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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 468748  
Subject: Re: Portfolio Strategy in a Global Down Draft Date: 9/15/2008 11:53 AM
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An excellent anaylsis, as usual.

One important factor that you left out:
Many of the large institutional investors are leveraged. Some of them are heavily leveraged. The "shadow banking system" involves trillions of dollars of borrowed money.

As the price of assets (bonds, stocks, commodities) drop, leveraged players may get margin calls. They may be forced to sell good assets to cover bad. The shadow money evaporates.

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?

CASH.

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.

Wendy
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