If holding cash, do you want a Great Depression?

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BogleInvestorLondon
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If holding cash, do you want a Great Depression?

Post by BogleInvestorLondon » Mon Oct 27, 2014 3:45 pm

I am not talking about politics here since it is not allowed (and not to mention boring), I am simply talking from an investing perspective.

Surely if you hold cash you want the market to crash, a great depression would be even better. Would this not allow you tro become very rich in years ahead. You could buy up assets/stocks very cheaply and if everyone did not have money and you did, this would allow you to become very rich.

So if holding cash and a great depression happened (and provided you could get hold of your cash) would you become super rich by buying the index, say the s&p, after it had completely collapsed?

anil686
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Re: If holding cash, do you want a Great Depression?

Post by anil686 » Mon Oct 27, 2014 3:57 pm

Hmmm... I guess so in a very not so good way for society. I mean, the great recession was bad and I can't fathom a depression (or the pain that would go with it). I routinely saw patients in northern Indiana in 2008 and 2009 that had no insurance, lost their jobs, had very little savings and ended up financially in very difficult positions. I felt for them - sure they could have done things differently but they didn't. In addition, our school district cancelled all the sports and made them club sports, our school days transiently went down to 4 days per week instead of 5 (4 10 hour days) and many small businesses went under. Our town (of 150,000 in the metro area) suffered a great deal with the loss of the RV industry, hummer plant, and car suppliers all having major issues or going out of business. That lead to severe pain in the community, especially with an unemployment rate that hit 23% and stayed over 18% for 18 months leading to something like 5 trips from the President to our community.


You are correct, for those with cash - going out was much cheaper. Many small town restaurants had a kids eat free every meal. Others had two for one specials for the better part of 2009. I remember Max and Erma's had a two could eat for $9.99 placard and kids eat free for a long time that year. I remember places like Disneyworld had the standard disney dining plan included all year for free (it normally is only free during non holiday/non summer times). Cruises had very low rates for 2009. So yes, you could buy assets cheap (i.e. equities) and you could get more by paying cash but the pain in the community is not something I would want to see. I hope those alive during the great depression would post on this to give us a more accurate insight - I would think it would be devastating - but that is JMO...

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Re: If holding cash, do you want a Great Depression?

Post by richard » Mon Oct 27, 2014 4:03 pm

Why stop at a great depression? Consider the benefits of a major war or large scale disaster. If you survive, think of how much cheaper everything would be.

MathWizard
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Re: If holding cash, do you want a Great Depression?

Post by MathWizard » Mon Oct 27, 2014 4:08 pm

No, not really. This is really a philosophy.

This is the theory that in order to richer than your neighbor , you want your neighbor to lose all his money.
Now you have more money, but live in a depressed neighborhood, and everyone hates you because you kicked
them when they were down.

What you really want is a vibrant economy where a "rising tide lifts all boats".

I think sitting on cash waiting for a crash is betting the wrong way. I'd stay fully invested (but not leveraged), and
bet on a productive economy. Do you suppose you'd have an internet, or smart phones, or any of the other nice inventions
having a vibrant economy engenders?

Even not being at the top, your life is better without a great depression.

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Re: If holding cash, do you want a Great Depression?

Post by Buddtholomew » Mon Oct 27, 2014 4:10 pm

There are more important things in life than money. I hold cash reserves for emergencies so that I can continue to live the lifestyle my family is accustomed to living.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.

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Re: If holding cash, do you want a Great Depression?

Post by LongerPrimer » Mon Oct 27, 2014 4:15 pm

Not really. You are making a supposition that relies on the past. There are no guarantees for the future. Retirees without human capital should not make a bet of a short recession and a bull market :annoyed ; Unless they "need to". :?

I am in substantial cash position in brokerage accounts, having made pretty good money for 2014. I will be be looking for opportunities for entry. It is money that I could lose a substantial portion and not calculated in retirement income. Indexes and imbedded MF in variable annuities, do what they do and to which I completely ignore. :| :annoyed

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Re: If holding cash, do you want a Great Depression?

