Ferienheim – Self Catered Ski apartment

A Ferienheim is unique to the Swiss, German and Austrian region. It is a combination of a hotel, hostel, ski lodge and convention center. The Ferienheim is rented for a company retreat, class or group other large group get together. During the winter the Ferienheim serves as ski lodge for groups. It is a large building usually situated up in the alps with dormitory style sleeping arrangements, industrial kitchen, sparse dinning area and a multipurpose rooms. The bathrooms are located down the hall and you are expected to bring your own toiletries including a towel and soap. The Ferienheim is rented by a large group of people from 15-40 for an offsite event that can last up to a week.

A typical morning session during a week-long alphorn class.

For our trip we were able to have our own rooms.  At maximum capacity each room held 6 people.

There is no room service, bellhop or concierge. A cook will make the meals but the guests are expected to clear the table, wash the dishes and set the table for the next meal. At the end of the trip, you need to bring your linen down to the laundry room and put new clean sheets on your bed. One of the Swiss guys on the trip said it reminded him of his army days.

For this system to work, a great deal of discipline is required of the participants. If you make a mess, clean it up. Don’t stay up late or disturb other people. If you get hungry between meals, eat more at the next meal. The rules are explained at the beginning of the week and they are followed.

Liquor is served with meals using the honor system. On our trip, 40 bottles of wine were placed on a table along with a cashbox. If you wanted wine with dinner, put your money in the box and take a bottle. Beer was also stored in the fridge and coffee was a dollar. At the end of the week there was still 15 bottles of wine was left and the cashbox was full.

While this may seem sparse, it enables a group to have an event with very low costs. I attended a weeklong (7 days and nights) alphorn class above Gstaad Switzerland that included three meals a day, lodging and class instruction for only $900 or $130 per day. You can’t eat a single dinner in Switzerland for under $40.

While everything else was low cost, each room came with a million dollar view.

Alphorn Schule

Most people get a Swiss watch for a grad school present. I decided to spend a week learning to play the alphorn in switzerland instead. What follows are some thoughts from this trip far off the standard path.

First night at alphorn school

2010_09_24 Notes from first night
In a debate school you expect people to stay up late talking.  Guess what, the same is true for an alphorn class.  Good thing i have the room at the end of the hall.  For two hours after dark people wlked the halls in the dark. Thought it was a swiss green thing started to carry my flashlight.

 Rooms are more like a hostel or barricks. Four beds to a room no tv no towels but the best view in the morning.

Is Gold Overpriced?

Is Gold overpriced?  This article answers the question two ways.  First how is gold priced compared to similar composites?  Second, what would happen if Gold was indeed overpriced?   From the early 2000’s the price of gold has seen a dramatic rise from $250/ounce to $1,200/ounce.  This paper will address whether gold may be headed for a bubble.

 

Source:  www.goldprice.org

The recent price increase seems reasonable when taken in the context of the current macro economical and geopolitical situation.  The following reasons are commonly cited for owning gold:

1. The Federal Government is taking on significant debt.  (Dickson, 2010)  Monetizing this debt may ultimately lead to inflation.  Gold is a hard asset rather than a fiat currency, and should act as an inflation hedge.
2. Outsourcing has increased the wealth of China and India and both countries place high cultural value on gold.  Increased wealth in these countries will increase the worldwide demand for gold.
3. There is fear that the United States may face social unrest as a result of extreme opposing ideologies.  During a collapse in society, gold is a stable monetary instrument.  Gold’s historical role, durability and finite quantity make it an ideal monetary instrument during times of uncertainty.

While the above reasons seem rational, behavioral finance may provide reasons why the increased price of gold is irrational.  Increased TV, Internet, and radio advertising may be increasing the general awareness of gold leading to availability bias.

Gold is a precious metal and does not have an underlying value like equities.  However, one measure of gold’s value is the ratio of the price of gold to the price of silver.  If people are using precious metals to hedge uncertainty, then the price of silver should rise along with the price of gold.  Historically, the ratio between gold and silver has been 16:1 (Seeking Alpha, 2010) mostly due to the fact that gold and silver exist in the earth with similar ratios.  Since 2006 the ratio has been around 55:1.  As the ratio increases gold has greater relative value compared to silver.

 

Source Yahoo! Finance using ETF for GLD and SLV

The current ratio being 66:1 leads to the concept of Ellsberg’s Paradox being a factor in such irrational thinking.  If precious metals are seen as a hedge against uncertainty, then the same assumptions should be used for silver as for gold.  However, silver is currently undervalued in relation to gold.  A continued increase in this ratio would signal irrational behavior.

One other aspect that may point to irrational behavior is the role of Exchange Traded Funds (ETF) like GLD.  Previous to 2003, if you wanted to buy gold as an individual investor you either had to buy it from a company and have it delivered by money or you went to a local coin dealer and both sources charged a relatively high transaction fee.  To sell gold you also had to work with similar institutions and incur a transaction fee.  In addition the gold needed to be either hidden in your house or locked in a safety deposit box at a local bank.  This slowed down the number of transactions and limited the market to serious investors.  With the advent of ETFs, people could buy shares of gold from their desk at work with the click of a button.  Additionally the shares were subdivided into units of 1/10th of an ounce.  This lower price point and increased convenience has brought in new in-experienced investors.

 

Gold Held in ETFs (Money Markets)

Investing in ETFs may be the result of several biases that would point to irrational behavior.  Bounded rationality where people do not understand the fundamentals of gold may cause new investors to make poor decisions.  The endowment effect may provide personal satisfaction for some people by owning gold.   With ETFs, the gold is stored in a vault and the owner will never even see the gold.  Additionally, the claim that gold can be traded for food during a collapse in society does not hold true if the gold is held in an ETF.

The biggest impact of the ETFs in relation to asset bubbles is the increased liquidity.  The same convenience that brought new investors into the market will work against the market during a sell off.  In 2008 the worldwide production of gold was 75 million ounces (Gold Sheet Mining, 2010).  In 2009 the combined holding of the ETFs was close to 50 million ounces and the number is still growing.  This means that during a panic selloff, the world’s supply of gold could almost double with a click of a button.