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Wednesday, June 1, 2011

The Best Investment Right Now

Dollar Bills.  If you only have limited space, then consider Thousand dollar bills.  They make a smaller stack.

I'm not joking.  While wandering around at Washington's blog, I tripped over this, picking up on a Bloomberg post.

Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said ...“Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.

The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. home loans that ceased performing, triggering hundreds of billions of dollars in writedowns and leading to the collapse of Lehman Brothers Holdings Inc. in September 2008.
Jeffrey Gundlach notes that we've still got a quadrillion dollar derivative overhang which dwarfs the size the of real global economy, the government hasn't done anything to fix the basic problems in our economy, and so we'll have another crash

Global GDP is about $65 Trillion.   Even times 10, that  doesn't quite get us to a quadrillion.

This simply dwarfs all the other overhangs out there, including housing and private debt.

Remember how screwed I said we were, just earlier today?  It's way worse than I even imagined.


Stagflationary Mark said...

I-Bonds bought today pay 4.6% for the next 6 months, will track inflation going forward (a fixed 0.0% over inflation), are tax deferred, and cannot deflate even month to month (since interest paid will never be less than zero no matter what happens).

I buy every year. They are at least as good as cash but have some inflation protection too.

Just throwing it out there.

Stagflationary Mark said...

That 4.6% rate is an annual rate. I didn't mean to imply that you will earn 4.6% in just 6 months.

Stagflationary Mark said...

I should also add that you cannot cash them out in the first year and you will lose 3 months of interest if you cash them out before 5 years.

So technically speaking, they are at least as good as cash once they've been held a full year.

Jazzbumpa said...

Mark -

That all makes perfect sense.



Stagflationary Mark said...

Here's more I-Bond trivia. They recently lowered the amount of I-Bonds we can buy each year by 83%.

December 3, 2007
Extremely Bad News for I-Bonds!

The government has apparently decided that I-Bonds might help protect some of us from the ravages of inflation. Can't have that.

Note the date. It was the very month the recession offically began. Some might argue that at least someone in government knew that our problems were not temporary.

The Arthurian said...

Dollar bills. Because they're money. I like it.

Soon after my belated entry to the internet I came upon an interesting comment that said (as you say) dollar bills would be a good investment. That comment was immediately crushed by some inflation-expecter who misunderstood the thing he criticized.

If things get bad enough, the value of paper dollars can separate from the value of more ethereal dollars, just as the value of paper money in the free-banking era varied with the reputation of the issuer, and just as a gold dollar today is worth more than a paper dollar.

I forget the context, but some paper money (pre-hyperinflation German notes?) held its value because it was no longer being issued... Might have been Milton Friedman who wrote that.

Besides, investing in dollar bills is the patriotic thing to do.

// On the other hand, it could be called hoarding... not good for the economy at all!!