patrick.net

Cash is king during recessions and depressions.

... until it's not.

With the federal government running deficits of 8% of GDP and the Dirty Fed monetizing those deficits, it would be insane to hold most of your assets in cash.

Zimbabwe Ben has promised to destroy the dollar. What will stop him?

W.C. Varones says

Zimbabwe Ben has promised to destroy the dollar. What will stop him?

The bond market.

He also thinks of the federal government as an insurance agency to which he owes no premium, yet their purpose is to protect and grow his wealth at every turn

what's next, the levered RE speculators are going to come pat warren on his back about what good capitalists they all are. LMFAO

Zimbabwe Ben has promised to destroy the dollar. What will stop him?

The bond market.

In other words ... inflation. The USG cannot afford the 10y treasury to go to 5%, much less 8 or 10. Servicing costs on the debt would eat up all collected taxes. Helicopter Ben is running out of fuel. Prepare for autorotation.

What's autorotation? Helicopter slowing descent by just letting the blades spin?

Warren Buffet also sold some assets to buy up that railroad a few years ago. He said it used up most of his cash. He also has a large number of businesses which produce gobs of cash all the time. 41B in cash probably doesn't represent that much above the norm for him.

What's autorotation? Helicopter slowing descent by just letting the blades spin?

Yep. It's actually a gliding descent with the blades spinning. You trade altitude for accumulated energy in the rotor system in the glide then use that energy to halt your descent right before hitting the ground.

This article is one of the biggest piece of bull****s I read on this forum. The article confuses options as a financial instrument with optionality in a conventional sense. Options. as derivative instruments, on an asset go up or down (depends if it is a call option or put option) as underlying asset goes up. How does cash value as a call option increases if stock market or real estate goes up?

Cash is an asset of u.s. dollar. You hold it if you think dollar will strengthen relative to other assets. It does give you an option in a conventional sense to rebalance into other assets if those assets drop relative to dollar.

The author is ripping off Warren Buffet's reputation.

mye says

The author is ripping off Warren Buffet's reputation.

Indeed.

mye says

Cash is an asset of u.s. dollar. You hold it if you think dollar will strengthen relative to other assets. It does give you an option in a conventional sense to rebalance into other assets if those assets drop relative to dollar.

Cash is different from other assets because all other assets are priced in terms of it.

There is a distinct and measurable value to having cash on hand to be ready for any deal that might arise.

Imagine two buyers. One has cash on hand to buy a house when he can get a good deal, and the other buyer has to sell some asset to come up with the cash to buy a house.

The one with cash on hand is likely to get a better deal because he can act instantly while the other guy has to take time and pay transaction costs to come up with cash.

The value of the cash option is the value of being first, and of not having to pay that transaction cost.

What you described is the optionality in a conventional sense. However, if you want to categorize Cash as a real option in financial sense. It is more of a put option for all risky assets such as real estate or stock market. As you described, as one sells a house, he is long cash. When everyone is selling houses, Cash gets expensive just as the put option on real estate. Follow the rules of buy low and sell high, at that time it is nice to have cash to sell and buy houses.

But compare to safe assets, such as treasure bonds, Cash probably acts like a call option. Anyway, whichever way you look at it, the statement in the article is false and I doubt Warren Buffet said that to her. :)