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Why Cash Just Became My Favorite InvestmentBy
Monday, October 19, 2009
"We've never seen this aggressive paying down of debt before," said a banker in the Financial Times last week. "Once you slap households in the face... it sticks."
Each month, the Federal Reserve calculates and reports the total amount of consumer credit outstanding in America. This is the money Americans have borrowed to pay for cars, vacations, education, and refrigerator-freezers at Wal-Mart. When this number rises, it means credit is easy and Americans are in consumption mode. They're buying SUVs, houses, flat-screen TVs, granite countertops, and stainless-steel appliances. And they're borrowing money to make these purchases – often using credit cards – so they're not worried about finances. When this number falls, Americans are in thrift mode. They prefer saving money and paying off debt to shopping at the mall and going on vacation. Despite the improvement in the economy and the bounce in the stock market, the American desire to save money seems to be getting stronger... In the last year, American consumers have reduced their outstanding debt by more than $100 billion, according to the Federal Reserve's data. In July, Americans reduced their consumer debt by $21 billion... the sixth monthly decline in a row and the largest monthly drop in borrowing ever recorded. The report for August came out earlier this month. It showed American consumers paid back another $12 billion of their outstanding credit, the seventh monthly decline in a row. At this rate, Americans will have paid off 13% of their outstanding credit-card balances by this time next year. Not only are Americans paying off debt, but they're saving more money... Each month, the St. Louis Fed publishes America's savings rate. This is the percentage of disposable income Americans choose not to spend. In 2005, the personal savings rate fell to less than 1%. This year, it has averaged 4.1%. The last time it averaged more than 4% for the year was in 1998. Here's the thing: While demand for cash in America soars, investors have been dumping it from their portfolios as if it were venom... This year, cash has fallen... 60% in terms of Russian stocks 55% in terms of lead 53% in terms of coal 50% in terms of copper 40% in terms of Internet stocks 33% in terms of sugar 17% in terms of gold 16% in terms of the S&P 13% in terms of cotton The terrible sentiment and Americans' new attitude toward saving make cash the most contrarian investment opportunity in America right now. In tomorrow's essay, I'll show you one of my favorite ways to invest in cash... Good investing, Tom
Further Reading:
How to Earn 9% from a Cash War Chest Market Notes
NEW HIGHS OF NOTE LAST WEEK
Royal Dutch Shell (RDS/A)... Big Oil Anadarko Petroleum (APC)... Medium Oil Gulfport Energy (GPOR)... Small Oil ENI (E)... Italian Oil Total (TOT)... French Oil Petrobras (PBR)... Brazilian Oil PetroChina (PTR)... Chinese Oil Suncor Energy (ECA)... Canadian Oil StatOil Hydro (STO)... Norwegian Oil Gran Tierra Energy (GTE)... Columbian Oil National Oilwell Varco (NOV)... oil rigs Noble Energy (NE)... oil drilling Halliburton (HAL)... oil services Schlumberger (SLB)... oil services Occidental (OXY)... oil & gas S&P Oil & Gas ETF (XOP)... oil stock fund Enbridge Energy (EEQ)... oil pipelines Buckeye Partners LP (EPL)... pipelines Boardwalk Pipeline LP (BWP)... pipelines BHP Billiton (BHP)... diversified mining Goldcorp (GG)... undiversified mining Silver Wheaton (SLW)... silver royalties ABB Ltd (ABB)... infrastructure blue chip Harley Davidson (HOG)... motorcycles Keegan Resources (KGN)... gold Amazon (AMZN)... online retail Apple (AAPL)... iPods and iPhones Hewlett-Packard (HPQ)... computers Google (GOOG)... search engine eBay (EBAY)... online auctions Visa (V)... everywhere you want to be Gold, Crude oil NEW LOWS OF NOTE LAST WEEK Not many... it's a bull market! |
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