Post by BogleInvestorLondon » Mon Oct 27, 2014 4:18 pm

richard wrote:Why stop at a great depression? Consider the benefits of a major war or large scale disaster. If you survive, think of how much cheaper everything would be.
I am sure you can work out why, if not then PM me. I will not reply to anything like that in this thread because otherwise this thread will become political which is not allowed and I wan to focus on investing.

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Re: If holding cash, do you want a Great Depression?

Post by avalpert » Mon Oct 27, 2014 4:26 pm

No you don't - the risks associated with having cash when every one around you is losing their jobs and wealth should be obvious enough.

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Re: If holding cash, do you want a Great Depression?

Post by Sheepdog » Mon Oct 27, 2014 4:28 pm

I certainly don't wish for a Great Depression, not tike the 30s. You shouldn't either....too much pain...too much death....too much poverty....too much suffering. Banks closed and people lost their cash savings. I was a child of that time. Terrible.
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Re: If holding cash, do you want a Great Depression?

Post by Calm Man » Mon Oct 27, 2014 4:42 pm

I hope you're kidding.

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Re: If holding cash, do you want a Great Depression?

Post by countofmc » Mon Oct 27, 2014 4:49 pm

Maybe? I guess the biggest threat would be a complete social breakdown so that even your cash becomes meaningless.

I think maybe another 2008-style financial crisis is what would be more in line with what you'd "want".

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Re: If holding cash, do you want a Great Depression?

Post by scone » Mon Oct 27, 2014 4:51 pm

No, not at all. Cash is all about liquidity, and liquidity is all about "optionality." That's often useful, in investing and other areas of finance. Let's say you want to buy real estate-- an "all cash" offer can be more appealing to a seller, and that might give you an edge in a hot market. Cash also lowers the volatility of a portfolio, and some people use it in the form of a CD as fixed income. (Heck, you used to be able to get a pretty good return on your CDs!) Cash is also pretty good in disinflation. It's great as an emergency cushion. You can wire it anywhere around the planet, and quickly settle any debt with it, without worrying about it losing half its value between morning and afternoon. I'm sure there are plenty of other examples.

So cash definitely has it's place, it's an essential financial tool, and "wishing" for a Great Depression has nothing to do with it.
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Re: If holding cash, do you want a Great Depression?

Post by tim1999 » Mon Oct 27, 2014 4:54 pm

Absolutely not, I would not want the majority of the country to suffer just so I could make a few more bucks. I can get selfish sometimes, but not that selfish.

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Re: If holding cash, do you want a Great Depression?

Post by Kenkat » Mon Oct 27, 2014 5:16 pm

Do you need to still work to make a living? Do you have a business and are relying on people to buy from you? If so, in a Great Depression, these things can all go away very quickly. The cash is not used to snap up bargain priced stocks; it is used to put food on the table and keep a roof over your head. One of my favorite quotes from the depression (paraphrasing a bit): "during the depression you could get a bowl of soup and bread for a dime - but who the hell had a dime?".

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Re: If holding cash, do you want a Great Depression?

Post by obgyn65 » Mon Oct 27, 2014 5:42 pm

I hold a large reserve of cash, but do not wish a depression. Too much pain for too many people.
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Re: If holding cash, do you want a Great Depression?

Post by richard » Mon Oct 27, 2014 5:48 pm

BogleInvestorLondon wrote:
richard wrote:Why stop at a great depression? Consider the benefits of a major war or large scale disaster. If you survive, think of how much cheaper everything would be.
I am sure you can work out why, if not then PM me. I will not reply to anything like that in this thread because otherwise this thread will become political which is not allowed and I wan to focus on investing.
It's not a political issue. It's a question of how much misery you want to inflict on others in order to gain an advantage for yourself. Another great depression would inflict a lot of misery, but there are alternatives that would do more, no doubt resulting in even cheaper prices, your stated goal.

Read the other responses in this thread if that's not clear.

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Re: If holding cash, do you want a Great Depression?

Post by Mingus » Mon Oct 27, 2014 5:50 pm

Like the person above said. You'd have to have enough cash to survive.. buy food, shelter, pay for utilities.. and have such a surplus of cash you could invest in an index that has lost 90% of its value.

And maybe go on a voluntary starvation diet while you are at it, with an occasional stew made from shoe leather, and some flank of dog steak every once in awhile so you blend in with the unwashed masses.

