In a panel discussion from Davos, Ray Dalio said 2013 will be a transition year, when cash moves into “everything.” It’s quite incredible really; the markets are up triple digits, gas is at record levels, investors have been pouring money into junk…bonds, stock and bond markets in countries with questionable accounting standards have surged, and many real estate markets are rising at a twenty percent clip.
Yet, this massive pile of cash – an “asset” class that is losing value by the day – stands on the sidelines ready to be deployed.
Who knows how high prices could go once people begin trading in their cash for “stuff” in earnest?
Europe and China may provide temporary dips amid the meltup; still, the S&P experienced corrections of only about ten to twenty percent amid the Asian Flu in 1997 and when Russia defaulted in 1998.
Whenever I want to understand a cause and effect principle, I look at extreme scenarios, such as this chart of inflation and nominal stock prices. All of this liquidity will eventually find a home in “stuff.”
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