When “Cash Becomes King” . . . .

[beaverdam]

Why have cash, what has it yielded you, when the equity markets move up day after day, week after week, year after year since Trump started deregulating?

What good is cash, after what that trader Harper did,,, in allowing banks to take your funds to keep solvent.(#bail in!)

[TechAnalyst]

It's times like this that makes me think of J P Morgan's famous quote "I made a fortune getting out too soon"

Food for thought...

[helmsdale]

Why have cash, what has it yielded you, when the equity markets move up day after day, week after week, year after year since Trump started deregulating?[/B]

New quote that all the "new style" investors live by these days...

"Cash Is Trash!"™️

[errolanderson]

Realize digging this up from the dregs but, this is more paramount than ever . . . .

Asset values now heading into a deflationary spiral (IMO). Consumers are totally tapped out. 2nd quarter corporate earnings will be in for-a-shock. Asset values generally will remain under pressure . . . from travel trailers to tractors to truck prices to real estate to just about everything. Looking for a new vehicle . . . wait. Those desperate for cash will be forced to dump assets. Those with cash . . . in the driver's seat.

The largest deflationary wave may be in 3 or 4 months from now when gov't benefits start to run out . . . late summer / early fall. Governments are now trying to hold up debt-ridden economies with a stick. This will be the beginning of the changing-of-the-guard and seeds of a new economy begin (IMO).

[agstar77]

Real estate values will come down to earth . What happens when your mortgage is more than property value? Ag produce looks like it is headed that way. Cereals and oilseed crops tumbling. If this keeps up we will be left holding the bag.

[Austrian Economics]

Cash is king provided you are able to pick the right moment to cash out. If you don't, your savings will get progressively eaten up.

39 years of falling interest rates have created a tremendous bull market in equities. Remember that rising asset values are the inverse of the rate of interest.

Interest rates are not in one long downward trend however. It's more like a series of sharp drops and equally sharp upturns.

The downticks cause an acceleration of debt accumulation and a rise in equity and real estate values. The upticks in interest rates, like the one we have seen since 2015, cause more stress for borrowers than market participants realize. As loans roll over at higher and higher interest, the marginal borrower cannot service their debt and failure ensues.

We're now in another down cycle. Eventually, equity values will resume the bull trend once interest rates get into negative territory. But evey time this happens, the economy gets weaker as the capital consumed by the bankrupt entities gets stranded. It's not a simple matter to redeploy or re-purpose bankrupt capital.

The biggest problem with this down cycle is that we now face widespread insolvency of civic and provincial governments. If the central bank tries to cover all these losses, the central bank itself will become insolvent (liabilities hopelessly dwarf assets) and then the currency collapses.

[Austrian Economics]

Here's an article dating back to 2012 on the way out of this crisis. It goes into considerable detail on how to get gold circulating as money once again. If we let things go until currencies and the banking system undergoes total collapse, it may be too late to save much of anything.

http://https://monetary-metals.com/gold-bonds-averting-financial-armageddon/ http://https://monetary-metals.com/gold-bonds-averting-financial-armageddon/

[farming101]

Cash is king provided you are able to pick the right moment to cash out. If you don't, your savings will get progressively eaten up.

39 years of falling interest rates have created a tremendous bull market in equities. Remember that rising asset values are the inverse of the rate of interest.

Interest rates are not in one long downward trend however. It's more like a series of sharp drops and equally sharp upturns.

The downticks cause an acceleration of debt accumulation and a rise in equity and real estate values. The upticks in interest rates, like the one we have seen since 2015, cause more stress for borrowers than market participants realize. As loans roll over at higher and higher interest, the marginal borrower cannot service their debt and failure ensues.

We're now in another down cycle. Eventually, equity values will resume the bull trend once interest rates get into negative territory. But evey time this happens, the economy gets weaker as the capital consumed by the bankrupt entities gets stranded. It's not a simple matter to redeploy or re-purpose bankrupt capital.

The biggest problem with this down cycle is that we now face widespread insolvency of civic and provincial governments. If the central bank tries to cover all these losses, the central bank itself will become insolvent (liabilities hopelessly dwarf assets) and then the currency collapses.

I do not understand what you mean regarding bankruptcy.
But evey time this happens, the economy gets weaker as the capital consumed by the bankrupt entities gets stranded. It's not a simple matter to redeploy or re-purpose bankrupt capital.

When debt is eliminated as part of bankruptcy proceedings the debt is discharged. The borrower is no longer obligated to make payments and the lender is no longer entitled to receive payments.
How is capital stranded in bankruptcy? What do you refer to when you say bankrupt capital?

