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That's also true of fiat currencies though, yet Berkshire Hathaway is holding seething like $130b of cash equivalents. Granted, fiat has some major advantages:

That's also true of fiat currencies though, yet Berkshire Hathaway is holding seething like $130b of cash equivalents. Granted, fiat has some major advantages: momentum, required for taxes, no capital gains tax, etc. But neither is a productive asset.

narrator 8y ago
Even if you live out in the middle of nowhere, you have to pay property taxes. If you barter, you have to pay taxes on that stuff too, so you need to make the fiat bucks somehow. That's why fiat being required for taxes is the big one that makes it the defacto standard. After all, you have to have it, or its electronic equivalent or people with guns will come and get you, imprison you and take all your stuff away. Not that paying taxes is bad. It helps keep inflation down vs the government just borrowing all the fiat it needs from the fed. However, if you try and run your whole life in gold or bitcoin or whatever you just can't do it legally.
- arcticbull 8y ago
  Beyond that the government only accepts fiat for tax payments, tax payments are denominated in it. It’s a small distinction but an important one, as swings in the value of the bartering asset you’ve been trading with as we see today can put you massively behind on your tax payments.
arcticbull 8y ago
In my opinion it’s likely that they are holding the $130B of cash equivalents because they’re expecting a downturn in the economy and want to buy up assets on the cheap. It’s not that they are investing in the cash, they sold some assets at what they perceive to be at the top of the market and are holding for the next downturn so they can get back in on some discounted equities. This is large-scale buy low sell high. It’s not a productive asset but a short term store of buying power.
- dlubarov 8y ago
  I think it can be rational for an investor to forgo productive assets, even if they have no opinions about market timing. They might look at a company, estimate its lifespan, estimate its total inflation-adjusted earnings over that period, and find that it's less than the current market cap. In that case it's just not a good investment opportunity, irrespective of market timing. Historically there has always been a shortage of capital, and plenty of productive enterprises competing for that capital, so investors have received a discount on expected future earnings. But I think the case can be made that in the current economy, there is no such discount. That appears to be Buffet's stance, judging from his public comments. He says that he doesn't practice market timing, but simply can't find many worthwhile investments.

narrator 8y ago

Even if you live out in the middle of nowhere, you have to pay property taxes. If you barter, you have to pay taxes on that stuff too, so you need to make the fiat bucks somehow. That's why fiat being required for taxes is the big one that makes it the defacto standard. After all, you have to have it, or its electronic equivalent or people with guns will come and get you, imprison you and take all your stuff away. Not that paying taxes is bad. It helps keep inflation down vs the government just borrowing all the fiat it needs from the fed. However, if you try and run your whole life in gold or bitcoin or whatever you just can't do it legally.

arcticbull 8y ago
Beyond that the government only accepts fiat for tax payments, tax payments are denominated in it. It’s a small distinction but an important one, as swings in the value of the bartering asset you’ve been trading with as we see today can put you massively behind on your tax payments.

arcticbull 8y ago

In my opinion it’s likely that they are holding the $130B of cash equivalents because they’re expecting a downturn in the economy and want to buy up assets on the cheap. It’s not that they are investing in the cash, they sold some assets at what they perceive to be at the top of the market and are holding for the next downturn so they can get back in on some discounted equities. This is large-scale buy low sell high. It’s not a productive asset but a short term store of buying power.

dlubarov 8y ago
I think it can be rational for an investor to forgo productive assets, even if they have no opinions about market timing. They might look at a company, estimate its lifespan, estimate its total inflation-adjusted earnings over that period, and find that it's less than the current market cap. In that case it's just not a good investment opportunity, irrespective of market timing. Historically there has always been a shortage of capital, and plenty of productive enterprises competing for that capital, so investors have received a discount on expected future earnings. But I think the case can be made that in the current economy, there is no such discount. That appears to be Buffet's stance, judging from his public comments. He says that he doesn't practice market timing, but simply can't find many worthwhile investments.