bearfund

Recognizing an Abnormal Market

jafdc, the problem is that too many people (like you, it seems) keep score in dollars, but what actually matters is purchasing power in the goods and services you want and need. With that in mind, you absolutely can lose in cash, regardless of what government printed it or where you intend to live. Nominal returns can make you look good as a manager, but as an investor or saver they don't matter a whit. Right now the market is placing an absurd bet on fiat deflation, a phenomenon which has never occurred in all of history (but "this time is different," they must believe) and will not occur now.

Your cash has appreciated nicely the last couple of months; consider this a good time to sell at least some of it for a good price. If you simply can't imagine selling your speculative paper for money (gold) because dollar-centric thinking is ingrained in your methodology, I suggest selling in for tangible goods that will serve you well for a long time. Perhaps the furniture in your home is well-worn and due for replacement; this would be a good time to do so. Perhaps you've had your eye on a farm in Alberta or a ranch in Argentina; why not make a serious inquiry? And if all else fails, buy toilet paper. Humourous rhetoric aside, dollar bills are too small and too glossy to function well as a substitute.

The building of wealth has a purpose; that purpose is not to die with the largest possible number of notional dollars. If you are so dissatisfied with the available investment opportunities the market offers you that you would rather sit it out, then do so. But if you seriously expect to get more goods and services for your cash in a year or five years, you are kidding yourself. If you're holding it for later investment and do expect to get more stocks or bonds or warrants for it then, so be it. But since you would eventually have spent the income from those on goods and services anyway, you might as well save yourself some of the inflationary loss your cash will suffer while you wait by spending some of it now.

And a challenge to you: the prices of the kinds of things I have suggested you buy will track the price of gold over time, not the price of dollars, proving that if you denominate your wealth in ounces of gold rather than dollars, you will be able to better understand the behaviour of markets and more clearly grasp the price and value to be had from any investment opportunity. And when you examine those opportunities and find them overpriced, "retreating to cash" can be done without the frustrating experience of watching it lose its value in terms of the things that actually matter to you. Watch these relationships closely. Pick some common or large purchases you make, a property you would like to own, or an experience you'd like to have. Track their prices in gold and dollars over the last few decades, and over the next few. Then when you find yourself wanting out of the market, pull out these records and ask yourself what kind of cash you want to be in: the kind that represents the goods and services you hope to buy with the proceeds of your investments, or the kind that makes you feel safer and wealthier even as you become poorer?