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"Is Cash A Bubble?"
Did anyone ever try to sell you cash for an overvalued price?
If the #1 wrong question about the real estate market is to ask "Is the worst is over?", then the #1 wrong question for investors to ask is,
"Is Cash A Bubble?"
This question (and the notion behind it) has recently appeared in prominent financial publications and Internet sites: the unsubtle point suggests that the trend in holding cash will burst and end badly.
It's hard to overstate how perversely ironic it is for anyone in today's environment to discuss cash in terms of a "bubble." For decades the consensus on Wall Street, in the financial media and among most economists was that to get in stocks is "good" but to get out of stocks is "bad." The savings rate went literally to zero, but that didn't bother this grand consensus -- they even endorsed the "cash-out" mindset that led millions of homeowners to take out second and third mortgages, just so they could Buy More Stuff.
The "stock market is good" crowd was never worried about bubbles when they endorsed "buy and hold" and declared "stocks always go up in the long run."
So my question(s) are,
- Does it take leverage to hold cash?
- Can you get a margin call on your cash?
- Did anyone ever try to sell you cash for an overvalued price?
- Has your cash ever lost 30% of its value in one week?
Yes, those are rhetorical questions. They also illustrate why it's not just wrong but downright stupid to talk about cash in terms of a bubble.
Now, I realize that while cash may not lose 30% of its value in a week (unless you lived in Argentina in the 1980s), there are periods when inflation does erode the value of cash. I mean, look at the seven years leading up to the October 2007 peak in U.S. stocks: big gains in the stock indexes, while inflation was eroding cash. No way did cash do as well as stocks during that time.
Right?
Wrong. Cash outperformed stocks in the seven years leading up to the 2007 stock market high. That outperformance has only increased in the time since.
The worst is
not over. Cash is
not in a bubble. There's a lot more to say about these questions, and you can get more right now. The January issue of the
Elliott Wave Financial Forecast published today, and it examines these issues with charts, commentary and forecasts you simply won't find elsewhere. It can be on your computer screen within minutes.
Click here for more.
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