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Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: Re: Portfolio Strategy in a Global Down Draft||Date: 9/15/2008 8:26 PM|
|Author: WatchingTheHerd||Number: 252145 of 514433|
Less money = less bids on assets. This will cause the price of all leveraged assets to fall.
What is the only asset that isn't leveraged?
Real money, not borrowed money.
That is why the majority of my holdings are in cash or cash equivalents (FDIC insured CDs), and in TIPS and I-Bonds.
I'm currently at 38% in near-cash equivalents so I'm with you but here's my concern. Looking at one's portfolio in one's home currency overlooks how that currency is doing and will do in the future against other currencies. True, keeping stuff in cash instead of bonds (which can take if interest rates spike) or in equities (which can tank if earnings tank) can preserve capital as measured in dollars. But what if foreign Treasury holders get spooked by our financial health and demand higher interest rates to keep buying T-Bills? If the Fed floods the banks with cheap money (essentially "printing money"), the value of the dollar can decline, eating into your nest egg.
I'm not knowledgeable enough about investing in foriegn currencies to make a big swing in that direction and I have as little faith in the soundness of financial reporting in foreign countries as I do with American countries so there aren't many easy, obvious, attractive alternatives.
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