Cash is king? or cash is cost?

The former part of the subject of this post is so well known that no elaboration is needed. It is so true when the market has crashed and everything appears to be so cheap yet if someone is still so stuffed with cash in his pocket then he can shop whatever he likes. This is applicable to recession or in any financial market bust. So it seems cash is really almighty in the financial world, or is it?

Naturally cash is good and I like the purchasing power that comes with it. It is always a great relief when you know you have enough cash to meet all the existing or possible bills. On the other hand, knowing that you can hunt for bargains when the market crashes and the feeling of being in the upper hand in a deal negotiation is so brilliant that no one will question about the beauty of having much cash in hand.

However, any one who has a little financial knowledge also understands cash does not come without down side. Inflation erodes cash's purchasing power is just an ABC. On the other hand, cash is non-productive meaning it does not generate yield is also another common sense especially in this still relatively low interest rate environment. 10 years U.S. bonds just pays out some 2% interest only, let alone that of the humble saving account which cash usually sits in.

So apparently albeit the lovely side of cash, holding it, especially excessively, is not without costs. The erosion on the purchasing power against inflation is a very real and cruel cost. The opportunity cost of hold cash but not putting it in profit-producing investments is another one.

The above two drawbacks of sitting on cash are quite obvious, there are also other costs hidden from our sight though. To many people having plenty of cash means being wealthy. Let's imagine how happy one will be if the bank account balance shows a string of zeros following the first few digits. This wealthy feeling could easily breeds the desire of luxury indulgences if one lacks self discipline. Naturally a reward to self for the achievement of hardworking is reasonable but when it becomes a habit then it could be hazardous to wealth accumulation though.

Perhaps to those disciplined people the even bigger harm of holding a lot of cash is FOMO and the subsequent reckless investing decisions. Imagine if one closed all his/her position by last year end in the expectation on bargain hunting resulting from a further market crash but saw the market bounced significantly from the valley then how stressful he/she is now. The regret could even brings quite some sleepless nights as well. This state of mind is not only hazardous to both mental and physical health but could easily lead to improper investing decisions that could bring loss, rather than catching up the missed potential profit.

So while cash is still king but cash is also cost as well. The key is maintaining a proper proportion of cash vs assets. I used to write a post how do you classify your investments regarding the classification of assets which also explains this aspect in another perspective.

It's not a big deal, or is it?

There is never shortage of talk of the town in this small island here in Hong Kong. However, there is one recent topic which receives quite different attention among the spectrum of different walks of life. To one end of the spectrum like the housewives (no offense) or primary school students, they just react as what the subject of this post puts it. However on the other end like the legal sector or the business sector sees it as if the opening of the Pandora Box. Yes, it is the proposed bill of extradition.

The Hong Kong government claims the proposed bill (Bill) is the response to a murder case which the victim and the suspect are both Hong Kong people but happened in Taiwan so even if the suspect now came back to Hong Kong but the jurisdiction here in Hong Kong cannot act upon it. The Hong Kong government said therefore the Bill was proposed to close the loophole and to bring the justice back.

Naturally many people is upset about the situation that the suspect could escape from court trial and feel pity for the victim. The case happened in last March and the Hong Kong government reacts unprecedentedly fast to propose the Bill in just one year. Its enthusiasm in this case brought skepticism on its motive by the public, especially the opposition camp. Their doubt did not come with no ground. The Bill not only addresses this Taiwan murder case but extends the access of extradition to China. It is indeed a mutation of the national security law which has not yet been established in Hong Kong but is wanted so badly by Beijing.

This is another example of the manifestation that Beijing is tightening its grip onto Hong Kong's governing. The chief executive of HKSAR, Carrie Lam, has made it clear that the timing for the proposal of the nation security law (Law) is yet to come in light of the society currently is still so divided. Lam sees it so right and indeed the Law will definitely receive the most severe resistance even in the consultation stage, if any. However, Beijing is losing its patience and this murder case just gave rise to the chance to have it done to an even higher level in another way.

The Bill, if passed, virtually allows Beijing to fetch anybody back to China even if he/she is at the other side of the border. Despite it was claimed that the extradition must be applied under the alleged offense that is relevant in both China and Hong Kong and the Hong Kong law court can act as a screening gate. However, the screening function is merely on the inspection of due course in procedure but not to examine whether the application is made with sound and reasonable ground. Given its notorious judicial system so the fact is that Beijing can just name an offense then it can extradite someone whom is, as long as, deemed as a hostility by China. Hong Kong will no longer be a safe place for anyone whom is not welcome by China. Furthermore, the even more evil part of this Bill is that Beijing can even fetch anyone indirectly from countries where Hong Kong maintains extradition agreement.

Whether it is really not a big deal or a Pandora Box, it all depends on how one sees China's judicial system. The point is when yours and your family's well being rest on your decision, are you bold enough to bet on it? Anyway, at least there are two good things. One of them is that there will not be any more secret kidnapping to China in the dark in the future and on the other hand, the long awaited property market crash is very likely to happen cos with decades of preparation, many Hong Kong property owners are holders of foreign passport or residency now so a new round of exodus is at brink if the Bill is passed.