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Comment by justinlardinois | Hacker News Reader

> Gross, who oversees the $1.5 billion Janus Global Unconstrained Bond Fund, recommended Bitcoin and gold for investors who are looking for places to preserve capital.

Because wild Bitcoin fluctuations are somehow less akin to gambling than the securities market?

Glad he also threw in some "buy gold" scaremongering too.

Does Janus benefit somehow from this kind of talk?

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That was a surprisingly sensational interpretation by Reuters of the original quote. Looking at the source, he didn't recommend these assets. What was actually wrote was:

"At some point investors — leery and indeed weary of receiving negative or near zero returns on their money, may at the margin desert the standard financial complex, for higher returning or better yet, less risky alternatives. Bitcoin and privately agreed upon block chain technologies amongst a small set of global banks, are just a few examples of attempts to stabilize the value of their current assets in future purchasing power terms. Gold would be another example — historic relic that it is. In any case, the current system is beginning to be challenged"

That's certainly a different sentiment that the Reuters quote. But even if it's not an endorsement of Bitcoin and gold, it's still problematic because he's saying that scarcity implies stability, which simply isn't true.

Already bitcoin has been more stable (and increased in value) over the last year compared to many central bank issued currencies.

You understand stable and increased in value form a contradiction?

Stable in purchasing power hence increased value vs currencies that lost purchasing power.

That would imply that you have significant inflation in USD which is not the case.

He(solotronics) didn't say USD. He could be referring to China. They're pumping out ridiculous amounts of money. I heard land prices have grown by 10x in the past few years, and at the fixed exchange rate they'll have enough money to buy the US by the end of the year and enough money to buy the world by the end of next year. (Obviously those exchange rates aren't valid outside of China)

400 to 800 and then down to 600 is not stable.

When you can predict bitcoins value +/- 2% year over year that's stable.

His argument is that economies that rely too heavily on monetary policy are unsustainable.

Furthermore, he is suggesting that we are nearing a tipping point when there is abundant competition for meager returns that should be temporary. The traditional roles and functions of the bond market in economies around the world have been perverted by policy.

At some point investors will exhaust the risk threshold in bond markets, and arguably, tap less traditional markets like Bitcoin simply because they are a counterpoint to the bond markets.

How are economies that literally have no monetary policy a better alternative, though?

The US had no monetary policy for the first 100 years of its existence, going from subsistence farming to superpower.

> The US had no monetary policy for the first 100 years of its existence, going from subsistence farming to superpower

It was also rocked by regular financial panics during this period, including massive economic shocks when large gold and silver deposits were discovered that suddenly flooded the economy with new "money".

The US economy since has hardly been free of massive economic shocks, neither has any other monetary policy economy.

Nitpick: the US did not become a superpower until World War 1, when it dramatically expanded the size of government and the military.

even then, it's true super power status was achieved after ww2 when we did have the Fed. not a nitpick, it is a central part of his false premise.

How much of such super power status was derived from Fed itself vs a system that was able to distribute and allocate resources more efficiency than the time before?

One could argue that the Fed (and other central banking institutions), compared to times before was that more efficient system, but idealistically, efficient systems are not bounded by the present situation, just temporarily constrained by such. And as people like Bill Gross (who cofounded PIMPCO) are starting to publicly state in some form another, is loosing its effectiveness when it comes to managing resource allocation beyond the state we are at. There are a whole host of human endeavors that are not undertaken (think infrastructure investments) because its more profitable in the short term for large institutions to use their near zero interest credit lines on financial markets, but in the long term are blinded to opportunities that can only come from more efficiency in sectors like energy/mining/transportation.

i never made that claim. not sure why all of a sudden you're changing the subject. I was simply responding to the claim of " The US had no monetary policy for the first 100 years of its existence, going from subsistence farming to superpower. "

>not sure why all of a sudden you're changing the subject.

Well trying to connect this and bring it back to the topic of the original article…

The Federal Reserve was established in 1913, long before World War II.

The US was a financial basket case that entire time. See ( the unfortunately titled ) "A Nation of Deadbeats."

Quoting from the article: "At some point investors – leery and indeed weary of receiving negative or near zero returns on their money, may at the margin desert the standard financial complex, for higher returning or better yet, less risky alternatives."

I'd argue that they are not. It's more about the proper measure. Monetary policy is a tool attempting to hit a moving target.

> Monetary policy is a tool attempting to hit a moving target

By sweeping the ice in front of the economy-puck with a toothbrush.

There is an effect, just a lot of other stuff has a big effect too...

fwiw, gold doesn't have an economic policy either.

But the difference is that with fiat, "no policy" means they'll do whatever they want in the future. With cryptocurrency no policy is more like an unbreakable policy of no tampering.

Just like any other commodity.

Almost. I think his argument is that investors will exhaust the risk threshold in all markets. Presently the bond crowd has hit the equity markets, however at some point the music has to stop and he doubts they'll have fixed the underlying growth problem by the time it does.

> Glad he also threw in some "buy gold" scaremongering too.

I'll bite; why is gold a bad investment? Does it not have low risk and stable value? Hell, these days it even has REAL value as a special metal.

