Friday, December 17, 2021

A synopsis of the investor's dilemma

 ---Pack your own parachute. This post is for entertainment purposes---

The conventional wisdom is that investors gravitate toward riskier, more carbonated investments when "the market" is going up. If you are going to risk your money, why would you invest in a company or a mutual fund that plodded along. You want something ZIPPY!!!

The conventional wisdom is that when the market turns, many investors will hang on waiting for the market to turn. Many investors will stoically watch a year's worth of gains disappear. Their rational is that it was "house money" anyway.

Investors are likely to "buy on the f______ dip" because the portion of the road they can see in the rear-view mirror validates that strategy.

The conventional wisdom is that when enough time, and enough loss has occurred, investors will become fearful (as opposed to greedy) and will start liquidating the most volatile components of their portfolio and move the funds into "safe havens". Historically, that would be bonds, companies that manufacture and ship and merchandize energy and food.

That liquidation would trigger the great unwinding of the market.

The sea-change from greed-to-fear is a down-draft that causes the market to fall until it reaches some equilibrium. This is called price-seeking.

It can happen that the surge in sellers is so overwhelming that there are no buyers at the end of the day. A stock, or a house or a barrel of oil "unbid" is essentially valued at zero.

The last unit of the trading session sets the market value of that stock (or company), the price of housing and the resulting tax-base and so on.

Companies that get hammered with regard to market cap find themselves unable to roll-over balloon loans or bonds that matured. The need to pay-off loans/bonds will decimate cash reserves and make it impossible to make payroll or pay accounts payable. Essentially, the company ceases to exist as a viable enterprise.


Recent precedent involves the Fed and the US Treasury backstopping the market so no stock or bond or commodity goes "unbid", no matter how dodgy the investment.

The mega-banks looked the other way in 2008 and 2009 as regional banks hide properties that people stopped making payments on. They know that if the banks had to report them as non-performing loans and if they put them on the market, the entire real-estate bubble would pop. Portfolios would be marked-to-market and banks' liabilities would exceed their assets. They would become the black-hole that implodes the economy. 

Consequently, the entire financial industry colluded and were willfully blind.

Massive amounts of money printing ensued. Impaired credit from "jingle mail" was ignored. The bubble reinflated. Heck, so many bubbles were inflated it was a bubble-bath.

That poses a puzzle for investors who look to history to guide their decisions. We do not want to be trampled by the stampede from risk-on investments to risk-off investments.

If The Powers That Be are fully committed to reinflating bubbles, no matter what, there will never be the shift to wealth preservation vehicles like bonds. Just the opposite. Bonds will become a death-trap for wealth as inflation roars.

Furthermore, there will never be true price-discovery. Nobody will have firm data to assess what a property in San Francisco is worth if you cannot evict the tenants and sell it for what the market will bear.

Casting our attention further afield, I cannot name a single currency or national economy that is not getting sucked into the inflationary vortex.

At least during the Weimar Republic and the early days of the Zimbabwe hyperinflation, citizens could convert their rapidly depreciating paper into Swiss Francs or US Dollars or Pounds Sterling. While you can argue that extreme inflation is NOT novel or unprecedented, the inability to pull poker chips off of the table or sit out a few hands is without precedent.

I would dearly love to hear any cogent arguments about any currency, any national economy that offers the slightest advantage with regards to retaining value over the next ten years.


  1. I do not believe that any currency or national economy will even come close to retaining value for ten years. The only good investments now are assets that you can hold in your hand.---ken

  2. Lead, silver and gold. Silver is more liquid than gold I think as far as using it for transactions. Weight to value, gold is better.
    Tools and equipment that last. Quality stuff not offshore crap.
    Supplies and materials for your daily life within your storage limits.

  3. Might as well do crypto.

    It makes as much sense as the stock market and it liquidates faster.

    When you take profits from ceypto, invest in silver brass and canning lids

    1. What I have read about crypto is that it is very hard to liquidate. You can trade it but it seems nobody wants to give you physical wealth for something with zero intrinsic value. Caveat Emptor

  4. There are a couple of countries I'd like to learn more about.
    Top of the list is Sweden, who has been doing interesting things the last decade moving away from a welfare state. They are also the only Western country truly open and "done" with CV.

  5. There are investment vehicles that basically allow you to bet against the US currency. Google "foreign currency etf". But those have risk that the entity with which you contract (or one of the downstream entities with which they contract) will fail.
    I like Ben Stein's investment advice, which I'll paraphrase - the best investment is spending time with your children - it's the only investment with a guaranteed positive return. (Substitute "loved ones" for children if you'd like).

  6. There is a reason the Bill Gates of the world are buying real estate such as farm land. As for currencies, the Scandinavian countries - especially Norway - are a good bet.

  7. Gold/silver, lead/brass... 401k money looks good in dividend stonks, been seeing commodity vehicles and miners start to see rotation. I like speculation in uranium and other things central banks can't print into existence. They ain't making "land" anymore, either.

  8. If the Bible is accurate, there has to be a problem so big that the entire world is looking for a way out. Inflation is a pretty good problem, especially if as you say, "Casting our attention further afield, I cannot name a single currency or national economy that is not getting sucked into the inflationary vortex." Has Globalization set the stage??

  9., silver and brass, Lead. These will ALWAYS have value. That value may fluctuate but will never be zero.


Readers who are willing to comment make this a better blog. Civil dialog is a valuable thing.