mark cuban is a smart guy & also a billionaire so i tend to listen to his advice.
the part i don't get is why we should be putting our money in the bank. our government is printing money at a record pace and our money is being devalued by the minute. as much as i hate having my money in the stock market, at least it has some protection against inflation.
Sort of. There's a real tendency to look at these CPI prints and say that inflation is low, but that is only one aspect of inflation.
Aggregate price inflation has been low over the past several years. A big part of that is that energy prices are much lower than they were three years ago (remember $4+ gas?). That is only a very temporary phenomenon (long term supply is constrained, demand is exploding as Asia develops), and in any case energy is only one part of the economy.
But asset inflation is a real problem. That is why the price of gold has tripled in the last half dozen years. If you put money into either stocks or cash 5, 10, 15 years ago, you're way behind where you would be having put the money into a store of wealth that is portable and not subject to inflation.
Gold doesn't do anything, except in some specialized applications.
Suppose you had some completely arbitrary asset. Kneezles. Over the last few years, the price of kneezles have tripled. The kneezle-bugs come out of the woodwork and say, "Look, if you had invested in a store of wealth that is not subject to inflation, you'd be doing better. Your kneezle-denominated wealth has fallen greatly."
Well, what are kneezles anyway? They're lumps of metal that don't do anything. Hey, sounds familiar...
Gold is a store of value. Stores of value provide a useful function in society. Very few things actually qualify as stores of value, and gold is the most known of them so I used that, but you could replace the string 'gold' with 'store of value' in my argument without changing the substance of my argument.
So are dollar bills. In some situations like prisons, so are cigarettes.
Something is a store of value because you expect that other people will value it as highly in the future as they do now. (Or at least some predictable fraction less, accounting for inflation.) Whether it's gold or dollars, it's still based on investor psychology, and is still just as subject to whims of herd behavior. Ask people who bought gold in 1979 how well it stored its value.
"Store of value" is the technically correct term, I suppose, but it's a misleading term because it doesn't actually store any value. The term "store of value" actually refers to currency, except civilization outgrew using cumbersome lumps of shiny metal to conduct its transactions.
> Gold doesn't do anything, except in some specialized applications.
Neither do paper dollars - it's an abstraction that has been historically coveted and accepted as money, and that's why it's valuable. I'd take gold alternative to paper money if someone wanted to pay me in it and had proof of its purity.
I know you're being sarcastic, but I actually saw this coming and invested a fair amount in kneezles. Now I wish I'd just bought kneezle options, since I could have gotten much better leverage.
What the hell do you mean gold doesn't do anything?
Gold is used by several industries. Gold is found in every cellular phone!
The reason gold is used as a metric against currencies is because its scarcity is NOT illusory. USD's scarcity is dictated by the FED. Gold's scarcity is dictated by the earth's limited supply of gold, and the socioeconomics of gold mining.
The inflation/deflation debate is fascinating to follow, and in my eyes currently the most important topic to make a correct call on financially. I'd recommend searching for "Mish" to learn more about the arguments on the deflation side, and "Marc Faber" on the inflation side. Both offer compelling arguments and both are entertaining to read.. My best guess is QE will eventually catch up with the US but it could be a while coming.
that's partly because the fed plays all sorts of tricks to hide the real amount of inflation they are causing. regardless of whether that inflation is visible now, it's inevitably coming. it's the only option we have to deal with that 13.3 trillion debt that we can't afford to pay.
I heard somewhere that Deflation right now is a fact, inflation a belief. One would've lost a lot of money being short long-dated treasuries this year with that belief. If inflation is the answer to this (most likely the case), would you say that it could be hyperinflation versus the milder demand-driven inflation that America is used to?- Specifically, if the Fed devalues the dollar.
* our government is printing money at a record pace and our money is being devalued by the minute. as much as i hate having my money in the stock market, at least it has some protection against inflation.*
Trust me, we're nowhere near inflation risk. The US is still in the middle of deleveraging $trillions in bad housing debt. The deflationary pressures will stick with us for years, if not decades, depending on how much money the government continues to waste trying to prop up a falling housing market.
While I think cash is definitely safer than stocks, you could make pretty good money investing in US treasury bonds or other "safe" investments, if you're worried about getting a better return than 1% or whatever the banks are paying for CDs right now.
the part i don't get is why we should be putting our money in the bank. our government is printing money at a record pace and our money is being devalued by the minute. as much as i hate having my money in the stock market, at least it has some protection against inflation.