Preparedness for when

Frugalsod

GreyQueen wrote: »

I still have my 500 million dollar 2008 Zimbabwean banknote........the £2 it cost me was worth every penny as a lesson in the insanity of paper money.

I bought three of the latest 100 Trlllion Zimbabwe dollar notes and got them framed. They were in pristine state so looked good framed. I was lucky to get sequential numbered notes as well.

BHB

Karmacat wrote: »

GQ, can I ask (you or anyone else, actually) - when people buy sovereigns as a hedge against financial nightmare, how do they eventually get their money? Do they sell them back to dealers? I'm trying to write something about it at the moment, and I keep stumbling on this last step. Obviously, buying costs, and selling costs, so maybe they get back 85% of what they paid ... but in the meantime, if their currency had gone kablooey, they'd have *lost* 85%? Is that the maths of it, more or less?

Not only that, probably a silly question but, how do you know you are buying the real thing and not some imitation?


It seem to remember a sort of cash machine that spat out small gold ingots when you paid money in? Did I dream this or is it real - I assume it must be in "that London" if it wasn't a dream ....


Oh the Land of a hillbilly. ..... so sheltered .... "insert shrugs here but for some reason smilies ain't working on internet explorer!)" .... Oh to be back on Linux OS


BHB

Doveling

Thanks Frugalsod, you explain everything so clearly and concisely.Do you teach economics? Bankers seem to me to be a tiny bit deceitful if that's what they do. How do they get away with it?

GQ-I have a tendency to make people smile, usually unintentionally! I was once a student nurse on a psychiatric acute admissions ward on a quiet sunday afternoon so we got the Trivial pursuits out to try to engage everyone in an activity. One of the first questions out was "What was Hitler's german shepherd called?" The first thing that came into my mind was "I didn't know Hitler kept sheep" and that was exactly what came out of my mouth :eek: :rotfl:There was total silence as all eyes turned on me, then a wit sat reading the newspaper drily commented "Can somebody remind me which are the staff" The whole ward erupted in laughter and needless to say for the rest of my placement my nickname was Blondi .
And things have never altered!

Frugalsod

Karmacat wrote: »

GQ, can I ask (you or anyone else, actually) - when people buy sovereigns as a hedge against financial nightmare, how do they eventually get their money? Do they sell them back to dealers? I'm trying to write something about it at the moment, and I keep stumbling on this last step. Obviously, buying costs, and selling costs, so maybe they get back 85% of what they paid ... but in the meantime, if their currency had gone kablooey, they'd have *lost* 85%? Is that the maths of it, more or less?

If you accept that you might have to pay 5% handling fees to buy or sell a sovereign, the issue is not that they will only get back 90% but what happens to its value in the mean time. If you buy one for £192. So you would pay £201 including the fees. Now if you sold it immediately you would lose money on the deal because of the fees again. You would only get £184 for that same coin today.

The reason people buy gold coins are they hold their value better because they are not subject to the impacts of banks printing money. So if the there was a lot of inflation then you might find that you would be offered £500 for your sovereign less any fees. Yet that would not mean you made a big profit. The cost of everything else you want to buy could also have risen considerably, so you may not be any better off. That sovereign could be worth £2 billion pounds but a loaf of bread will be a similarly large sum. You will not get rich but simply maintain your purchasing power.

If the currency went kablooey its value in the currency would be worthless but you could sell your sovereign for dollars or any other currency as it would still have value. So say Greeks bought lots of sovereigns and when the euro goes kablooey and Greeks have to use Drachmas then they will be able to buy at the prevailing rate or buy dollars or what ever currency they need. You could skip the exchange into a currency and simply pay for that car in sovereigns.

The problem for non economists is trying to work out what the scam is. Many of those promoting gold have a vested interest in gold sellers. Also many have significant personal holdings of gold and so would benefit instantly from a return to the gold standard. They also need people to push for it. So they have a vested interest.

Most economists work in banks for mega money and those in academia want that mega money for themselves. The economists in government are also broadly corrupted by the system. They all work with the same economic model and few of them saw the crisis coming. For the same reason they will not see the next one coming. They net out debt as they claim for every debt there is a creditor, what they fail to mention that 90% of those creditors are banks who created that money out of nothing. So they will worry about government debt yet ignore private debt.

Others are financial investment advisors and so will want to say things that will appeal to you in that it mirrors what you see in the world around you and so attract you as a client.

Then there are those promoting share schemes and proclaiming 100% returns over the last 5 years. Now some of these are simply to get you to invest, so generating fees for themselves. Others are simply trying to find new people to fleece as they exit the same scheme that they are trying to promote. This broadly applies to any share listing IPO that you might see advertised in the paper right now. While many of these businesses are sound and will not crash they are being sold at stratospheric valuations that will never generate a long term return for its buyer.

