Yay a new comment! woo!  Here’s what Mike said, in regards to my post about Mr. Volcker:

“What do you say to the crowd who thinks the Fed is responsible for the boom and busts since 1913?

Gold/Silver are sound investments to preserve wealth against inflation. You just have to look at a graph of the dollar vs gold since the Fed started”

There is an inverse correlation between the price of gold/silver and both the dollar and the stock market.  People do tend to dive into gold when there is a scare in the market.  But to correlate that with the Fed is imprecise.  The Fed’s main purpose is to address runs on banks – exactly what it stopped for BofA, Citi, etc.  Granted, many may have not liked the government role in supporting these huge banks, but what would have happened if you got a notice in the mail demanding payment of all your credit card debt? now? at this instant? (some of this is happening to a moderate extent) Or what if you had investments in these banks’ wealth management group, and could not get to them?  How would that affect you?

Pretty badly, I assume.  The Fed provides liquidity to the banking system, as these financial intermediaries need the movement to support small business with loans, and give safe keeping to deposit clients.  There are definite criticisms about some of the Fed’s moves, but it’s doing it’s job.  Everything is subject to human error, mind you.

I’m getting off topic – yes, people buy gold as a safe guard, but as it goes up, it gets too late to pile in, doesn’t it?  It seems unreasonable to want to buy gold now, as the stock market (mind you, not the economy) starts recovering.  There are sectors that are doing well, but this is my point – be smart.  Do research.  If you really care about the growth of your wealth, you wouldn’t follow the crowd.  Yes, it is about appetite for risk, but gold doesn’t have to hold all your investments.

What did I say?

I sold some at the high of today (so far) of $22.    And holding on to the rest if it jumps more.

Thank you to the die hard Dendreonite.

…it will be up 600%

DNDN closed up around 35%.

My investment – up over 87%.

Here is why – http://www.cnbc.com/id/30033861.

There’s nothing like blogging on a 6 hour delayed flight with the only TV on the plane that doesn’t work. Mind you, it’s JetBlue – I’ve sat on the plan an hour and a half before it took off.

This lends great time to actually getting some work done. Finally – can sit down and thoroughly think through what I’ve been wanting to write for a while.

In continuing this Friendman talk in his Selected Papers, there maintains this prudent versus reckless utility in the next chapter. He describes a person’s marginal utility to, in essence, gamble. Whether it be purchasing homeowner’s insurance, or buying a lottery ticket. A person is being charged a premium for the opportunity to ‘cash in.’ Unfortunately odds are against most.

But I’d like to take this a step in a different direction along with the perception of ‘prudent’ and ‘reckless’ behaviors, particularly pertaining to the financial markets. It is a strong belief of mine that going to Vegas and working in the stock exchange is one in the same. Granted, odds are different, but buying or shorting stock is placing your bets on personal profitability from a loss of the dealer (or company, security, or …government…). But there is a gamble, as there is a chance to profit, and a possibility of loss. Why is stock trading as a profession okay, but weekly trips to a casino seen as a personal problem?

Anyways – drawing that back with utility. Friedman quotes Vickrey saying:
“There is abundant evidence that individual decisions in situations involving risk are not always made in ways that are compatible with the assumption that the decisions are made rationally with a view to maximize the mathematical expectation of a utility function” (Friedman 28).
Individual decisions of risk are not exactly rational. Yeah we get that. Why pay a dollar every day for two weeks for the impossible chance of winning millions of dollars (only to be grossly over taxed)? Why not save that dollar and buy some hot tamales. That’s some utility I could actually enjoy. And it’s a safe bet – I will enjoy it. (I know – not apples to apples). My point is the dollar could be invested in something with guaranteed return, or at least return of more favorable odds.

But what if irrationality of the decision making wasn’t known to the decision maker? What if the gambler, or investor, believes that he’s making a sound decision based on his rationality?

One assumption that capitalism is based on is perfect knowledge. The markets are ‘perfect’ since knowledge is free flowing (granted if you lose based on stupidity and lack of research, that’s you’re own damned fault) and available. But not all knowledge is out there, not everything is known. Hence the purpose of the SEC, laws of insider trading, the growing graduate degree market for quantitative finance.

But seriously, if all entities acted perfectly – how could there possibly be perfection in knowledge? Seeing the current state of the markets, really, is there even the ability to fully research and anticipate investments? Who knew that you’d be paying the government to hold their debt?

Is there really rationality to analyzing a person’s own marginal utility curve towards gambling or investments? I don’t think so.

I can’t resist trading free money  

Current positions:
shorting the GBP against USD
long on both USD & GBP against JPY
^up $1500 for the day ^

Soon to-be-settled holdings (stupid program is slow!):
AAPL
CSCO
AEO
GS
TIVO
BEBE

Also looking into health care and pharma companies for this time in the economy.