The point of "cash is king" is that someone looking for opportunity has free cash or access to cash to take advantage of it. It is not about cashing out or saving.
Thanks. Just wondering...

[Guest]

the only thing worse than having cash is not having any , least thats what i think? coming from a guy that missed this 10 year stock market grab .

[Austrian Economics]

I do not understand what you mean regarding bankruptcy.
But evey time this happens, the economy gets weaker as the capital consumed by the bankrupt entities gets stranded. It's not a simple matter to redeploy or re-purpose bankrupt capital.

When debt is eliminated as part of bankruptcy proceedings the debt is discharged. The borrower is no longer obligated to make payments and the lender is no longer entitled to receive payments.
How is capital stranded in bankruptcy? What do you refer to when you say bankrupt capital?

The point of "cash is king" is that someone looking for opportunity has free cash or access to cash to take advantage of it. It is not about cashing out or saving.
Thanks. Just wondering...

I don't deny that if you have free cash during an equity collapse you have a lot of opportunities to buy assets at reduced value. But there is also the old adage of trying to catch a falling knife.

"When debt is eliminated as part of bankruptcy proceedings the debt is discharged." The problem is that this is not the end of the matter. If I am an investor who has capital that I have no need of for a few years, I can lend it out at interest to an ongoing business project. When the term is up, I expect to receive the principle and interest which I can then redeploy to, say, upgrade a factory which will be in need of substantial repairs five years from the start of the loan.

What happens when my debtor goes bankrupt? I not only lose my capital, but now the factory upgrade that was supposed to happen at the five year mark can no longer proceed. It's theoretically possible to repo the bankrupt asset, but there's a good chance that it won't be useful for my business plan, and I will have maintenance and upkeep costs that I had not planned on. Hence the term stranded asset. The loss of capital is why recessions must occur after the boom goes bust. Capital cannot effortlessly self-replicate.

[farming101]

I don't deny that if you have free cash during an equity collapse you have a lot of opportunities to buy assets at reduced value. But there is also the old adage of trying to catch a falling knife.

"When debt is eliminated as part of bankruptcy proceedings the debt is discharged." The problem is that this is not the end of the matter. If I am an investor who has capital that I have no need of for a few years, I can lend it out at interest to an ongoing business project. When the term is up, I expect to receive the principle and interest which I can then redeploy to, say, upgrade a factory which will be in need of substantial repairs five years from the start of the loan.

What happens when my debtor goes bankrupt? I not only lose my capital, but now the factory upgrade that was supposed to happen at the five year mark can no longer proceed. It's theoretically possible to repo the bankrupt asset, but there's a good chance that it won't be useful for my business plan, and I will have maintenance and upkeep costs that I had not planned on. Hence the term stranded asset. The loss of capital is why recessions must occur after the boom goes bust. Capital cannot effortlessly self-replicate.

Thanks for your reply.
In your example I would say the investor did not offset his risk appropriately and secondly he did indeed have a need for capital. It was in 5 years time when the factory needed a planned maintenance.
He should have invested appropriately.
Don't mean to pick holes in your example. Again thank you very much for sharing your view. The fact remains that investors have to assume risk. If investors did not acknowledge and accept risk the economy would be a lot smaller and very tightly held by a privileged few. Any who could not pay their debts would be subject to slavery.
When you sign your name to a futures trading account it is made known to you in no uncertain terms that you could lose all your money and be required to advance much more.
How should it be different for a sophisticated investor? Why should he go crying that he needs to be made whole because his investment went south? Rule #1 of investing is do not invest what you cannot afford to lose.

[Austrian Economics]

Thanks for your reply.
In your example I would say the investor did not offset his risk appropriately and secondly he did indeed have a need for capital. It was in 5 years time when the factory needed a planned maintenance.
He should have invested appropriately.
Don't mean to pick holes in your example. Again thank you very much for sharing your view. The fact remains that investors have to assume risk. If investors did not acknowledge and accept risk the economy would be a lot smaller and very tightly held by a privileged few. Any who could not pay their debts would be subject to slavery.
When you sign your name to a futures trading account it is made known to you in no uncertain terms that you could lose all your money and be required to advance much more.
How should it be different for a sophisticated investor? Why should he go crying that he needs to be made whole because his investment went south? Rule #1 of investing is do not invest what you cannot afford to lose.

I'm not arguing that imprudent investors should be bailed out. Far from it. But when you have central banks intervening in the credit markets to push the rate of interest to zero, then investors have no choice but to assume risks that they would never be able to assume in a free credit market. If they don't assume the risks, their competitors will and put them out of business. So malinvestments, instead of being a rarity in a market economy in which risk is not deliberately masked by central bank policy, pile up during the boom phase. In the bust phase that we are now entering, the carnage will be immense.