Hungry people who have lost everything have nothing to lose. And they will be aggressive to get what you have.

No one wants a great depression.

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Re: If holding cash, do you want a Great Depression?

Post by FinancialDave » Mon Oct 27, 2014 5:54 pm

I hold cash for a slightly different reason in my retirement "Income" account. It is not that a want a Recession or a Depression, but if some bad things would happen to the stocks or funds that are generating the income, I would use some of that cash to purchase other income generators, whatever I thought was appropriate, or I would just use the cash to supplement the income, for another 4 years until I am 66 and will start drawing SS.

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Re: If holding cash, do you want a Great Depression?

Post by SC Hoosier » Mon Oct 27, 2014 6:47 pm

I agree with what those above are saying about global suffering, but I have had the same thought as the OP. The following is what convinced me to scrap that thought: What if the depression doesn't come in your lifetime or working years? Say you set aside $100,000 just in case the Big One hits. Instead the market goes up an average of 10% over the next 30 years. How much money have you lost? Assuming your cash won't keep up with inflation, had you invested your $100k in TSM and averaged 10% you would have had $1,744,940. So you gave up roughly $1.6 mil so you'd have the chance to purchase mutual funds at a 90% discount. Guess what. If you have a 23 year plus investing horizon, you ARE buying TSM at a 90% discount! (again, based on average return of 10%)



So keep calm, set up your emergency fund and keep contributing to index funds.
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Re: If holding cash, do you want a Great Depression?

Post by asset_chaos » Mon Oct 27, 2014 6:54 pm

If you're projecting or hoping for a new Depression, wouldn't long term treasury bonds be the investment of choice, to take advantage of the monumental deflation?
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Re: If holding cash, do you want a Great Depression?

Post by Ged » Mon Oct 27, 2014 7:47 pm

The problem with this is when do you buy?

Lots of people lost it all trying to time the market. The book "The Great Depression" by Benjamin Roth describes it all.

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Re: If holding cash, do you want a Great Depression?

Post by Texas hold em71 » Mon Oct 27, 2014 8:09 pm

kenschmidt wrote:Do you need to still work to make a living? Do you have a business and are relying on people to buy from you? If so, in a Great Depression, these things can all go away very quickly. The cash is not used to snap up bargain priced stocks; it is used to put food on the table and keep a roof over your head. One of my favorite quotes from the depression (paraphrasing a bit): "during the depression you could get a bowl of soup and bread for a dime - but who the hell had a dime?".
This +100.

Why do originators of these threads always assume that they will continue to have employment income in these scenarios?

If you no longer need income, why do you assume you will not have family who will turn to you to avoid homelessness and starvation? Those were real concerns during that time. People lived in tents in parks! Will you let your siblings and children go homeless so you can buy stocks on sale?

When the market has dropped 50 percent or more, companies are going bankrupt and people around you are losing everything, will you have the guts to use your cash reserves to go "all-in" anyway?

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Re: If holding cash, do you want a Great Depression?

Post by nisiprius » Mon Oct 27, 2014 8:18 pm

It's an ill wind that blows no good, but the Great Depression didn't blow much good to anybody. I was really fascinated by Benjamin Roth's The Great Depression: A Diary. Several points are worth noting.

a) Through the Depression, Roth was terribly frustrated because he thought he saw all sorts of obvious bargains in stocks and real estate, and did not have the money to take advantage of them.

b) Some people who had cash lost it in bank failures.

c) Some people who had cash did not lose it, but could not access it because banks froze withdrawals.

d) Roth constantly complains that it is a terrible time for "professional men" because nobody can afford to hire their services.
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Re: If holding cash, do you want a Great Depression?

Post by spectec » Mon Oct 27, 2014 8:21 pm

I suppose if I had no relatives I cared about or friends for whom I had compassion, I could find a way to profit from a severe depression. But the fact that I have all the above, including children and grandchildren, is reason enough to dread such a turn of events.
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Re: If holding cash, do you want a Great Depression?

Post by ww340 » Mon Oct 27, 2014 8:42 pm

No! I would be too afraid to invest for one thing, and I would have too many relatives to support for another. We are both retired and keep a good portion of holdings in cash, but I hope for a very healthy economy.

