A.I.M. Users Bulletin Board

[ls7550]

Hi Adam

About cash. My SWVXX Schwab money market fund is now yielding 4.67% which is a marked difference from before. Before, cash was deadwood bringing performance down, but now it makes much more sense to follow the vWave and hold the recommendation in cash. I think AIM works much better in times of moderate interest rates like today, than when the interest rate is zero.

I quite liked 0% inflation, 0% interest rates as that meant cash could be hard cash, stuffed under the mattress rather than the counter-party risk of having to lend it to banks (deposits into banks and it becomes their money). In a period of when interest rates are higher, but lower than inflation - such as we've now moved into, so you have to invest/deposit cash and maybe incur taxes/costs, whilst it loses purchase power in real terms.

Cash stuffed into a mattress at the start of 2022, saw its stock purchase power having risen +25% by year end 2022.

The low interest rates since the 2008/9 financial crisis pretty much killed off Buffett's competitive advantage, more or less BRK has just matched SPY since then. In other times when interest rates are higher he has access to a pile of 'free cost money' in the way of insurance premiums paid in in lieu of claims later being paid out. During such times it was a good period to employ leverage, that cost near nothing. After a number of years of having had such free-money benefit, I for one will miss it (as and when I reduce out of half in 2x leveraged ETF's back into 1x as/when real yields transition to being more positive). Recent times have brought back past memories of the effort of having to 'rate-tart' around, shifting cash into 'better' rates elsewhere, that more often than not just offsets inflation after costs/taxes.

Clive