Wednesday, May 2, 2018

Stupid To Hold Cash? I Think not!

This post most likely would of never have been finished or seen the light of day if it had not accidentally been published while in the very early stage of a draft. Seeking Alpha on occasion republishes my articles and while checking comments on the site I noticed a story from The Heisenberg Report titled; Ray Dalio And the "Pretty Stupid" Cash Holders. The Heisenberg piece grew up around a statement made during a January 23, interview where Ray Dalio told CNBC that people holding cash are going to end up feeling "pretty stupid." The main reason I have returned to this subject and decided to carry finish this article is because the draft I deleted immediately upon seeing was really no more than a note or a piece of embarrassing incoherent dribble.

Banks Can Cut Credit Lines At Any Time
I found the statement made by Dalio intriguing not because I agree with it but because in many ways I disagree. Apparently, when he made the statement Dalio mistakenly thought the market was ready to pop big time and investors would lose if not "all in." A very important part of the last sentence was the word, "mistakenly," However, my disagreement is based not on whether he was making the correct call which is something we must always worry about before taking such advice but rather because I'm a fan of keeping cash in reserve and available whenever possible. Another reason is that while not a coward the "all in" thing take us one step too close to the notion we are gambling rather than investing and this tends to scare the hell out of me.

Cash Is King!
When someone uses the term cash I tend to think of it as money that is easily and rapidly assessable, wealth that is not tied up in an investment. This does not mean stuffing hundred dollar bills into a can and buried in the backyard or hidden away under the mattress. At times most of us are cash rich or cash poor depending on circumstances at the time.  Not being over fond of banks and being rather independent my experience has been that being able to do a deal fast without having to worry about it being contingent on getting a loan has a lot of merit. The ability to, "do it now" can yield far more than an investment based on hope or a prayer. In my line of work I do a great deal of negotiating and I have found one word people wanting to reach an agreement don't want to hear is "IF"!

We never know what the future will bring but if it is a financial crisis liquidity is generally one of the first things to dry up and when it does cash is king. This is why I will never call the holder of cash stupid unless it is during a long period of massive inflation. Cash is the big dog it gives the holder options. Cash can protects us from the many unexpected problems that can spring up in our path. When push comes to shove banks are not the friend of the common man and relying on their sense of decency is not a good idea. The agreements most of us are forced to sign when borrowing money is filled with little details and the devil hides between the lines. Cash is liquidity and holding it is generally not as stupid as allowing yourself to be hung out to dry when it suddenly grows scarce.

Footnote; An article exploring the relationship between currencies and the value of tangible assets is linked below.

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