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Re: If holding cash, do you want a Great Depression?

Post by cheese_breath » Mon Oct 27, 2014 8:58 pm

BogleInvestorLondon wrote: Surely if you hold cash you want the market to crash, a great depression would be even better.
Speaking for myself (and possibly others on this forum) I find this statement extremely offensive. To assume anyone would want a depression so (s)he could profit off other's misery is the lowest form of thinking. I'm currently holding a more cash that I'd like, but I don't want a depression. I'm already near the top of my equities band so I don't want to buy more stocks. Retired, at age 73 I don't want to put it into bonds because I doubt I'll have the time to wait for a recovery after interest rates begin rising. So it sits in an Ally bank account until something better comes along. Certainly if stocks decline significantly it will go into equities, but I'm not hoping for a crash so I can unload my cash.
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Re: If holding cash, do you want a Great Depression?

Post by Trader Joe » Mon Oct 27, 2014 9:19 pm

We are holding cash and our singular goal for that cash is to purchase undervalued assets. Stock market drops/corrections/crashes are just another buying opportunity. The deeper the drop/correction/crash, the better the buying opportunity.

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Re: If holding cash, do you want a Great Depression?

Post by JW-Retired » Mon Oct 27, 2014 9:19 pm

BogleInvestorLondon wrote:
Surely if you hold cash you want the market to crash, a great depression would be even better. Would this not allow you to become very rich in years ahead. You could buy up assets/stocks very cheaply and if everyone did not have money and you did, this would allow you to become very rich.
Well it seems like a plan, but in the actual great depression those with cash in the bank couldn't withdraw it. The banks had loaned it all out to people who were now broke (like everyone else) and couldn't pay on their loans, so banks simply couldn't redeem their depositor accounts on demand. They might give you 5% or 10% of your money. Gotcha! You could keep all your money as actual cash in your mattress.... but we can guess what might happen to that.

The depression found a way to spread the misery out to everyone.
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Re: If holding cash, do you want a Great Depression?

Post by Johno » Mon Oct 27, 2014 10:15 pm

Aside from all the 'social conscience' type stuff, anyone who isn't an investing genius and who has some common sense realizes they're unlikely to know when a market rout is going to reach Great Depression like proportions. The 2009 situation gave every indication it might, but didn't, and somebody holding their cash to buy on an 80-90% discount would still be holding it now. OTOH people who put a programmed amount of money into the market, as to perhaps rebalance to a fixed %, are going to put a lot of money in long before it reaches 80% down. In fact they might run out of money or stomach for it long before 80% down (and perhaps they should). So the basic premise that one could particularly target total stock market meltdowns as their entry point is false I think. And if one just has a cash reserve one plans to put to work in stages at 5-10-15-20% down or whatever, normal market oscillations, that's not particularly hoping for a Great Depression.

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Re: If holding cash, do you want a Great Depression?

Post by BogleInvestorLondon » Mon Oct 27, 2014 11:23 pm

kenschmidt wrote:Do you need to still work to make a living? Do you have a business and are relying on people to buy from you? If so, in a Great Depression, these things can all go away very quickly. The cash is not used to snap up bargain priced stocks; it is used to put food on the table and keep a roof over your head. One of my favorite quotes from the depression (paraphrasing a bit): "during the depression you could get a bowl of soup and bread for a dime - but who the hell had a dime?".

If you have a significant amount in cash and there was a Great Depression, you would not need to work since everything would dramatically fall in price. A deflationary collapse would be preferable and would make the cost of things cheap.

You would have to be undercover about your cash since people living in bad conditions would do anything.....but you could probably hire many many bodyguards too, or maybe go abroad.

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Re: If holding cash, do you want a Great Depression?

Post by Pizzasteve510 » Tue Oct 28, 2014 1:22 am

I would rather have general social prosperity, holding average wealth, then be 'king of the hill' in a time of poverty. Economies are not a zero sum game. We create maximum wealth by continuously improving our productivity and sustainably managing our assets to produce to their maximum value. Unplowed farmland is not productive, but neither is strip mining a long term growth plan.

