Originally set out to make a video to point out how gold and silver are not investments, but it become a much more important overall lesson about precisely what is an "investment" versus what is speculation.
Even the most unlikely things can be an investment, even if you didn't acquire the asset on that basis; A smudgy picture of an ex girls tits can be an investment too.
Gold and silver are stores of value more than anything else; the analogy to insurance is often used by people but this is usually in the context of modern portfolio theory (i.e. gold is in theory not correlated to other asset types).
However, its arguable that in today's world financialised assets (i.e. anything whose value is ultimately based on someone else's promise to deliver on an obligation) have become utterly divorced from real assets (i.e. things that hold some value independently of anyone else's commitments). This is largely due to the corruption of the money creation process surrounding fiat currencies, which has multiplied paper claims on the real asset base without in any way increasing the size of the real asset base.
This is what makes gold/silver essential to anyone looking to safeguard their wealth - we've literally gone past the point where any financialised assets can be considered reliable; wily coyote is currently hovering in mid air frantically pumping his legs, but gravity is inevitably going to catch up and drop him to the bottom of the canyon, and theres nothing he can do about it no matter how hard he tries.
Whilst I agree with your general definition of investments, that definition only applies in a world where financialised assets have some value. Where we've got to now is an economy that has apparently forgotten that the end-goal of economic activity is not the generation of paper money, but the production of real things that are useful to people. The 'investments' that do well in today's world (certain internet bubble stocks are the prime examples of this, but even companies like Apple which at one level can be considered manufacturers but in essence are really about promoting a 'brand' which is utterly vacuous whilst at the same time being the majority of the reason for the company's 'value') are not only speculative as you describe, but are largely hot-air plays. The 'income' they theoretically generate is an illusion, at all levels - from the 'products' themselves all the way through to the accounting treatments that magically create the impression of profit where there is none.
In other words, we're in an emperor's new clothes world when it comes to 'investment', and people have to understand this reality in order to avoid losing their own shirts. Meanwhile, because of the policies of financial repression foisted on us by elected politicians / bankers/ oligarchic elites there are almost no safe havens left that allow the preservation of real wealth.
Gold and silver are that safe haven (provided you get physical gold rather than the worthless paper ETF promises) and central banks around the world are currently doing everything in their power to make sure the western masses don't cotton on to that fact.
According to the Austrian school of economics, espoused by Aaron Clarey, there is no such thing as intrinsic value and value is always decided by the buyer, especially if you buy with the idea of reselling in the future.
How can you store the future subjective valuations of your hypothetical would be buyers ?
Look at the Pawn Star show and how people are always disappointed that they can never sell their stuff for their full value. Don't make that same mistake with Gold and Silver.
If you really want to store value, buy something that you will never sell under any circumstances whatsoever and especially if the SHTF.
If you will never want to sell it then you know it has high value to you.
Otherwise, you are at the mercy of the valuations of your hypothetical future would-be buyer. How can that ever be "stored" ?
TETT: Do you think that gold is currently a good investment?
GREENSPAN: Yes… Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can macth it.
Gold and Economic Freedom http://www.constitution.org/mon/greenspan_gold.htm
PM's like Ag/Au are merely tools to store value. Historically other items such as sugar and salt served the same purpose. Ammunition, coffee, alcohol, etc. ALL are items that can serve the same purpose.
PM's are ideal merely because they are frangible and fungible, they are nonperishable and as close to noncounterfeitable as possible.
But as an investment to make money with? Not unless you are an insider with access to the same information that traders use to "invest" fiat currency with.
Of course, capital preservation differs from speculation and investment by focusing on a pattern of not losing your footing, rather than gaining a few rungs on the ladder.
Capital preservation also depends greatly on how much of it you really can afford.
Most people are unwitting speculators, whether they realise it or not.
Even the most unlikely things can be an investment, even if you didn't acquire the asset on that basis; A smudgy picture of an ex girls tits can be an investment too.
