Is there enough cash to support the markets?

I was struck by comments on King World News from Egon von Greyerz of Matterhorn Asset Management, regarding global asset allocation:

Right now the world’s assets are about $150 trillion. Of that number, $60 trillion is in cash, $40 trillion is in bonds, and $40 trillion is in stocks. But, remarkably, only $2 trillion or just a bit over 1% is in gold.

In chart form, this is what that looks like:

That looks like a lot of cash to me.

In our developed economies, it's said that only some 3% of total "money" is in the form of notes and coins, so as long as there's enough electrons to whizz round the wires the system can operate.

Where does the rest go?

In poorer countries, presumably more money is in tangible form; but worldwide there must be a lot lying fairly idle in bank accounts, daydreaming about whether it's a wave or a particle.

From that, two further questions occur to me:

1. Government deposit protection schemes have fairly low limits (from a rich person's perspective), and many banks are thought to be very shaky. Where do the rich park their cash? Is there a select group of supersafe banks, and if so, details please.

2. Some investors - such as John Burford - are waiting like trapdoor spiders for a major market decline, so they can rush out with the cash in their war chest and grab assets at bargain prices. But if there are hordes of people like him, but with zillions more to play with, then potentially there's so much support that we won't see a crash happen for long enough for ordinary investors to get in. Instead, there'll be a lot of fast trading and large sums will be won or lost on fleeting and marginal differences in a thin market. In other words, something like what is happening already.

There's another aspect that may have altered the character of the markets, which is the growth in wealth inequality.

When a small fraction of the populace owns most of the financial assets, it's running out of middle-class suckers to fleece. As the supply of victims dries up, there is little incentive to participate in the market; and if one has enough wealth, one doesn't need to surrender much of it to pay the bills.

So unless the wealthy are addicted to gambling, I'd expect them to let their portfolios quieten down; in fact, they're probably wondering why their investment managers are charging quite as much as they do, and whether they really have to keep turning over the money and incurring dealing charges and fees each time.

Besides, there's more fun ways to gamble. Oz billionaire Kerry Packer is said to have challenged a Texan millionaire double or quits on the latter's entire $60 million fortune, on the toss of a coin. Whether he'd have offered the challenge on the basis of risking all his own, I can't say.

INVESTMENT DISCLOSURE: Mostly in cash (and index-linked National Savings Certificates), but now planning to build up some reserves of physical gold via regular saving.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

Is there enough cash to support the markets?

I was struck by comments on King World News from Egon von Greyerz of Matterhorn Asset Management, regarding global asset allocation:

Right now the world’s assets are about $150 trillion. Of that number, $60 trillion is in cash, $40 trillion is in bonds, and $40 trillion is in stocks. But, remarkably, only $2 trillion or just a bit over 1% is in gold.

In chart form, this is what that looks like:

That looks like a lot of cash to me.

In our developed economies, it's said that only some 3% of total "money" is in the form of notes and coins, so as long as there's enough electrons to whizz round the wires the system can operate.

Where does the rest go?

In poorer countries, presumably more money is in tangible form; but worldwide there must be a lot lying fairly idle in bank accounts, daydreaming about whether it's a wave or a particle.

From that, two further questions occur to me:

1. Government deposit protection schemes have fairly low limits (from a rich person's perspective), and many banks are thought to be very shaky. Where do the rich park their cash? Is there a select group of supersafe banks, and if so, details please.

2. Some investors - such as John Burford - are waiting like trapdoor spiders for a major market decline, so they can rush out with the cash in their war chest and grab assets at bargain prices. But if there are hordes of people like him, but with zillions more to play with, then potentially there's so much support that we won't see a crash happen for long enough for ordinary investors to get in. Instead, there'll be a lot of fast trading and large sums will be won or lost on fleeting and marginal differences in a thin market. In other words, something like what is happening already.

There's another aspect that may have altered the character of the markets, which is the growth in wealth inequality.

When a small fraction of the populace owns most of the financial assets, it's running out of middle-class suckers to fleece. As the supply of victims dries up, there is little incentive to participate in the market; and if one has enough wealth, one doesn't need to surrender much of it to pay the bills.

So unless the wealthy are addicted to gambling, I'd expect them to let their portfolios quieten down; in fact, they're probably wondering why their investment managers are charging quite as much as they do, and whether they really have to keep turning over the money and incurring dealing charges and fees each time.

Besides, there's more fun ways to gamble. Oz billionaire Kerry Packer is said to have challenged a Texan millionaire double or quits on the latter's entire $60 million fortune, on the toss of a coin. Whether he'd have offered the challenge on the basis of risking all his own, I can't say.