In a nut shell, work hard, work together, protect our property by being good stewards, share wealth to stimulate general growth, help others and we help ourselves. Too many forget this due to 'wrong thinking influences.' The Boggle heads community is a shining example of how this works. We rise our tides together through mutual support.

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Re: If holding cash, do you want a Great Depression?

Post by Valuethinker » Tue Oct 28, 2014 3:38 am

anil686 wrote:Hmmm... I guess so in a very not so good way for society. I mean, the great recession was bad and I can't fathom a depression (or the pain that would go with it). I routinely saw patients in northern Indiana in 2008 and 2009 that had no insurance, lost their jobs, had very little savings and ended up financially in very difficult positions. I felt for them - sure they could have done things differently but they didn't. In addition, our school district cancelled all the sports and made them club sports, our school days transiently went down to 4 days per week instead of 5 (4 10 hour days) and many small businesses went under. Our town (of 150,000 in the metro area) suffered a great deal with the loss of the RV industry, hummer plant, and car suppliers all having major issues or going out of business. That lead to severe pain in the community, especially with an unemployment rate that hit 23% and stayed over 18% for 18 months leading to something like 5 trips from the President to our community.


You are correct, for those with cash - going out was much cheaper. Many small town restaurants had a kids eat free every meal. Others had two for one specials for the better part of 2009. I remember Max and Erma's had a two could eat for $9.99 placard and kids eat free for a long time that year. I remember places like Disneyworld had the standard disney dining plan included all year for free (it normally is only free during non holiday/non summer times). Cruises had very low rates for 2009. So yes, you could buy assets cheap (i.e. equities) and you could get more by paying cash but the pain in the community is not something I would want to see. I hope those alive during the great depression would post on this to give us a more accurate insight - I would think it would be devastating - but that is JMO...

thank you for that. Intellectually I know things are bad, I've been to some northern English towns where half of the high street is charity shops or shuttered up (and any London High Street, outside of the tourist areas, is showing the scars of recession). London just hasn't taken the hit the way the rest of the UK has: financial services went down, but tech & media kept going up, and a flood of offshore money into housing means houses are 30-40% more than they were in 2007 (against a national drop of say 10%, and in some areas, 50%). That's kept the home renovators busy at least.

But it's worth constantly being reminded of what this has meant for people and for communities everywhere. UK, US, Canada. God forbid Greece and Spain and Portugal and Ireland.

That sense of doom. People have 2 big assets: their house and their job. They lose the job as part of a recession and likely the house is worth less as well-- not even saleable.

By and large these people weren't people who hugely profited during the boom. Maybe they have an SUV, but SUVs were relatively cheap (it's gas that became expensive). Maybe they have a boat, but we are not talking yachts. They had a mortgage and a life. Medical insurance.

Suddenly they are struggling to find work at minimum wage. Hard work. Warehouses, cleaning, WalMart, fast food, site security. Long hours. No benefits. And struggling to find that. Pension? Long gone.

One again, my thanks.

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Re: If holding cash, do you want a Great Depression?

Post by carolinaman » Tue Oct 28, 2014 6:08 am

Why would you wish so much hardship and misery on so many people so you could make personal gain? That seems so selfish and inconsiderate of others. Do you want to accumulate wealth that bad?

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Re: If holding cash, do you want a Great Depression?

Post by Valuethinker » Tue Oct 28, 2014 7:11 am

johnep wrote:Why would you wish so much hardship and misery on so many people so you could make personal gain? That seems so selfish and inconsiderate of others. Do you want to accumulate wealth that bad?
OP assumes the institutions and democracy of the United States will remain intact, and eventually the stock market will recover.

OP is also assuming we won't then do a Germany. Austerity followed by far right political parties being elected, followed by a little Austrian corporal as Reichschancellor, followed by Kristalnacht, Poland etc...

There were some pretty scary people on both left and right in the 1930s. I would argue with the New Deal, FDR did enough to fight them off, but only just enough. Charles Lindbergh as president? Google Oswald Moseley if you want the scary British version of same (and Britain's leading military thinker, JFC Fuller, was associated with them).

If we look at the vote share of extremist parties all over Europe but especially in places like Greece, then the worst consequences of a depression start to become very clear.

