Is cash REALLY king/ (bonds, margin, corporation, investments)
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If we truly get into a SHTF situation, either the USD (and other currencies) will get massively devalued to service the debt, or governments will collapse and be unable to back the currency.
If we avoid the above two scenarios, then stocks will eventually recover anyway.
So, where does the belief "cash is king" come from?
I believe cash will be king for a time, yes.. that time is in the next 6 months. That time is now. Later on... no. Cash is king comes from the fact that leverage drives up a lot of the prices of assets, so when you get deleveraging the asset prices can crash hard. Corporations after spending the last 3 years buying back their stock at inflated prices are now strapped for cash.. not only does the buying stock stop to a large degree but if they resell their stock to raise cash it only makes it worse.. they are trying to raise cash. People who lose their jobs are strapped for cash so they might sell their stocks to raise it if they have any.. they will cut back purchases of "assets" which naturally lowers their prices... companies cut back on purchases of commodities and they fall in price from excess supply. Margin debt also got fairly high... again margin calls... deleveraging. So everything becomes less expensive.. people with cash can scoop up any number of things for a lower price as economic activity slows and people in debt look to lick their wounds and put on band-aids. We were in quite a bubble... in well everything, and the virus derailed it 6-12 months early.
As far as whether deflation will turn into devaluation, currency collapse, or hyperinflation, I can only speculate on that. I'm no expert at monetary policy. Can central banks buy up government debt and write it off? What are the implications of them being the world's primary bondholders? Our federal debt to GDP ratio is likely to spike to uncharted territory the next few months... global government debt is going to surge....
To me it means having the ability to deploy resources and make purchases where needed, for a period of time, without having to sell investments to do so.
At the end of the day, all business assets from Fixed assets to inventory are deployed to return cash flow to the business. I give up my time for cashflow. My investments are all made to eventually cycle back cashflow to me.
That’s the point of cash is king. Liquidity when needed.
It doesn’t mean you hold cash all the time because it’s “the best” (it sucks) or that it’s some magic bullet in crisis.
If we truly get into a SHTF situation, either the USD (and other currencies) will get massively devalued to service the debt, or governments will collapse and be unable to back the currency.
If we avoid the above two scenarios, then stocks will eventually recover anyway.
So, where does the belief "cash is king" come from?
Cash is KING in times like these. Dalio had a terrible call when he said "cash is trash" in late January. His timing was off by about 2 years. Stockwiz had a good detailed post above. The only thing I disagree with stockwiz's post is the timing of things. I think in the very short-term the Fed is going to do everything in their power to hit the USD. So I think over the next couple of months the US Dollar is going to take a hit and this will ultimately propel stocks up much higher from where we are now. It will be short-lived however. Later this year into 2021 cash goes back to being KING. We won't see a major inflationary cycle forming until 2-3 years out and THEN cash will be TRASH.
Cash is KING in times like these. Dalio had a terrible call when he said "cash is trash" in late January. His timing was off by about 2 years. Stockwiz had a good detailed post above. The only thing I disagree with stockwiz's post is the timing of things. I think in the very short-term the Fed is going to do everything in their power to hit the USD. So I think over the next couple of months the US Dollar is going to take a hit and this will ultimately propel stocks up much higher from where we are now. It will be short-lived however. Later this year into 2021 cash goes back to being KING. We won't see a major inflationary cycle forming until 2-3 years out and THEN cash will be TRASH.
Agreed - I think all the loose $ being pumped in will ultimately lead to inflation.
Cash is KING in times like these. Dalio had a terrible call when he said "cash is trash" in late January. His timing was off by about 2 years. Stockwiz had a good detailed post above. The only thing I disagree with stockwiz's post is the timing of things. I think in the very short-term the Fed is going to do everything in their power to hit the USD. So I think over the next couple of months the US Dollar is going to take a hit and this will ultimately propel stocks up much higher from where we are now. It will be short-lived however. Later this year into 2021 cash goes back to being KING. We won't see a major inflationary cycle forming until 2-3 years out and THEN cash will be TRASH.