INVESTMENT DISCLOSURE: Mostly in cash (and index-linked National Savings Certificates), but now planning to build up some reserves of physical gold via regular saving.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

Is there enough cash to support the markets?

I was struck by comments on King World News from Egon von Greyerz of Matterhorn Asset Management, regarding global asset allocation:

Right now the world’s assets are about $150 trillion. Of that number, $60 trillion is in cash, $40 trillion is in bonds, and $40 trillion is in stocks. But, remarkably, only $2 trillion or just a bit over 1% is in gold.

In chart form, this is what that looks like:

That looks like a lot of cash to me.

In our developed economies, it's said that only some 3% of total "money" is in the form of notes and coins, so as long as there's enough electrons to whizz round the wires the system can operate.

Where does the rest go?

In poorer countries, presumably more money is in tangible form; but worldwide there must be a lot lying fairly idle in bank accounts, daydreaming about whether it's a wave or a particle.

From that, two further questions occur to me:

1. Government deposit protection schemes have fairly low limits (from a rich person's perspective), and many banks are thought to be very shaky. Where do the rich park their cash? Is there a select group of supersafe banks, and if so, details please.

2. Some investors - such as John Burford - are waiting like trapdoor spiders for a major market decline, so they can rush out with the cash in their war chest and grab assets at bargain prices. But if there are hordes of people like him, but with zillions more to play with, then potentially there's so much support that we won't see a crash happen for long enough for ordinary investors to get in. Instead, there'll be a lot of fast trading and large sums will be won or lost on fleeting and marginal differences in a thin market. In other words, something like what is happening already.

There's another aspect that may have altered the character of the markets, which is the growth in wealth inequality.

When a small fraction of the populace owns most of the financial assets, it's running out of middle-class suckers to fleece. As the supply of victims dries up, there is little incentive to participate in the market; and if one has enough wealth, one doesn't need to surrender much of it to pay the bills.

So unless the wealthy are addicted to gambling, I'd expect them to let their portfolios quieten down; in fact, they're probably wondering why their investment managers are charging quite as much as they do, and whether they really have to keep turning over the money and incurring dealing charges and fees each time.

Besides, there's more fun ways to gamble. Oz billionaire Kerry Packer is said to have challenged a Texan millionaire double or quits on the latter's entire $60 million fortune, on the toss of a coin. Whether he'd have offered the challenge on the basis of risking all his own, I can't say.

INVESTMENT DISCLOSURE: Mostly in cash (and index-linked National Savings Certificates), but now planning to build up some reserves of physical gold via regular saving.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content.

Demographic imbalance, civil unrest, war and public disorder

A few scatterbrained musings on demography and social stability:

China's "one child" policy (which has exemptions for about two-thirds of their populace) has had the unforeseen consequence of a gender imbalance as unwanted female children are aborted. It seems that by 2020 we may expect 30 million single Chinese men of marriageable age. The link just given also cites statistics that suggest this imbalance is generally associated with more crime, aggressive expansionism etc (BBC News estimates 24 million). Niall Ferguson worried about the implications last year.

I wondered whether homosexuality (which has an ancient history in China) might take off some of the stress; it's been legal again there since 1997. But an official Chinese statistic from 2005 is that only 2.3% of the population are gay (some 30 million people, says a Wiki entry on their LGBT) - about the same proportion as in the UK, unless you believe Stonewall's attempts to inflate the figure.

A linked issue is age imbalance: it's been theorised that a "youth bulge" is a factor in civil unrest. The Chinese attempt to control the birthrate as more of their people survive and age, may have saved us from war triggered by the need for lebensraum. But other countries (especially in the Middle East and North Africa, where a Puritan Islamic revival is in progress) are experiencing this bulge and the young singles are strongly discouraged from seeking a sexual outlet for their energies.

Would it help if they got their end away more? Is it Eros v. Thanatos? But from what I read, young criminals in the UK don't seem to me to be sublimating their sex drives into their professional activities.

Having said that, women in wealthier countries show a tendency to delay having their first child (age 29 in the UK) and in countries ravaged by war (e.g. Angola) the picture is not clear but suggests that when some sort of stability returns women may "catch up" foregone childbirth but may then become reluctant to continue bearing more children (see page 13 of this study on Angola). In the latter case, we may see a sort of temporary "baby boom" which, combined with the loss of older individuals in war, could itself create another "youth bulge".

This entry includes a graph showing a correlation between GDP per capita and number of children born per woman; outliers are Angola (already mentioned), Saudi Arabia, Israel and the USA. I wonder whether these discrepancies are influenced not just by religion but economic inequality within those nations, particularly in Saudi and America? This paper suggests that poorer people invest less in education and more in having larger families, so maybe there should be better public education for all.