ReplyDeleteGold and silver are stores of value more than anything else; the analogy to insurance is often used by people but this is usually in the context of modern portfolio theory (i.e. gold is in theory not correlated to other asset types).
ReplyDeleteHowever, its arguable that in today's world financialised assets (i.e. anything whose value is ultimately based on someone else's promise to deliver on an obligation) have become utterly divorced from real assets (i.e. things that hold some value independently of anyone else's commitments). This is largely due to the corruption of the money creation process surrounding fiat currencies, which has multiplied paper claims on the real asset base without in any way increasing the size of the real asset base.
This is what makes gold/silver essential to anyone looking to safeguard their wealth - we've literally gone past the point where any financialised assets can be considered reliable; wily coyote is currently hovering in mid air frantically pumping his legs, but gravity is inevitably going to catch up and drop him to the bottom of the canyon, and theres nothing he can do about it no matter how hard he tries.
Whilst I agree with your general definition of investments, that definition only applies in a world where financialised assets have some value. Where we've got to now is an economy that has apparently forgotten that the end-goal of economic activity is not the generation of paper money, but the production of real things that are useful to people. The 'investments' that do well in today's world (certain internet bubble stocks are the prime examples of this, but even companies like Apple which at one level can be considered manufacturers but in essence are really about promoting a 'brand' which is utterly vacuous whilst at the same time being the majority of the reason for the company's 'value') are not only speculative as you describe, but are largely hot-air plays. The 'income' they theoretically generate is an illusion, at all levels - from the 'products' themselves all the way through to the accounting treatments that magically create the impression of profit where there is none.
In other words, we're in an emperor's new clothes world when it comes to 'investment', and people have to understand this reality in order to avoid losing their own shirts. Meanwhile, because of the policies of financial repression foisted on us by elected politicians / bankers/ oligarchic elites there are almost no safe havens left that allow the preservation of real wealth.
Gold and silver are that safe haven (provided you get physical gold rather than the worthless paper ETF promises) and central banks around the world are currently doing everything in their power to make sure the western masses don't cotton on to that fact.
Gunn,
ReplyDeleteAccording to the Austrian school of economics, espoused by Aaron Clarey, there is no such thing as intrinsic value and value is always decided by the buyer, especially if you buy with the idea of reselling in the future.
How can you store the future subjective valuations of your hypothetical would be buyers ?
Look at the Pawn Star show and how people are always disappointed that they can never sell their stuff for their full value. Don't make that same mistake with Gold and Silver.
If you really want to store value, buy something that you will never sell under any circumstances whatsoever and especially if the SHTF.
If you will never want to sell it then you know it has high value to you.
Otherwise, you are at the mercy of the valuations of your hypothetical future would-be buyer. How can that ever be "stored" ?
http://www.lewrockwell.com/2014/11/tyler-durden/greenspans-stunning-admission-censored-by-the-cfr/
ReplyDeleteTETT: Do you think that gold is currently a good investment?
GREENSPAN: Yes… Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can macth it.
Gold and Economic Freedom
http://www.constitution.org/mon/greenspan_gold.htm
PM's like Ag/Au are merely tools to store value. Historically other items such as sugar and salt
ReplyDeleteserved the same purpose. Ammunition, coffee, alcohol, etc. ALL are items that can serve the same purpose.
PM's are ideal merely because they are frangible and fungible, they are nonperishable and as close to noncounterfeitable as possible.
But as an investment to make money with? Not unless you are an insider with access to the same information that traders use to "invest" fiat currency with.
Of course, capital preservation differs from speculation and investment by focusing on a pattern of not losing your footing, rather than gaining a few rungs on the ladder.
ReplyDeleteCapital preservation also depends greatly on how much of it you really can afford.
Most people are unwitting speculators, whether they realise it or not.
Gold and silver is money. Period.
ReplyDeleteFederal Reserve Dollars used to be a promise of delivery of money, but now it is just a debt marker.
You buy gold and silver in order to save, when bank interest on Dollars is less than the inflation rate.