Occasionally I like to feature posts here from our Capitalstool.com message board that make a good point. As we watched stock prices and the price of gold soar today here was one such post by JP6
Central banks will print a lot of money and keep cash interest rates at such low levels that they will have negative real returns and negative returns relative to assets that behave well in times of reflation.
When the virus hit and it had its negative impact on earnings and balance sheets, asset values plummeted which made cash look comparatively attractive.
However, what did the central banks do? They created a ton more cash to buy debt and push interest rates lower which is having the effect of pushing those assets that will be better suited for the new environment up.
When you think about what assets are safe to own, and you think of cash, please remember that while it doesn’t move around in value as much as other assets, there is a costly negative return to it in relation to goods and services and other financial assets that amounts to about a couple of percent a year, which adds up.
So I still think that cash is trash relative to other alternatives, particularly those that will retain their value or increase their value during reflationary periods (e.g., some gold and some stocks).
