Seems to be a bit of confusion on my recent call to begin deploying your cash carefully and selectively. So let me expand.
Manias, Panics and Crashes made it pretty clear what we would see, and now we're seeing it:
· The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.So those of you who smartly got out of real estate before it crashed, and got to cash, you were perfectly positioned. For those of you who were out of the market on January 1, and were in cash, you were perfectly positioned. For those of you who didn't trust US$ cash and moved to gold and other currencies, you were fricking geniuses.
Why? Because now we're now seeing the "self-feeeding panic" stage, where the bubble bursts. Housing is in a historic fire sale which will go on for years. And many individual stocks have been recently and swiftly destroyed, many down 50% and some down 90%+, and you have many foreign stock markets that have seen 20%+ bear market declines, in just a matter of weeks. Ouch.
Can stocks and markets (and even a hard asset like gold) go lower? Of course. Will housing continue to fall? Yes, definitely, yes. But remember, stocks are not houses. Some stocks are tied to housing, and they got rightly slaughtered. Countrywide, IndyMac, Fannie, Freddie, KB Home, MBIA, the list goes on and on and on.
But other stocks are not tied to housing, and they got killed to, with the expectation that housing will take everything down. And indeed, the housing crash does affect almost everything, but it's a question of degrees. How bad does the housing crash hurt Exxon Mobile? Or Yahoo? Or Berkshire? Or Russia?
So, in an asset price deflationary cycle like we're seeing, where people are dumping what they have, cash is king. Why? Because only the people holding the cash can swoop in and buy the assets at the fire sale prices when the time is right. And only the assets that make sense to buy.
Would I recommend buying a condo in Miami or Phoenix that's 50% off today? HELL NO! Why? Because that condo is going to keep falling and falling in value, until the price to rent or price to income ratio makes sense, and the inventory dries up.
Do I recommend buying KB Home or Fannie or IndyMac? HELL NO! Why? Because they're likely going to go bankrupt.
But I do recommend wisely and patiently using your cash and looking for opportunities. They're out there. I'm not recommending the stock MARKET, I'm recommending you look for individual stocks and other investments.
And most importantly, with Bennie and the Inkjets debasing the currency, slashing rates, and threatening to print dollars like never before, holding US dollars is the worst cash you can hold. At least take a look at other currencies (easy via ETF's like FXY, FXE, FXF, etc) to diversify your cash. Cash earning 2% in a US bank account sucks, especially when Bernanke is destroying the dollar. 6% was acceptable. 2% sucks. You need to protect the value of your cash, since the Fed is not.
Hold your cash tightly, diversify your cash, be careful with your cash, make your cash work, make sure it's in a safe place (i.e. not WaMu or Countrywide bank), and be glad that you have cash to use when the rest of the world panics and wants to get rid of their assets at any price.