I think we’re now approaching the final act of the four-year-old Global Financial Crisis.
How it will play out is anyone’s guess. But one thing’s for sure: there’s still a lot of uncertainty in this market.
And not only in shares.
The Aussie dollar is trading near all-time highs against the US dollar and the euro.
The banks are overweight on mortgage debt.
Have you stopped to ask how safe your cash is?
If you perceive a risk in the stock market, do you really think it’s any safer to put your cash in term deposits or cash management accounts in Australian banks?
In this day and age, taxpayers more or less underwrite bank depositors. So while possible, it’s unlikely you would lose the cash you have in the bank.
The first point to note is banks don’t actually have your money. They take it in and then lend it to someone else. This makes banks inherently fragile and unstable. Because the bank would go bust if everyone withdrew their money at the same time (a bank run).
But ‘going bust’ usually means just the equity holders (the share investors) lose their money. Depositors rank ahead of equity investors and other lenders. So you’re at the top of the pecking order in terms of having a claim on your funds.
And even if everything was lost, taxpayers (or more accurately, your kids) will cover the loss for you.
You see, if there was a massive blow up of the banking system, your cash will be safe, thanks to the government’s $250,000 deposit ‘guarantee’. And the government would have to fork out a lot of money.
It would be interesting to see if it honoured its commitment. We guess the politicians would find a way to wriggle out of it… Or they’d just print money out of thin air to pay it… Which would DEVALUE the money you were taking out in the first place!
But interest rates are reasonably attractive in Australia. So we don’t think there is great risk in remaining in cash for the time being, both from a loss perspective and as an opportunity cost.
In fact, having access to ready cash is one of the soundest investment strategies you can follow right now to put yourself in a position to profit.
Because you’ll be able to easily invest in sound businesses when they hit rock-bottom prices. Unlike a lot of investors whose cash is tied up in the share market.
That’s one small error a lot of investors make. Locking their cash into the market, which means they won’t have it free to invest in attractive investments at the exact moment they present themselves.
Although that’s nothing compared to the three big mistakes a lot of Aussie investors are making today. I’ve recently written a free report on it. Click here to read my free report now to discover what these three bloopers are. And how you can avoid them.
Greg Canavan
Editor, Sound Money. Sound Investments.
Publisher’s Note: Greg Canavan will be appearing at After America: the Port Phillip Publishing Investment Symposium, March 14th-16th at Sydney’s Intercontinental Hotel.
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DM – Your new Mars bar currency can be created until we run out of Cocoa beans – which won’t happen, and yet each mars bar has a value as long as we keep the excess supply under lock and key – just as we do with gold.
If all the hoarded gold was released tomorrow, gold would be just above the value of copper, and only scrap metal dealers and jewellers would be interested.
Peter – “If all the hoarded gold was released tomorrow, gold would be just above the value of copper”
Interesting view.
Same with oil in the ground – if released / readily accessible it would be cheap.
Same with… dare I say housing. If “under water” US houses were all released into the market, prices would drop considerably.
I guess you’re talking supply & demand.
PF…Things really seem to be different in Australia.
M&M – not so with oil – we have passed peak supply and given that demand is increasing at about 7% pa – that means we will exhaust supply at this rate within the decade.
Of course that won’t happen as the price will skyrocket, and we will change our ways and think of alternatives such as gas.
We don’t consume gold in the same way. An ounce of gold mined in California in 1852 that has been stored by the US Central Bank since then has not deteriorated, or been used up in any way – it just sits there until some one some day turns it into a necklace, and then it will continue to be a necklace ad infinitum.
US houses are being released onto the market en masse and prices have tumbled as a result, but that will alter by the end of 2012 or early 2013.
Drood which countries are in trouble?
Answer – all the ones that can’t print – Ireland, Greece, Italy, Portugal, Spain – none can print can they…
The UK is in a much worse position thn any of those, but it can print.
Japan is in a much worse postion than those countries, but it can print.
The USA is in a worse position, but it can print.
Australia is in a strong economic position – and it can print.
The answer to your question is “yes” we are different. It’s not exceptionalism, just a fact.
PF…..LOL. All those countries were once in the same position as Australia. I wonder if Australia will be so different next year.
Using your argument all metals are the same as gold.
Copper sits in the ground until someone turns it into a wire then it stays that way ad infnitum.
People are not buying houses in the US and thats why the price is falling.
Of course you are talking supply and demand it is the only thing that drives the price of anything.
Drood – none of those countries are in the middle of a resource boom – that is the difference, plus some over indulged in social programs that were funded entirely by more debt, not from revenue.
For a comparison, look to Canada, Brazil, and South Africa.
But when the resource boom stops, we will have a genuine recession. That’s the difference, and it’s hardly illogical is it?
I guess if we are looking for liquid assets then the mars bar currency would fit the bill. At least in Qld anyway. In this heat they become liquid very quickly.
Darn it PF when are you going to stop making so much sense?
After 6 months away on holiday i have discovered in no uncertain terms reading the comments here are of far more value than the articles.
I have skimmed through a couple of articles and the feeling im getting this time round is that there are a bunch of bafoon authors that want the aud to fall so their metals are ‘worth’ more in local currency. I own metals but feel i have a more realistic expectation. For so called professionals providing advice and nostradamus type predictions on the local economy it would appear that many have been watching too many youtube videos based on usa doom and gloom type reports.
Maybe they are angry the interest rate hasn’t gone to zero as the rba would be out of bullets to pump air into housing?
‘ it’s different here’ is a term often used on these pages as if to mock someone with a semi positive outlook on our economy… well something clearly IS different here, isnt it? If they thought about what it might be, they might get things right more often
let me tell you as a paying subscriber i am more than a little peeved that all those COUNTLESS HOURS spent preparing ‘house price crash’ reports was NOT spent on productive research that may have made us more money.
The fact that the crash reports have clearly been wrong makes the time wasted all the more ironic.
thats it.. no more vodka for me tonight..
end rant
Too many people talking to themselves here.
mel………….Couldn`t have put it better myself.
Treat yourself to a mars bar.
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