The phenomenal post war stock performance of the US market was not guaranteed by any means. Oh no.

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Re: If holding cash, do you want a Great Depression?

Post by Grt2bOutdoors » Tue Oct 28, 2014 7:37 am

Those who held cash during the Weimar republic in Germany were in a Depression, and the cash didn't help them one bit. I remember a picture of a wheelbarrow full of Reichmarks, it took an entire wheelbarrow to purchase one loaf of bread. The root cause of that was vicious inflation, and it was not because the economy was booming either.

I hold cash because it is a tool for spending, included in that category of spending is to take advantage of certain opportunities that may arise from time to time - but to wish for a Depression? I think not! You should read up on the Depression and its effects, you too will not want nor wish for such a calamity to reappear. I heard enough stories from my grandparents to last several lifetimes, it was not a romantic era.
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Re: If holding cash, do you want a Great Depression?

Post by Grt2bOutdoors » Tue Oct 28, 2014 7:38 am

johnep wrote:Why would you wish so much hardship and misery on so many people so you could make personal gain? That seems so selfish and inconsiderate of others. Do you want to accumulate wealth that bad?
There are alot of greedy people out there, ALOT!
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Re: If holding cash, do you want a Great Depression?

Post by Grt2bOutdoors » Tue Oct 28, 2014 7:47 am

JW Nearly Retired wrote:
BogleInvestorLondon wrote:
Surely if you hold cash you want the market to crash, a great depression would be even better. Would this not allow you to become very rich in years ahead. You could buy up assets/stocks very cheaply and if everyone did not have money and you did, this would allow you to become very rich.
Well it seems like a plan, but in the actual great depression those with cash in the bank couldn't withdraw it. The banks had loaned it all out to people who were now broke (like everyone else) and couldn't pay on their loans, so banks simply couldn't redeem their depositor accounts on demand. They might give you 5% or 10% of your money. Gotcha! You could keep all your money as actual cash in your mattress.... but we can guess what might happen to that.

The depression found a way to spread the misery out to everyone.
JW
There was no FDIC insurance back then either, your bank might have been secure one week, the following month it was out of business. Most depositors eventually got most of their money back, but it was not overnight or even within months, it was in "years". So tell us OP, if you had your cash in a bank that went bust, there was no insurance, how would you put food on the table? If you stole and got caught, the automatic sentence was 1 year in federal prison, when you got out, you had a hard time finding a job on account of you being a convicted felon (that jail record goes everywhere with you - even today!). I recommend you pick up a copy of The Great Depression, A Diary - by Benjamin Roth; either you'll be engrossed in it or you will have to put the book down after about 15 pages, because it is that Depressing! to read. I really find it hard to fathom, those who wish ill on others - but alas, the world is full of these piranhas. It's much better to play the lottery, that way one's cash can buy really cheap assets - the pot, but you won't be hurting anyone but yourself if you lose. The powerball is over $100 million tomorrow. Good Luck!
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Re: If holding cash, do you want a Great Depression?

Post by VictoriaF » Tue Oct 28, 2014 8:09 am

BogleInvestorLondon wrote:If holding cash, do you want a Great Depression?
  • - If storing meat in your freezer, do you want a famine?
    - If getting immunizations, do you want an epidemic?
    - If buying books, do you want illiteracy?
All these activities are conducted for a wide variety of reasons, the macabre ones being used by a tiny minority of people, if at all.

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Re: If holding cash, do you want a Great Depression?

Post by Valuethinker » Tue Oct 28, 2014 8:18 am

The plays of Arthur Miller are often about the Great Depression.

His father ran a business in the rag trade. When the Bank of the United States went bust, Wall Street would not bail it out. The Bank was a heavy banker to Jewish-owned firms in the textile business. You would be right to think there was more than a tinge of antisemitism in this (Milton Friedman covers it, I believe). This started a huge bank run: I believe something like 3 banks a day were closing in the USA before March 1932 and Congress announcing a bank holiday.

