My point is that you're talking about investments as if they are instantly gone and that this is some special case. "Was money lost? Sure -- but not last week or today -- rather, on the day the individual investor bought into these markets." This is incorrect, or at least it's not very meaningful. There's nothing special about stocks that make wealth disappear instantly. If your wealth is gone the second you invest in stocks, then it's also gone the instant you purchase oil futures, buy dollars/euros/your-favorite-currency, purchase gold, put it in the bank, or pretty much anything else. Any asset you obtain today really has only the value that someone else will assign to it when you wish to unload the asset at some point in the future.
"If your wealth is gone the second you invest in stocks, then it's also gone the instant you purchase oil futures, buy dollars/euros/your-favorite-currency, put it in the bank, or pretty much anything else."
Agreed!
"purchase gold, " -- disagree:
You're right on all counts but you're simply expressing my point more "extremely" than even I did myself... certainly, every trade of physical or digital goods is a subjective value judgment of both parties involved. In fact, stocks are a lot more "solid" as an "investment" in my book than pure debt and bonds and "financial vehicles" etc. But then, another question is how many of "working peoples' savings" should be entrusted to the ever-swinging daily judgments of full-time traders and speculators, 'wealth advisors', 'funds and trusts' that always chase yesterday's bubble and collect their commissions one way or the other. If capital goes into real estate, surely enough new condos spring up in Florida and Bangkok. If capital chases dot.coms, new dot.coms get created left and right. Tulips can be grown at will, too! Certainly, paper wealth can be multiplied indefinitely in nominal terms, but not in "real terms". The question then is, what are "real" terms? Well what happens when capital, tired of all the bubbles, runs into Bitcoins? They cannot be duplicated easily but boy can they be hacked. Bonds? Safe to bondage the tax-payers of 2030, today, is it? Ultimately, savings and holdings that are not "for-play money" will have to return to seeking protection in stuff that cannot be hacked by smart script kids or replicated and duplicated at will or by 'economic emergency laws' -- savings will at some point no longer be entrusted to better-dressed Madoffs -- they will have to seek assets with a long history book of storing wealth generated by productive past work well into the future for reference. That could be Mona Lisas but there's only one of them. Or that could be any other tangible, non-hackable, fungible, liquid physical good that has no competing industrial use, most importantly cannot be produced or increased in quantity at will and has been valued consistently by the kings and millions of "normal people" around the world for millenia well into the present. Sure, the "currency prices" of such assets may well fluctuate but the mere storage of savings function might well out-perform today's vehicles and instruments over the long term. Plus, as you already noted, currency does not reflect "intrinsic" value either so these nominal fluctuations are a laughing matter at best :)
But wait, couldn't this be said of stocks either? Exactly! Long-term savers will know this and not panic much. But those who talk about "wealth that evaporated" -- they were likely trading and speculating for a paper profit next week or month, not for "value-investing" or "storing savings". So both you and me shrug at them and say, "look again, no real wealth did evaporate! No factory collapsed, no car or house mysteriously disappeared..."
Do you believe that gold has tripled its intrinsic value over the past 5 years? Or that virtually all other assets have lost 2/3 of their intrinsic value during that same time frame? Gold has very little intrinsic value (to my mind, at least), especially before the electronics revolution, and it is as subject to the whims of investors as any other asset. If you buy gold at $1700 today and it drops back to $500 in five years, you'll see the same loss as if you bought $1700 of Google and it dropped to $500. While I agree that gold cannot be multiplied indefinitely, the same applies to many (indeed most) other assets. The price of homes has no fixed limit, but neither does the price of gold. This is especially true when the market sells gold futures and such that are not necessarily backed by physical gold.
> But wait, couldn't this be said of stocks either? Exactly! Long-term savers will know this and not panic much. But those who talk about "wealth that evaporated" -- they were likely trading and speculating for a paper profit next week or month, not for "value-investing" or "storing savings". So both you and me shrug at them and say, "look again, no real wealth did evaporate! No factory collapsed, no car or house mysteriously disappeared..."
On this part, I agree. True wealth doesn't evaporate when the market drops. (That's not to say that a drop in the market can't hurt long-term wealth production; i.e. economic growth vs recession.) As you said, houses didn't fall down. Nothing changed except some paper values.
But then, anyone who understands how markets work should understand that wealth is not truly created or destroyed by trading in the markets. It's just exchanges of wealth. If you've got a share of stock and sell it to me for $100, the same wealth exists after the trade. If I turn around and sell that stock to someone else for $50, the same wealth still exists. The paper value of that stock might change, but no actual dollars disappeared as a result of the transactions. I lost money, but the economy did not. (I do believe that stock and commodities exchanges can themselves be real wealth, though, in the same way a village market is wealth.)
> you're thinking of golds meager utility as a "commodity" and you're right -- but almost non-existent commodity utility is its greatest strength as a reserve and savings asset -- there is no competing usage so it can fully absorb value without disrupting anyone else's business or livelihood. Just ask the central banks of the world, the kings of the past, the Chinese, Indians, Russians, Brazilians... or our grandparents! This stuff is not only virtually undestructable over centuries; neither can it be diluted or produced at will -- the physical kind, that is:
Gold has historically been used as a reserve of wealth because it's malleable (so can be formed and/or split for convenience), abundant enough to be feasible for currency use, relatively simple to purify, and because people wanted it. The only things that are compelling about gold in modern times is that people want it and that it has a limited supply. Unfortunately, gold is also very limited as an investment. As far as assets go, it's historically not done as well as other asset types. Gold has some "intrinsic" value, but it's value doesn't really increase (nor generally does its price over the long term). In comparison, a dollar in a bank account draws interest (though lately that's negligible) and a share in a company may grow in real value as that company's profits increase.
> That's its strength, it can absorb unlimited nominal "value" -- if houses couldn't be built from the ground up, they'd be almost as "good as gold" -- just not as durable, fungible, divisible, portable and compact. Plus "housing" implies a competing "social" use. "Do not speculate in houses, people need to live in them", some will moan -- "do not speculate in pork bellies, people need to eat", some will moan. Who will complain about physical gold being "overpriced"?
No one will complain about physical gold being "overpriced". They'll complain about the drop afterward. This is what happened with housing as well. Very few were complaining about the price on the way up as they indebted themselves to buy 2x what they could afford and 3x what they needed. But they sure complained when home prices started dropping. If everyone were putting their money into gold, you could be sure they'd start screaming about their "retirement funds" when gold started dropping.
> This is the best part... physical gold is a steal as its current price is still being 'discovered' exclusively on the paper commodity exchanges, where new demand is still largely met with freshly printed certificates. Paper gold, I agree, is highly overvalued. That means, physical gold today is tremendously undervalued! Even gold in the ground, not yet mined, is already being traded in paper by speculators! It will be a spectacle one fine day when they try to collect in specie -- if ever. They're in it for the paper profit and sure enough they will be paid off in nominal terms.
I don't agree with this assessment. Physical gold is by and large priced to match the paper variety. When prices fall on the market, they'll fall for physical gold as well.
