Words of wisdom

From Felix Salmon:

…if you decided to short only countries whose foreign exchange reserves reached some large proportion of gross world product, you’d be batting 2 for 2 right now as you started shorting China. First you would have shorted the USA in the 1920s, and then you would have shorted Japan in the 1980s.

You can make a lot of mistakes by analogizing governments to countries, but every now and then it is worth doing.  If I were a major investor, I would get nervous each time I saw a company with massive cash reserves on its balance sheet.  That's often a sign that discipline is headed out the window.

To be sure, it is possible for a government (or company) to make mistakes in the other direction as well.


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