Many of these are everywhere if you look at such blogs. Some are also trying to make a name for themselves as someone who saw the next crisis. To be the next Nouriel Roubini or Nassim Nicholas Taleb. I have no such ambitions, I have no blog and nothing to gain either way. My own personal plan is to be completely debt free within 9 months and then save cash at home and possibly get a few sovereigns as a safety net but keep my bank balance modest in case of a bail in. It will only take me a few months to have a years expenditure in reserve, over and above that I will enjoy myself.

GreyQueen

Karmacat wrote: »

GQ, can I ask (you or anyone else, actually) - when people buy sovereigns as a hedge against financial nightmare, how do they eventually get their money? Do they sell them back to dealers? I'm trying to write something about it at the moment, and I keep stumbling on this last step. Obviously, buying costs, and selling costs, so maybe they get back 85% of what they paid ... but in the meantime, if their currency had gone kablooey, they'd have *lost* 85%? Is that the maths of it, more or less?

It's hard to get your head around devaluing fiat currency because most people haven't had personal experience of it. Let's invent a fictious fiat currency for the purposes of example. I'll call it the Widget of Widgetstan. When the Witgetsani economy is going well, you can take a handful of widget fiat banknotes with a total face value of 100 to a gold dealer, and come away with a one ounce gold coin.

But the economy starts going rotten. Everything is going up in price. Your 0.10 widget loaf of bread becomes a 2 widget loaf of bread, and eventually a 10 or more widget loaf of bread. You start getting jumpy about your spending power dwindling to nothing. You decide to go buy a one ounce gold coin to sock some value away from this galloping inflation. You know that last year you could have got it for 100 widgets. Now it's 500 widgets. The gold price hasn't gone up, the widget has gone down. Now you can only afford a half-ounce gold coin, or a tenth ounce, or even nothing at all. If the currency goes completely kablooey, any 'wealth' denominated in it disappears 100%.

If you had an ounce of gold, you would have something which can be traded anywhere in the world. You could emigrate with it and sell it in a more stable economy. Heck, you could stay put and wait for a more stable economy to appear and convert it back into currency. You could trade with it on the black economy. If you were stranded somewhere sans cash, most people in the world recognise gold coins. In fact, the British Sovreign was so well-regarded that it was recognised and held as good even by the remotest tribespeople in Africa and Asia, back in the day.

So, if you have something in gold, you have something which has been recognised as being 'valuable' across the globe for thousands of years. Gold's 'value' - in terms of what it can buy in any age - is pretty static across the millennia, it's 'price' fluctuates in currencies. Price and value are two different things. The price of a kilo of heroin in my city is £200 wholesale but it has no value at all to me because I don't use drugs and don't deal in them, see?

If you sold a one ounce gold coin for £870 yesterday but you bought it in Dec 2000 for just under £300, what exactly have you lost? In practise, you've lost the opportunty to spend that nearly-£300 on something else in 2000 or in the intevening years. If you didn't need to spend that money, you've come out ahead. If you'd had that money on deposit, the interest rates from Jan 2001 to present wouldn't have taken it up that far.

You could also do business in it, all it needs is both parties to be in agreement. If I have a secondhand car I don't want and you have a handful of gold coins you're prepared to trade for it, and that's acceptable to us both, we have a sale.

The price of a sovreign, or any other gold coin, whether you are buying or selling, will fluctuate with the international gold prices. A dealer's spread is typically £20 (buying for £20 less than they sell for). Sovreigns are currently hovering about the £180-£200 mark. Buy used sovreigns not new ones from the Mint. Ones from 100 odd years ago are lovely, you could always claim to have inherited them.

The idea of buying precious metals is to hold some of your savings in those, not to think about re-selling them rapidly. It's a store of value and a hedge against bankers' malfeasance, not for trading. You could also hold gold jewelley, esp the purest grades, for the same purpose, but if you buy it new, you're giving 20% to the VAT man. If you think that you'll need the cash in the next year or two or five, don't look at buying sovreigns or krugerrands because you'll lose something when you sell them. Unless the international price takes off into the stratosphere, in which case you may make money.

All of the above presupposes that there isn't a currency crash or a hyperinflation. If there is, what we're presently using as fiat money could become pretty-printed toilet paper. The gold coin could protect your present wealth and be available to be converted into a future functional fiat currency, or traded for goods or services on the black economy. I've known people who came out of Vietman as 'boat people' in the 1970s and they didn't get on those boats without a bribe, usually gold, I assure you. Ditto for people who came out of Bosnia, and those coming out of Syria now.

What you really need to do is try to think of a certain unit of gold as a certain amount of stored labour. F'rintance, right now I could buy a krugerrand with one month's net salary and therefore a krugerrand is 'worth' one month's stored energy from my labours- and savings are just stored energy, if you think about it. If, in a few years' time, that same coin would equate to goods and services 'worth' 1.5 or 2 months' stored energy, I've clearly come out ahead. If it equates to 0.75 of a month's stored enegy, I have clearly lost out.

There are advantages and disadvantages to all things in this life and the buying of precious metals is no exception.

