Cash is a Call Option.

And like any call option, with every passing day your cash denominated in US Dollars loses a wittle bit of time value.  Just a millimeter’s worth at a time, but unceasingly and even while you sleep. 

For more than a decade, the currency gnomes have been chipping away with their wittle pickaxes, always and all the time.  Sure, they take a break for a Lehman Meltdown here and there, but otherwise, it’s game on.

Have a look at this chart of the US Dollar Index (the greenback vs a basket of every other currency) going back to 1999…

The ten year rally in gold is just one (well-known) ramification of this constant erosion in the dollar. There are others, some of which are only now making their presence known.

Listening to central bankers discuss inflation being in check due to weak housing is simply adorable at this point. OK guys, so the “shelter” part of human necessity is under control, but you may want to take a gander at the “food” and “clothing” components. Cotton near 15 year highs, grains marching higher etc. 

For as long as I’ve been in this game (12 years now), cash has been nothing but a call option on the dollar with a endlessly vanishing time premium.  This dollar stuff oughta have a warning attached.

Chart hat tip J.C.