For those who enjoy early-Monday-morning-mind-games, Donald Luskin has an interesting article over on SmartMoney about investing in general and the current call to go long gold.
Isn’t the axiom that you can only make money if you bet against the consensus itself a consensus? Does that mean the only way to make money is bet with the consensus because the consensus says you should bet against the consensus? But how do you do that? Do you bet with the consensus by betting against the consensus because, after all, that’s what the consensus says to do? How do you bet with the consensus and against it at the same time?
Interesting.
Luskin has been long gold and it’s been a very good trade for him so he’s interested in truly understanding why so many people call it a “consensus trade” or a “crowded long”.
I suppose price is itself a kind of poll. And since, as I said, gold has performed better than any other risky asset, then I suppose there must be some kind of consensus that it’s a good idea to own it. But to me that doesn’t really prove anything. Any asset that, say, tripled in value had to first double in value along the way. Should you have sold it when it had only doubled, because that was itself evidence that it was a consensus trade? Surely not.
Ultimately, Luskin is not expecting Mad Max-like conditions. Rather, he likes gold because he thinks disaster isn’t coming.
But I don’t think disaster is coming. I’m betting on gold because I think disaster isn’t coming. I think the central banks of the world, led by our own Federal Reserve, are going to save the world—but at a price, the price of inflation.
{ 0 comments… add one now }
You must log in to post a comment.