These Billionaires Are All Quietly Preparing For The Stock Market To Plunge

"The stock market is at an all-time, but economic activity is not at an all-time," explains billionaire investor Sam Zell to CNBC on Thursday morning, adding that, "every company that's missed has missed on the revenue side, which is a reflection that there's a demand issue; and when you got a demand issue it's hard to imagine the stock market at an all-time high." Zell said he was being very cautious adding to stocks and cutting some positions because "I don't remember any time in my career where there have been as many wildcards floating out there that have the potential to be very significant and alter people's thinking." Zell also discussed his view on Obama's Fed encouraging disparity and on tax inversions, but concludes, rather ominously, "this is the first time I ever remember where having cash isn't such a terrible thing." Zell's calls should not be shocking following George Soros. Stan Druckenmiller, and Carl Icahn's warnings that there is trouble ahead.

Truthfully, at home liquidity is the way to go. Safes have been selling as well as guns and ammo, on the interesting theory that virtual money might become worthless for any number of reasons, but the small amount of physical legal tender Greenbacks in the economy (about 4% and falling) will still be accepted currency even if the virtual currency blows up.

That is, vendors can demand paper and coin, or no sale. And because there is so little of it, its value may skyrocket, just like it did at the onset of the Great Depression.

“You could buy a pound of hamburger for a nickel, but nobody had any nickels”, was the saying, but it includes a tacit axiom, that those who had a lot of nickels made out like bandits. And there were some.

Banks failed and had holidays from 3 to 300 days long. But some people had a lot of cash at home, and, albeit more discreetly than in the Roaring ‘20’s, were able to live the good life while the economy floundered.

The answer to that is a real jaw-dropper.

The US Bureau of Engraving and Printing physically prints all our paper money. But they have only two currency printing offices, in Forth Worth and Washington, D.C. Working around the clock, printing mostly $1 bills, and proportionately fewer $5,$10,$20,$50, and $100 bills, they can only print enough paper money to support just 4% of US daily retail trade.

All the rest of our money is virtual, on computers only. So when they talk about “printing” money, they just mean changing some numbers on the computers.

The zinger is that not only can’t we print more physical dollars, we can’t even print higher denomination money, like $500 or $1000 dollar bills, for the simple reason that nobody could make change for it with other paper money.

The average lifespan of paper money is just six months. And most $100 bills are sent overseas for other nations who want US paper currency.

Now for the weirdness. Because the government can and does “print” endless virtual money, but cannot print more paper money, virtual money has become horrifically inflated, though it is not obvious yet. At the same time, paper money and coin has become 96% *deflated*.

So virtual and paper are so different they may invoke what is called “Gresham’s Law”, and split into two different currencies, as far as the public is concerned.

Gresham’s Law is an “iron law” of economics, which says that when there are two competing currencies, everyone wants to spend the less valuable one and save the more valuable one. An axiom of the law is that if the difference of the value of the two currencies becomes too great, one rapidly inflates and becomes worthless, and the other rapidly deflates and becomes very precious, as the only “real” currency anyone will accept.

So imagine any of a dozen economic crises that cause the virtual US dollar to inflate. But paper money is already very deflated.

If businesses suddenly refuse to accept credit, debit, checks and other instruments, and demand paper money only, suddenly a nickel might be worth a dollar one day and five dollars the next, in real terms, not in comparison with virtual money that is rapidly becoming worthless.

And those with “mattress money” are wealthy overnight, while those with tens of millions of dollars in the bank are as suddenly paupers.

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