work for someone else for pay. You are not really making all your money on the real estate, but on sweat equity and property upgrades.

[Vnonymous]

Man, look at what happened to all those idiots who put money into gold! For the past ten years it has gone nothing but down!</facetious>

[Zinegata]

And you are still an idiot who cannot differentiate between an investment and a gamble.

[Vnonymous]

The definition I'm using for investment is "Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in form of interest, income, or appreciation of the value of the instrument.". That appears to be the same definition that the entire financial sector uses because people talk about investing in gold all the time. Buying something in the hope that people will pay more for it later is an investment according to language used in the financial industry, which is what I'm assuming people discussing finance would be using.

[Zinegata]

Except of course the only reason you'd make a profit by betting on gold is if you have a crystal ball that told you it'd increase significantly in value in ten years because of rampant market speculation.

Except you don't have a crystal ball, so all you're relying on are hopes and prayers that gold will somehow rise in value. Relying on hopes and prayers doesn't make it an investment. It makes it a gamble. You may as well go to Vegas and play poker.

The only alternative is that you are one of the people helping the rampant market speculation along, like Goldman Sachs. And you'll be ripping off poor old people with your scam through securities fraud.

So to make money this way you're either a gambler or a criminal.

Appealing to the dictionary doesn't change the fact gold is not an investment. It's a gamble. And if it's not a gamble for you, it's because you're a criminal.

[Vnonymous]

Under that definition investing in ANYTHING is a gamble. You do not get guaranteed returns from anything at all. Property can burn down/get eminent domain'd/not get any tenants, business can fail, etc. You are betting on risks whenever you put money into anything(even a bank account). You can't KNOW anything in advance. Sure, you can make a guess, but you have to make that guess about every single thing you place money into.

Besides, you don't NEED a crystal ball to know that gold is going to be going up in the future. I will tell you right now that gold is not going to have reduced in value by the end of the week barring some weird catastrophe. End of the year? That's a bit tougher.

Super short term trading is very different and based mostly on you being a computer plugged straight into the stock exchange that directly siphons money from small investors.

EDIT:
Also what the fuck? "Appealing to the dictionary". Are you serious?
"Well see that's not an investment that's a gamble."
"That's not what the dictionary says."
"APPEALING TO THE DICTIONARY"
I guess I'm just going to say that every single post you make is you repeating just how much you love to suck barrels of cocks. Hope you don't appeal to the dictionary in your response to that!

[K]

Man, look at what happened to all those idiots who put money into gold! For the past ten years it has gone nothing but down!</facetious>

That's a weird graph. Here is one I found from a site that is not actually selling gold.

Considering that gold is not even increasing to adjust for inflation and you are paying broker fees when you buy AND sell, it seems less like an investment and more like a gamble.

If you bought low and sold high, you are a winner. The problem is that you aren't that guy because every time you are told to buy gold it's because the price is sky-high.