After the Bailout of Wall Street, Everybody Wants Cash

Everybody’s getting in line.

After the bailout of Wall Street, everybody wants cash. The automakers are at the head of the line. Auto sales fell 6% worldwide in the 3rd quarter. GM says its North American sales were worse – off 18.9% from last year. If it doesn’t get some money from the government, it will go broke.

Yesterday, the governors said were going broke too. Unlike the feds, the states cannot print money on demand. They have to go to the U.S. government for a handout.

The banks, Wall Street, mortgage lenders, the states, the automakers…by controlling the cash, the feds can control everything. Until the cash gives out, of course.

Here, we think we see another ‘trade of the decade’ coming up. Dan Denning offers this insight:

“The 30-year Treasury bond yield plunged 27 basis points last week to 4.062 percent. It reached 3.8676 percent on Oct. 24, the lowest since regular issuance of the security began in 1977.

“This is the last big bubble. There’s going to be a stiff penalty for staying in Treasuries as the supply increases (the three-year note is coming back, monthly auctions for ten-year notes will resume). Plus, you know, all that new stimulus. All that new borrowing.

“Yields will be going up for sure…

“I think the big takeaway is that equities – certain ones mind you – make much better inflation hedges than bonds, especially U.S. government bonds. If you don’t want to own best-of-brand businesses now at these prices (including resource and energy companies) then would you ever want to own them? If you’re going to be in the equity markets at all, you could probably make a list of just five or ten companies to own for the next ten years, buy them now, then throw away the key.

“This is actually advice I gave to my family. I said, ‘Look, being in cash is safe now. But it’s going to be a liability. You have a little time before everyone comes out of their caves and begins buying again. The panic that swept the markets has abated. Obama is Messiah. It’s all good. This looks like the 1929-1930 50% rally. But more importantly, cash will get trashed in an inflation…and believe me…it’s coming. Big stimulus (Roubini says $400 billion plan). Democratic veto proof majority in Congress. Stocks will be better than bonds or cash (as Buffett said in the NY Times). But which stocks? You could buy as few as five – and you might not ever need to buy stocks again (you might never want to either). But if all you do is buy these five now – you probably won’t regret it in five or ten years. And if it IS the Great Depression…well then…you’ll have other things to worry about anyway…like a roof over your head…or your empty belly…or how to avoid that gassy smell coming from Uncle Rufus.'”

*** Dan is probably right. But here at Markets and Money we are not speculators. We buy food to eat and wine to drink. We buy gold as insurance. We buy property when we want to use it. We buy businesses when we understand them and believe they will make a profit. And we buy stocks only when they pay acceptable dividends. When the dividend yield reaches 6% – on strong, growing companies – call us.

Dan Denning
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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2 Comments on "After the Bailout of Wall Street, Everybody Wants Cash"

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I fed has bailed out the banks, but we don’t need all these banks in a contracted economy. Their is a bank on every corner. During the S&L banking crisis, something like 400,000 banks closes and the Fed is using that as an example of what they don’t want to do. But, I think we do need to allow 1/2 the banks to close.

The line of industries that is going to be asking for a bailout is going to continue to grow and the Fed is going to have to close the door and let the chips fall.

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