Warren Buffett on gold [1]: "I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today's market prices about $7 trillion – that's probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (NYSE:XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I'll take the farmland and the Exxon Mobils."

[1] http://www.minyanville.com/trading-and-investing/commodities...

Gold has no utility. This quote changed the way I think about gold when I first heard it.

Cash has no utility either. At the end of the day, cash, gold, silver..are monetary instruments. To say a monetary instrument needs to have utility is a bit ridiculous. Do we want to go back to the days of carrying around bags of salt?

I don't know how many cubic feet $7 trillion of US dollar takes up...but if I have a cubic feet of $7 trillion anything I would take it, convert it and purchase whatever I want with it.

I think encapsulated in the quote (and what the point was) is the idea that Gold isn't going to do much but sit there and retain its value, whereas Exxon and farmland are going to grow in value over time and produce useful things. Befitting an investor's quote.

It's not saying gold has to have utility. Which it actually does fwiw as a commodity.

With all investments there's no guarantee it will value over time or produce useful things...You can buy Theranos, a company once valued at $9 billion, and the next day it's worthless because you found out it's all smoke and mirrors.

It's valuable exactly because all of it in the world only makes a cube 67 feet on a side. Compared that to, say steel production, where the world has produced a cube 1900' on each side. And that was just in 2015.

I don't often say this about Warren Buffett quotes, but that is one of the most idiotic things I have ever heard anyone say. If you owned this 67 ft. cube - all of the gold in the world - you would be able to extract any profit you wanted from the vast majority of all electronics sold in the world, along with a long list of other products. Your $7 trillion would turn into...whatever you wanted it to. Buffett is showing his age and publicly admitted lack of understanding of technology.

I think you're taking this a bit too literally. Consider a less extreme case; given a choice between a pound of gold or the current financial equivalent in Berkshire Hathaway equity (about 150 shares), which is more likely to provide higher returns over the long run? Buffet is basically making an optimistic case for the American economy, arguing that gold is a hedge, while market investment is a strategy.

Yes, I understood what he was trying to say, but his comparison was too far over the top and inaccurate to not be called out. His wording introduced and failed to account for the idea of someone having a monopoly on gold.

It would be challenging to find a better example of the reason why Buffet is one of the world's richest man and you're spending your time on HN than your own comment.

People would just switch to some other material for industrial uses if you demamd an exorbitant price. Gold, while useful is not indispensable.

It would take long enough to effectuate such a switch in all products across the world that you could extract enormous sums of money in the meantime - far more than your $7 trillion. At the very least, industrial gold usage has not decreased in the face of the historically highest market price of gold. You could start at that price, and increase it until you reach the optimal price.

And then what would you do with your gains? You already have all the gold in the world, so what would you buy after that if you want to increase your return on investment?

But something I've learned is that it doesn't matter if it actually has utility.

What matters is if you can predict how insane humans will perceive its' utility.

Which I can't do, so I am poor. (well not poor but I have to work)

Gold has lots of utility - just not enough to justify the speculative price.

People argue that gold has value in case of a world war or some kind of apocalyptic economic crash, like a nuke going off in Manhattan.

So ultimately people trust gold because they believe WW3 will start soon.

It's value isn't that stable...

It's just another commodity. It trades like a commodity, its not anything special, it's not currency, it's metal dug from the ground. People attribute way more importance to it than they should.

I'm no gold-bug.

It's value is relatively stable.

The fact that it is a commodity, or that it is not a currency, has nothing to do with its value.

It is special, in the sense that is is both a precious metal and an industrial metal, and it is also a common store of value, i.e. gold reserves.

Many incredible, valuable things are "dug from the ground."

Gold is not a bad investment as part of diversified portfolio.

To justinlardinois's point, the stability and risk duaneb refers to, are reasons fearmongers encourage divesting other holdings in to gold in times of instability.

The value of gold is not at all stable. It has higher variability than the S&P 500 index.

http://finance.yahoo.com/chart/GLD#eyJjb21wYXJpc29ucyI6IlZGS...

"Relatively stable," appropriately qualifies the statement and your link to a chart for a gold ETF is not support for your claim that, "The value of gold is not at all stable."

You dont buy gold as its stable. You buy it as it's;

1) A generally appreciating asset

2) It physically exists (or is backed by exiting material).

And most importantly:

3) It is a flight to safety commodity so when things go bad you expect to make money.

So I would argue it is something special as a commodity. People dont rush to iron ore in a market crash. Maybe people do attribute more to it than it deserves but its disingenuous to pretend it doesn't have a special place in financial markets.

> 1) A generally appreciating asset

It's down in the last 5 years. Also, all assets are generally appreciating because of inflation.

> 2) It physically exists (or is backed by exiting material).

This doesn't actually matter. All prices are set by what buyers will pay. Some things, like currencies or bonds, are backed by governments or physical assets like real estate, other commodities, land, etc...

> 3) It is a flight to safety commodity so when things go bad you expect to make money.

As are other assets and securities. Again, nothing inherent to gold.

