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Wall Street Journal writers do not understand risk

Posted by John T. Reed on

WSJ today said demand for stocks and commodities being up proves Americans have faith in the economy because they are buying "riskier" assets.
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Written by Amrith Ramkumar and Hardika Singh.
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Folks, there is no such thing as generic risk. All risk requires an adjective describing WHICH risk you are talking about, e.g., political risk, market risk, fidelity risk, counterparty risk, credit risk, exchange risk, currency risk, inflation risk, etc.
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There is no such thing as riskier investments.
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I know what these probably Ivy League idiots mean. They think bonds are non-risky and stocks and commodities are risky. Very 1933.
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They are risky in deflation like the Great Depression. But in inflation, bonds are the risky asset.
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The authors say investors are confident of an expanding economy and rising corporate profits.
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Or inflation.
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They mention that bonds may now be earning negative real interest rates, then move on without recognizing the meaning of that for commodities investors.
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They say the CBOE Volatility Index which is called the "fear index" is at a low level. It is not the INFLATION fear index.
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There ARE two risk-free investments: nickels and pennies. They are an even purer commodity "play" than the commodities market—which is options.
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With nickels and pennies you "take delivery" of the actual metal.
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Can they be hurt by inflation? No. They are made of copper and nickel or copper and zinc, which are commodities whose values will rise with inflation.
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Can they be hurt by deflation? HELL no! Their purchasing power goes UP in deflation even as the melt value of their metal goes down. Why? They are fiat money because the words "five cents" and "one cent" are engraved on them. Fiat money is GREAT in deflation.
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Are there ANY risks to nickels and pennies? Burglary. Robbery. I cannot think of any other risks.

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