Credit goes to Swamibu from flickr.com

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.