How many different ways in different posts can you say this. I'm curious?
Cash is KING in times like these. Dalio had a terrible call when he said "cash is trash" in late January. His timing was off by about 2 years. Stockwiz had a good detailed post above. The only thing I disagree with stockwiz's post is the timing of things. I think in the very short-term the Fed is going to do everything in their power to hit the USD. So I think over the next couple of months the US Dollar is going to take a hit and this will ultimately propel stocks up much higher from where we are now. It will be short-lived however. Later this year into 2021 cash goes back to being KING. We won't see a major inflationary cycle forming until 2-3 years out and THEN cash will be TRASH.
You may be right, but I think your timing is off just a hair... until the virus climaxes and businesses start to open again I expect cash to be king... so next 2, perhaps 3 to as many at 6 months... once businesses open again, the stock market may shoot up, from levels around 20% lower than they are now to perhaps around 20% higher but not much more.. the post-virus rebound rally where everyone celebrates... this will put us back up to where the markets were earlier last year before the big October pump.. that's about as high as we'll get, if we can make it that high...
In the next week or so we will see jobless claims in the millions.. schools and entertainment venues will likely be closed for another 2-3 months... people aren't going to be spending this initial government handout money to pump up the stock market, they are going to be buying basic essentials and paying down their debt, as most of the larger corporations have a fairly high debt load from wasteful stock buybacks the last 2 years. This will be pay down debt money. The velocity of money right now is quite low from the bottom not participating. Plus the market really isn't super undervalued here, though many individual stocks may be at least based on previous earnings per share numbers. (yeah I'm posting this link again)
This will be the most severe contraction since the great depression. Would stocks bottom and rebound here? I'd say if we can get the combined marketcap of the total US market in the link above down to 15-17 Trillion, given that GDP is contracting as we speak, I don't think that would be unreasonable. I do have a question.. what makes you think the recovery would stall next year? What makes you think the central banks won't open the floodgates and never close them? Wouldn't now be the time cash is king, and next year be the time for the inflation should it occur? Government tends to move kind of slowly, so it will take a few months to fully start handing out money like candy. It will probably take time for businesses to get back to full capacity/production. In the meantime all the world's central banks are really doing is providing liquidity to make sure we don't get a heart attack... companies are asking for bailouts but it will be months before any are approved, after the dust settles from the virus... in the meantime they aren't doing big spending and few are loaded with cash. They're all licking their wounds, not even applying the band aids yet.
I look on messageboards and even in real life and I see a sizable chunk of the population demanding people quarantine, talking about wanting to arrest people for going out and doing anything recreational in public... this crowd, even if it's only 10-20% of the population (I get the impression it's more) , they are vocal and screaming... they have held the world hostage.... we won't be able to resume normal life for awhile.... and if young people go around coughing on things on purpose and these stories spread, be prepared for full lockdowns. https://www.jpost.com/HEALTH-SCIENCE...-months-621609
Cash is not just King but the USD is an asset class. Did you fail to notice that the USD gained against all the major currencies and the USD had the biggest inflows as everything got dumped. Gold, bonds, stocks, oil .
Prior to the crash I was long on the dollar and with the crash, anyone who has USD can buy more than they could before the crash. Same thing happened in the 2008 financial crush. As banks were crumbling there was a major stampede into the dollar.
Basically what this means is Uncle Sam can run the printers all day everyday and not have to worry about because we are in a deflation. Of course this will run up inflation overseas (remember the Arab spring). Unless the rest of the world stops running into the USD, cold hard Benjamins will reign supreme.
Quote:
Originally Posted by arctic_gardener
If we truly get into a SHTF situation, either the USD (and other currencies) will get massively devalued to service the debt, or governments will collapse and be unable to back the currency.
If we avoid the above two scenarios, then stocks will eventually recover anyway.
So, where does the belief "cash is king" come from?
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