I'd like to see more for young people to do in the UK. The youths where I live amuse themselves by throwing stones at light fittings outside the am-dram theatre, and setting fire to plastic litter bins. Since I came here 30 years ago, most of the shops have installed steel shutters, a sure sign that an area is going to the bow-wows. Paid work would sort a lot of this, I think. And it may seem sexist, but I think work is especially important for men - women seem more capable of occupying themselves relatively productively and peacefully. Or have I got that wrong?

News from underground

Both found at Cartoon Brew.

Government is a pusher, not a killjoy

Before we start, a thought: how many of us change our opinions as a result of what we read on the Internet? Are you prepared to have an open mind for the few minutes it will take to read this?

1. We are conditioned to think that Prohibition in the USA was a government-imposed scheme that failed because of popular demand for alcohol, and thank goodness it ended because it meant no more dangerous concoctions and violent crime. Actually, it was a success (in terms of both health problems and crime statistics) and ended because the US government in 1933 was desperate for revenue. By the way, Prohibition was NOT a ban on making or consuming alcohol! If you want to follow up, here's a link to an economist (Don Boudreaux) who is generally of the free trade persuasion: Alcohol, Probition and the Revenuers

2. We also hear of the Gin Epidemic of the early to mid 18th century, but perhaps not so often why it happened. The government's motivation is made clear in the title of Queen Anne's 1703 Act "... for encouraging the Consumption of malted Corn, and for the better preventing the running of French and foreign Brandy." This Act (see p.389 here), and it seems a number of others, deregulated the sale of spirits:

Since the 1960s, the British government has progressively relaxed restrictions on access to alcohol, with predictable results. I cannot say to what extent MPs (and in what way) may have been persuaded by commercial lobbying. In 2003 a Labour government extended drinking hours.

3. Tobacco brings in a great deal of revenue (£12 billion a year). James I may have expressed his displeasure in 1604, and the health effects are now (though still disputed) generally better understood. The government makes various gestures, resented by smokers (and non-smokers: I now go inside the pub for fresh air), but it needs the money.

4. The same people-loving New Labour government that relaxed laws on drink, did the same for gambling, and now (e.g. Harriet Harman in the Mail today) is prepared to admit it was wrong. But last year, it earned £1.6 billion in government revenues.

5. A Parliamentary Home Affairs Committee has been hearing evidence bearing on drugs liberalisation this year, notably from comedian and uber-shagger Russell Brand, and there is some concern that the committee may be biased, or at least receiving biased and misleading information and terms of reference. Even if this effort (if it is an effort) fails, I expect it will be repeated: as the IRA told Margaret Thatcher, they only have to be lucky once.

I suspect that governments have learned how to serve their own wretched interests by couching the arguments for addictive products in terms that appeal to our illusions of liberty and personal self-control. Far from being killjoys, they are enablers battening on human weakness.

UPDATE:

Comments coming in on Orphans of Liberty offer me the chance to clarify and develop the argument:

Q: So, your argument is that nobody would choose to gamble/smoke/drink if the government didn’t push it on them and take their filthy revenue from the activities…?

Even though you say the reason for the ‘Gin Epidemic’ was “preventing the running of French and foreign Brandy.”

My answer:

No. But I refer you to what happened during Prohibition: it was permissible to brew and drink alcohol, but not to manufacture and distribute it on a commercial basis. So that cut out businesses and the government, who got together in 1933 to reverse not an Act, but a full-scale Constitutional Amendment.

Here’s the deal (but of course it will always be a fantasy): let the consumption of alcohol, tobacco and drugs be unregulated and untaxed, but also kept completely private and uncommercial. Grow your own, smoke your own, drink your own, share with friends in your own home or backyard – but not for money or money’s worth.

Libertarians (rightly, in my view) complain about the power and interference of government – but need to include commercial enterprises in their strictures. As I keep saying (but who listens in the world of the Internet?), Big MD/CEO is no better than Big Brother – especially when they combine, as in this case.

Fantastic news for the drug-addled libertarian!

Mexico has caved in. No more fighting against drugs.

The tidal wave moves up the shore. Soon, in the first self-inflicted global pandemic, we will all discover just how strong our will is; Damian Thompson knows already.

And now I must prepare to be verbally flayed by those who just know that they can handle it, and whose philosophy is atomised freedom: the solitary individual, totally disconnected from all others, making his choices in a moral and cultural vacuum and unaffected by his physiology or subconscious compulsions.

I think the fundamental issue of our age may turn out to be the Four Noble Truths.