Arthur Miller's father never recovered from the loss of his family business. THAT is the play 'The Price'- -the sale of the belongings of a man who lost his business in the Depression, and his sons now have to liquidate what is left, the man just sat in his apartment for 20 years, waiting to die. And of course Willy Loman in 'Death of a Salesman'. And in his later play (one would say the play which glimpsed his early mastery)' Broken Glass' the main character is a banker who, as a Jew, has compromised himself to work in a WASP bank-- it serves him no good, in the end.

Films like 'It's a Wonderful Life' (Jimmy Stewart and a bank run), 'Treasure of Sierra Madre' and songs like 'Brother can you spare a dime?' are also all about this terrible time.

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Re: If holding cash, do you want a Great Depression?

Post by SpecialK22 » Tue Oct 28, 2014 8:29 am

BogleInvestorLondon wrote:
If you have a significant amount in cash and there was a Great Depression, you would not need to work since everything would dramatically fall in price. A deflationary collapse would be preferable and would make the cost of things cheap.

You would have to be undercover about your cash since people living in bad conditions would do anything.....but you could probably hire many many bodyguards too, or maybe go abroad.
Whatever conditions led to a second Great Depression could continue until it reached outright economic and social collapse. In which case cash and stocks would likely be completely or near worthless, and the more prudent thing would have been to buy as many staples as possible before they began drastically rising in price.

Going abroad in turbulent times is not likely to be as easy as you think. A good number of Jews who left Germany were turned back at ports of entry in many countries, including the United States. Most of them probably ended up in concentration camps soon after. I believe anti-Semitism was at an all time high in the United States during the '30s as well. In general it's likely xenophobia will be more prevalent.

Simply stated, much more comes with a Great Depression than just depressed stock prices. Both for rational and irrational reasons there is a reason the price of equities would be so low.

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Re: If holding cash, do you want a Great Depression?

Post by Chan_va » Tue Oct 28, 2014 8:44 am

Apart from the ethical issues, you are making a couple of assumptions which are questionable

1. The markets are endlessly elastic and will always mean revert in your investing lifetime - This has held true for the US markets over the past century, but examples abound in global markets where the markets have stayed depressed for long periods, or have collapsed altogether. How do you know the next Depression won't be one of those?

2. You will know when assets are cheap and time the purchase near the bottom - what rule are you going to use to determine when to get into the market? 50% drop? 80% drop? What if it continues to drop after that?

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Re: If holding cash, do you want a Great Depression?

Post by Dandy » Tue Oct 28, 2014 8:53 am

Great depressions have unintended or unimagined consequences not only for life, politics, employment, health etc. but even for investing. In theory cash, Treasuries and gold might be good to have - unless other factors come to bear. In the recent crash wasn't there one country, Crete? that instituted a large tax on savings? Didn't we theoretically come close to defaulting on U.S. debt? You never know.

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Re: If holding cash, do you want a Great Depression?

Post by beyou » Tue Oct 28, 2014 9:09 am

If this is really an investing question, hold 50% Tsy, 50% TIPS to hedge against deflation (if you are correct) and inflation (if you are incorrect and economy improves).
True cash loses money with inflation, does not appreciate like a Tsy would in deflation.

I think we got enough of a taste of this in 2008-09 to know that even having cash to spend, and discounts to be had,
did not "feel good" to spend it at the time. I spent on what I must as always, and stuck to my asset allocation thankfully.
The prospects for a depression in 2008 were on our minds, and I did my best to avoid prediction of such (nor predict a recovery).

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Re: If holding cash, do you want a Great Depression?

Post by HomerJ » Tue Oct 28, 2014 10:16 am

blevine wrote:I think we got enough of a taste of this in 2008-09 to know that even having cash to spend, and discounts to be had, did not "feel good" to spend it at the time.
This.

I had cash ($300k in bonds) that I did NOT invest In the market during 2008-2009, because I was fearful the Great Depression II was possible (150 year old financial institutions were failing).

If Great Depression II had happened, it might have taken 10+ years to recover (like the first Great Depression), and I might have lost my job, and I doubt seriously I would have gone 100% stocks... I would be hoarding the cash to make sure I could buy food for my hungry children.

2008-2009 worked out REALLY well for those of us who kept our jobs, and who had money to invest. It doesn't mean the next 50%-90% crash will have such a quick turnaround with such wonderful results.