The idea of holding wealth outside banks is common in Asia but has become pretty uncommon in modern Europe. I see the gypsies and travellers buying sovreigns and the Brit Asians buying Canadian Maples, the purest gold bullion coins. The latter groups will have no truck with anything but the purest as they're using it as a store of value.

Sovreigns are exempt from capital gains tax and have a notional value of £1 or 50p for a half-sovreign. All gold coins are sold VAT-emempt, too. If you want to move some of your wealth off the radar of the State, or to have it lie quietly for the children or the grandchildren, you could buy gold coins and hide them well.

Frugalsod

BHB wrote: »

Not only that, probably a silly question but, how do you know you are buying the real thing and not some imitation?


It seem to remember a sort of cash machine that spat out small gold ingots when you paid money in? Did I dream this or is it real - I assume it must be in "that London" if it wasn't a dream ....


Oh the Land of a hillbilly. ..... so sheltered .... "insert shrugs here but for some reason smilies ain't working on internet explorer!)" .... Oh to be back on Linux OS


BHB

You need to take the coins to be assayed if unsure, but that is one advantage of buying sovereigns people will know what they look like.

Re gold vending machines.

https://www.youtube.com/watch?v=FKSbBj2jM8Y

http://www.vegasnews.com/38357/gold-to-go-atm-the-world’s-first-gold-vending-machine-now-at-golden-nugget-las-vegas.html

There is also one in Dubai

http://www.emirates247.com/lifestyle/living/burj-khalifa-gold-bar-is-towering-investment-2011-01-27-1.347720

Frugalsod

Dr._Shoe wrote: »

If I've said it once I've said it a million times, I am well prpepared for doomsday. I have a big pack of sleeping tablets and a large bottle of scotch. This gets replaced on a regular basis to make sure it remains fresh. hic!

[STRIKE]Stock[/STRIKE] Scotch rotation is an important skill to maintain its usefulness.

Karmacat

Frugalsod, GreyQueen, thank you both! I've been trying to read up around this, but everything assumes a level of knowledge that I simply don't have.

I particularly like the idea of buying *older* sovreigns

I did sound like I was thinking of buying and reselling fast, didn't it, but I'm not - the hedge function, against future currency issues, is the valid one for me. I'm looking at all sorts of pension issues, and trying to hold on to my freehold property as well (where I have a fair number of edible perennials!). In "portfolio" terms, I've heard 5% mentioned, and over time, thats do-able.

Much appreciated.

GreyQueen

My pleasure. There are a fair few immaculate 1914 sovreigns about as when WW1 broke out, people hid them up. And thus they have come down the generations in superb nick. When SHTF, gold will hide, as it always does.

If your portables are many decades old, and anyone were to query how you came by them, you could just pretend they were inherited from Great-Great Aunty Mabel. TPTB detest portable valuables. If people can put their wealth in their pocket and relocate themselves, how can the State ensure their cut?

In this city, there is a rather nice house. It was bought by the sale of a superb gemstone, brought here covertly from a communist state by an emigre. It reperesented a chunk of the legitimate wealth of their once-wealthy family who had been impoverished by the communists for political reasons. And they hid it so as not to lose it to the State. And, decades later, it gave some of them a toe-hold in a new country.

Frugalsod

Doveling wrote: »

Thanks Frugalsod, you explain everything so clearly and concisely.Do you teach economics? Bankers seem to me to be a tiny bit deceitful if that's what they do. How do they get away with it?

No I got my A level in economics years ago in little more than two hours. I finished the two 3 hour exams in an hour each and still got good grades. I also passed the course in university. No, I am not an economics teacher.

Economics is actually very straight forward if you ignore most of the BS that many economists spout. Many of the ideas promoted by many economists now have been discredited but they will still quote them as they know no better. This would include that the more you cut taxes the more tax revenue you collect (to a point then it is all negative). Or that the wealth effect means that creating housing bubbles encourages people to spend if they feel wealthier, well they might until a point, then when they are repossessed they cut back. People only spend more if they have a higher regular income. Anything else is more likely to be saved. Or that debts can ignored because it is someone else's asset. Or the whole rational expectations claptrap, or rational investor hypothesis. Markets are perfect pricing mechanisms. etc etc. The list goes on.

The fact that I saw deflation being an issue several years ago and then decided to take measures to clear my own significant debts before it became an issue was more down to actually thinking the problem through and coming to a very different conclusion that economists do now.

Also remember that governments can achieve many things if they can persuade us to do things against our better judgement. If we all rushed out and spent we would boost the economy but many of us are already overwhelmed by debt and so are not in a position to do so or have uncertain incomes that do not allow it. Plus once we are debt slaves we are less likely to overthrow those that drove us to this parlous financial state. They also rely on significant numbers of turkeys to vote for Christmas to get things done that suit their backers. Things like benefit reforms, trying to marginalise the current unemployed as workshy so being able to cut the welfare bill for everyone, completely neglecting to tell them that they are also cutting the safety net that they will be relying on one day. This is one reason why populist parties will rise up and replace mainstream parties all across Europe.