<You recall that comment on another board along the lines of "It's getting harder and harder to find a place to park money that provides a decent return above inflation." This for me is in the firmament of UFB bubble quotes. >
I've grappled with that one a lot, as you are well aware. It occurred to me just the other day that there are environments in which it is impossible to earn a return on investment.
Shudder. Yep, it's true. In fact, the environment that would cause such a problem would be a deflationary cycle characterized by overcapacity, asset deflation, and unsustainable debt levels. Sound familiar?
Consider for a moment that money is capital. Having a chunk of money in your portfolio could be likened to having hard capital, maybe a crane. Now consider if you are a crane owner in an overbuilt world. Vacancy rates for all types of buildings are at 25%; nobody needs any construction for the forseeable future. If you loan someone the crane to build something, you are certain they will not be able to produce a positive ROI to pay you for the crane, and all you suffer is depreciation on the crane if it is used.
Nope, the only answer is to simply hold the crane. In that world, there would be no way to make a return on the capital - the crane - that you hold. The only response is to wait until an opportunity arises.
Fortunately liquid capital is more flexible than hard capital, but the idea is the same. In a world built to overcapacity in almost every niche, thanks to years of deficit spending by the US consumer, there are very few places to deploy capital and expect a positive return.
So, be careful out there. It's a strange game. Sometimes the only way to win is not to play.
BC |