> Maybe people do attribute more to it than it deserves but its disingenuous to pretend it doesn't have a special place in financial markets.

You could argue every commodity has a 'special' place in financial markets. I'm not arguing gold isn't real or is worthless - it does have value because of its use in electronics as well as in adornment and its historical use as currency.

What I am arguing is that:

> Maybe people do attribute more to it than it deserves

True, but unlike other commodities it's easy to take a long position on gold with ETFs like GLD which actually store the physical gold. For other commodities (like oil with ticker USO) it's not so simple to take a long position. The best you can do is trade options, with the added risk of a contango market.

You are potentially overselling the "store physical gold" component of GLD depending on what you think the redemption rules of the fund are. As per usual Kid Dynamite is my favorite writer on the subject:

http://kiddynamitesworld.com/why-is-gld-so-hard-for-people-t...

All things being equal, it's no worse than other commodities and better than many. However, there are alot of less than scrupulous people who keep pushing it onto less sophisticated investors. And many of those people are paid by various companies to herd those less sophisticated investors into buying their product.

Not saying that Bill Gross is one of those by any means, just pointing out why it has a bad rep. And if the non-GOP candidate wins, they'll be another round of "buy gold" and/or "buy guns" or another TFH approved product come January.

Gross also recommended that folks tune in to Glenn Beck for even more savvy financial advice.

It's called talking your book. See this thread [1] from the last time Bill Gross said that banking and finance are "permanently damaged" a little under a year ago. He's bombastic and clickbaity and it attracts money from likeminded, bearish investors.

[1] https://news.ycombinator.com/item?id=11217860

Gross's fund at PIMCO had terrible years in 2011 and 2013 and his new fund at Janus is underperforming the Barclays Aggregate Bond Index, so he needs both a scapegoat and a class of marks who will still buy in despite the performance. The Fed provides a convenient target to blame bad performance on, especially for Gross given his 2013 misread of Fed unwinding. As far as potential investors go, much of the country club set are sympathetic to the broader narrative of the capitalist hero (the guy literally refers to himself as 'Secretariat' and Justin Bieber of the bond market) beset by meddling bureaucrats and there's a smaller but much more enthusiastic group of devoted monetary cranks who really eat this stuff up.

Janus benefits from being run by a thought leader.

Yes Equity markets go down and money typically moves into bonds via large funds. And bond ASK prices go up since quality bonds like IBM, GOOG or gov't become high demand.

Here is the source:

https://www.janus.com/insights/bill-gross-investment-outlook

How does he benefit ? The way to win on the stock market is sometimes and somewhat cynically referred to as OPM (other people's money). Bill Gross has managed to convince a few large clients to invest in bonds through him (their money - his decisions) and has made quite a bit of money because of a sustained streak of good decisions. How does he benefit ? By convincing more people to put their money in one of his funds.

A more balanced report of what he's talking about is possible. Right now he feels that it is a necessity for capital preservation to be well protected against a large downside (which would translate into a big surge in interest rates).

On the one hand "past performance is not an indicator of future performance", on the other hand, it would be foolish to ignore this voice.

People should realize what the cost of "stimulating the economy" has been : long-term low-risk investments have done extremely poorly for 10, even up to 15 years in some cases. High-risk investments have done well, but with several big "oops" moments that challenge capital preservation. Combined with this, regulation of pension and bank investments across the globe have emphasized capital preservation and forced these organisations to put significant investments in low-risk-and-now-extremely-low-yield investments. This currently means, if you're under 35-40, you effectively don't have a pension if you're not in the 0.1% (ie. you're not a director at least ? You don't have a pension). That age is going up, and it's not like it's doing any favors for people who are older. In other words: we've forced banks and pension funds to move away from "more risky" things, nonzero odds of failure for certainty of far-off failure. We have decided to have an almost-certain failure of our pension systems, so governments can spend more today "to save the economy". That save part is in quotes because while people were quite certain that was what they were doing 8 years ago, let's say that the enthousiasm for this viewpoint has gone below freezing in the past year or two.

A more cynical person might say that governments have decided that while they will constantly loan money, they will no longer pay interest. Bill Gross' critique is that this is the feedback mechanism that balances governments spending against private sector growth spending (because the government is a negative for the economy. It's a necessity, roads, healthcare, etc, but a negative. If the public sector grows "too much", as history has proven time and time again, a total crash follows).

Assuming there's no total crash (because you don't prepare for that. If that happens, it's over and what you did or did not do doesn't matter. So you prepare for the other options), what people are predicting will happen, given the models of 1972, 2001, 2008 and even before 1929 and the like is that a sudden massive inflation spike will occur coupled with a fall in asset prices (like houses and ...), and especially a fall in stock prices.

> Does Janus benefit somehow from this kind of talk?

Maybe in terms of marketing itself as having sway in how to interpret things. Lets call it PR.

These kind of statements show a helplessness from old thought leaders. It shows that we can't continue to explain today's world by 1929 analogies. It smells like Black Swan.

But maybe the Black Swan is just that we at some point realize, that we were cargo culting for the next gloom and doom to happen.

Edit: if you downvote please have the sophistication and argue why.

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