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Re: If holding cash, do you want a Great Depression?

Post by richard » Tue Oct 28, 2014 10:30 am

Grt2bOutdoors wrote:Those who held cash during the Weimar republic in Germany were in a Depression, and the cash didn't help them one bit. I remember a picture of a wheelbarrow full of Reichmarks, it took an entire wheelbarrow to purchase one loaf of bread. The root cause of that was vicious inflation, and it was not because the economy was booming either.
The history of the Weimar Republic is interesting. There was hyperinflation from about 1919-1923, perhaps to deal with foreign debt and other government obligations. This led to 1924-1929, the golden era of the republic. This seemed unpopular with those in charge, who instituted deflation. This in turn led to the rise of the Nazi party in 1933. Wikipedia has a good article http://en.wikipedia.org/wiki/Weimar_Republic

For some reason everyone remembers the hyperinflation and it seems almost no one remembers the deflation.

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Re: If holding cash, do you want a Great Depression?

Post by Steadfast » Tue Oct 28, 2014 3:17 pm

Wow, way to pile on.

I don't think the OP is some evil maniac who wants others to suffer. He is asking a very straightforward question that is relevant to investment strategy. The question might be worded better as: "in a severely declining or persistently low stock market market, shouldn't there be great investment opportunities that those with cash could potentially take advantage of?"

The answer is clearly yes. Those of us who observed and took advantage of opportunities in '08-09 are not evil. Value strategies, distressed capital - not evil. All legitimate investment strategies.
We don't see things as they are, we see things as we are.

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HomerJ
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Re: If holding cash, do you want a Great Depression?

Post by HomerJ » Tue Oct 28, 2014 3:25 pm

Steadfast wrote:Wow, way to pile on.

I don't think the OP is some evil maniac who wants others to suffer. He is asking a very straightforward question that is relevant to investment strategy. The question might be worded better as: "in a severely declining or persistently low stock market market, shouldn't there be great investment opportunities that those with cash could potentially take advantage of?"

The answer is clearly yes. Those of us who observed and took advantage of opportunities in '08-09 are not evil. Value strategies, distressed capital - not evil. All legitimate investment strategies.
The answer is clearly maybe. The next crash may not look like 2008-2009. What if it does indeed look like the Great Depression, and you lose your job, and you jump into the market after a 50% drop, only to see it drop 50% again, and then have to wait multiple years for the turn-around while you're forced to sell the lower shares to feed your family? Will that end up being a great deal for you?

Or would you rather keep your job, saving 20%-30% while the market grows slowly?
Last edited by HomerJ on Tue Oct 28, 2014 3:25 pm, edited 1 time in total.

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Re: If holding cash, do you want a Great Depression?

Post by GregR » Tue Oct 28, 2014 3:25 pm

If you are holding cash it doesn't mean you WANT a crash (like the great depression and many others since then) it means you expect stocks to go down. I suppose we all feel vindicated when our expectations come true to some extent, but I don't think it means you want it.

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Re: If holding cash, do you want a Great Depression?

Post by duffer » Tue Oct 28, 2014 9:08 pm

In the form you asked the question, the answer I would give is another question: would you rather have a lot of cash and live in Somalia or have a lot of investments and live on the water on the North Shore of Long Island, 30 minutes from New York City?

A depression means net wealth has crashed in the place you live, and it becomes a much less attractive place to live. Investments in expanding businesses means that net wealth is increasing, medical care, entertainment, the arts, education, life expectancy, health, tolerance, happiness, family life, respect for law, good behavior, sanitation, physical beauty, enjoyable sex, public manners, and optimism are all increasing AND you are making a lot of money on your investments and getting much wealthier.

Go to Google scholar, find an article by the Harvard economist Benjamin M. Friedman entitled "The Moral Consequences of Growth" (based on his book) and then figure out what you want to hope for.

You might also take a look at Adam Smith and "The Wealth of Nations" (though the whole thing is an impossibly long and tedious read--find a good summary).

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Re: If holding cash, do you want a Great Depression?

Post by AJS » Wed Oct 29, 2014 12:03 pm

No, I might be able to buy cheap stocks but I may be dead by the time they rebound making me rich.
The sea was angry that day my friends...

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