Global Playboys.net

We have again reached a point where a substantial number (29 American and 185 International) of company’s market capitalisation is below their cash funds. This number is higher than in the last stock market sell off in 2002. One year after 2002 this kind of stocks rose an average of 66%, compared to S&P 500’s 29% rise. [source]

I think the markets are lead by the irrational fear of investors who are focused on short term news. Just take E*Trade Financial as an example. AFAIK the company is an online platform for trading all kinds of securities. At the moment it holds 2.82bn USD in cash. Market capitalisation is 1.38bn. Should the company be liquidated? Should we just throw their customer base and all the processes they set up to trade securities out of the window? I don’t think so. Maybe some people will not be so eager to invest in stocks a month or two from now, but definitely in 6 months or a year.

Anyone who backed off from the stock market to go into cash or gold will loose, while waiting for the right time to go in again. Governments all around the world keep pumping money into the market. This will let currencies slump and increase inflation. Last week Warren Buffet wrote in the NYT:

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Here is another video by Stefan Molynuex.

I spent the afternoon watching videos by Stefan Molyneux. A former software entrepreneur from Canada. He has a massive number of videos on economics, anarchy and liberty.

One of my favorites is his comparison of an irrational belief in a government and an irrational belief in a superstitious higher being. Here is an extract from one of his videos: A definition of anarchy.

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The Pirate Bay is one of the driving forces in the decentralization of media distribution. This Tuesday 18 million peers were connected. That’s around 5.5 million more than Skype has on an average day. Pretty impressive. Torrentfreak writes:

Yesterday, the tracker broke a new record, with close to 18 million active users on “TV-torrent Tuesday“, and at the current rate, they will be tracking 20 million peers a few weeks from now.

This has been on my mind for a long time. The current financial crisis makes it even more urgent. Once again we have seen that big government is not – and probably will never be mature enough to handle the money supply and therewith our most important medium of exchange.

This ability to tinker with our money at will (think Iraq war or bail outs for banks) gives government the power to spend money it doesn’t hae and never earned through taxes. Its people pay for it by less favorable exchange rates, less purchasing power, a lower standard of living and higher inflation. Since most of our fellow citizens don’t have the necessary education to see the connections, government can channel their anger to more obvious “outside” enemies. Some popular examples include foreign governments (usually emerging market countries), greedy managers, immoral capitalists and investors, minority groups, immigrants, you name it.

A de facto gold-standard would force governments to raise the money for their useless wars, useless subsidies to dying industries and useless civil servants by taxing people in more obvious ways. That way the public may realize how much money “their” country actually burns. In 1966 Ludwig Von Mises wrote in his book “Human Action: A Treatise on Economics“:

The gold standard makes the determination of money’s purchasing power independent of the changing ambitions and doctrines of political parties and pressure groups. This is not a defect of the gold standard; it is its main excellence.

You can find the full excerpt in a recent article of the Capitalism Magazine. If you’re interested in how a gold standard might work I can also recommend another excellent episode of Econtalk.

Credit for the pretty picture goes to Swamibu from flickr.com.