Saturday, October 25, 2008

So what is WarrenB saying anyway?

He said that cash being a debt is trash in the long run. In a capitalist system, capital that isn't working is just delaying claims on the future while not helping in future production. Savings is a ponzi scheme?

In a cosmic view of the long-run we are all dead anyway, but paper not put to work doesn't produce anything. Try planting a bill, will you see a tree?

If there are more claims than there is production in the future then your paper is worth less. Monetary inflation makes cash trash, is a valid way to read what he is saying.

But investing the money is what Mr B wants you to do. Whether you do that in equities, like he did, or in fixed income, say municipal bonds or CDs is really up to you. Cash under your mattress is trash. Paper doesn't make paper.

Oh and btw I am of the dogmatic conviction that banks should not be paid for deposits with the central banks, because this is paper making itself and growing its mass without productive use. These payments should stop immediately. Cash hoarding is killing them everyone, the banks included.

In a capitalist society, capital that is not working is dead weight. Capital that is not working IS trash.

Don't keep cash under the mattress, put it to work somewhere.

8 comments:

Andrew Meyer said...

Marc,

the question is, what to invest in? It's well trodden, but worth looking at once again. $1,000 invested in AIG a year ago is worth less than $20 today. The same $1,000 in Lehman is worth $0 today.

The last times the stock market saw falls like the one we're experiencing now, in 1929 and 1969, it traded pretty much sideways for 17 years after that.

And it's tough to believe the stock market has finished falling yet. It's gone down because of the need to access cash (Investment Banks and Hedge Fund withdraws to meet obligations). These are not economic equity issues, those are still to come.

The GMs, VWs, GE and all the other companies in the real economy are just start to report earnings. Estimates for S&P 500 returns for 2009 have been cut in half since the start of 2008 and they'll probably be cut in half again before the start of 2009.

The always entertaining Felix Solomon actually has another compelling argument against stocks centered around dividend payments and growth.
http://tinyurl.com/BearStocks

Adjustable rate mortgages really started adjusting in 2007, they won't stop readjusting until 2011. Until then, large banks will announce $5 to $7B write offs every quarter. A constant drone of bad news that there is no escaping until 2011 at the earliest. For the banking industry, there is a solvency crisis. There's lots of liquidity, but you don't know who's solvent and who isn't. It's sort of like sex. It's not who you're sleeping with that your concerned about, it's who the other person's sleeping with. Don't expect the banking situation to improve any time soon. They have a lousy reputation, they've been hanging out with the wrong type of people and they're in the wrong part of town. No wonder Hank Paulson keeps calling it a "crisis of confidence."

Assets are deleveraging. House prices are falling. The catastrophic miscalculation with ethanol that sapped the US corn supply and led to rapidly rising food costs last year and this year. With a recession/depression and deleveraging, prices are falling. Because of the situation of Chinese factories competing to become the biggest, there is a massive over supply of consumer goods. Prices of televisions, computers, cell phones, video games etc. All are going to fall. Gas prices fall, food prices fall, housing prices fall.

Hummmm, my dollar tomorrow just might be worth more than it is today. I've just got to keep it away from anything that's falling in price. What are the investments available to me?

Stocks? Not a good idea.
Bonds? Unless I sold my software company, I probably can't enter that market.
Treasury bonds? Paying between less than 0.84% for the 3-month. 2 year T-bond paying 1.5% interest.
CDs? Do I really want to lock my money away in a bank when they have a proven history of failing, their writing off $5 to what did Wachovia write off? $23B. Just who were they sleeping with?

Hummmm, that mattress doesn't look like such a bad investment.

P.S. Personally, I'm in a very good mood. My little company just signed another contract last week. The great thing about software is that it has no fixed costs. But John and Jane Q-Public are not investing in their own software companies. I will stand by my logic that for 85% of the people in Western Europe, the US and Japan, mattress are not as bad an investment as you made them out to be.

Marcf said...

yeah,

part of the reasons I wanted to blog about this was the fact that people heard "invest in markets, don't stay in cash". However some of the money markets or fixed income are a simpler way to put your money to work. Cash is trash doesn't mean equity is king but that cash that isn't working at all is trash.

Roy Russo said...

Remember also that Buffet has a history of not investing in high-flying hype stocks. So if you follow his portfolio, the Walmarts and the McDonalds of the world are pretty safe bets.

After all, as we slide downward, people will be buying more burgers than steaks.

Army No Va said...

My investments in America's past continue to do (far) better than my investments in America's future...

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