With governments credit ratings dropping all over the world and sovereign debt rising what’s a citizen to do with savings? He cannot buy bonds they are at historically low levels and in countries such as Greece is it a wise move? Should she buy gold? Gold could be over-bought going from $300 per oz in 2002 to over $1800 per oz in just ten years. In the 1970’s Gold went from $35 oz in 1971 to $850 per oz in 1980. Gold then spent the next 30 years on a diet sliming down to $300 per oz by 2002. I wonder if history will repeat itself? We will know in 30 years!
How about purchasing assists in other currencies? If we go back 5 years the Euro was the going to replace the dollar as the major oil currency. Experts told us that everything about the Euro was better. The experts touted the advantage of the Euro is it was based on many European nations not just one like the USA, so it much safer. The Euro was made up of many different economies all pulling together to make a great currency. In addition the China jogger naught was pushing to replace the US Dollar with the Euro for oil purchases. China felt the dollar was weak, and moved to replace it. Time has shown that replacing the USD was not such a good idea. Today many experts feel the Euro may not exist in 10 years because coordinating different economies and governments proved to be a bigger challenge than first thought. A common question asked; how long can the hardworking people of Germany and France continue to bailout other countries and assume their debt? Many people are focused on the Greek debt, but a quick look around European countries finds that many are in bad shape. Maybe we can find a safe place with a good return for bonds somewhere else? What about Asia? How about Japan? In the 1980’s Japan was going to rocket pass the United States and own the world. Japan’s major corporations were dominating autos, and electronics. Today Japan has a 270% debt to GDP ratio and its economy is about 1/3 that of the United States. With a devastating earthquake and tsunami what are its costs going to be? Further many large Japanese auto companies have discovered the downside of single supplier. Japanese Auto companies cannot deliver production globally when a key factory was wiped out in Japan.
Are major global corporations the next currency? Stop and think, what are the qualities one wants from a currency or investment vehicle? Liquidity and acceptance of the financial vehicle are the most important attributes followed by stability of the price. Now lets look at Coke. The stock is very liquid (no pun) on any exchange. Coke is recognized throughout the world, Coke is sold in over 200 countries and its per case volume is distributed fairly evenly though out the world. Its’ brand is recognized almost everywhere and its financials are solid. Coke pays a dividend of 2.7% vs the small 0.4% on my CD in the United States. One might correctly point out that Greece pays much more! Yes the Greek debt pays much more than 2.7%, but the bond holders face 50% loss in capital. So how much can they pay in interest? Further, the Coke dividend has risen in most years unlike on a bond.
If I were to wakeup Greek tomorrow, hopefully living in a villa with an ocean view, my 1st thought would be what about my money in the bank? If Greece is thrown out of the Euro then the Drachma could be worth about ½ as much as the Euro. So your money in the bank would be cut in half. Now on the other hand if I purchased Coca Cola stock and took delivery of the shares, what bad things could happen? Coke pays a 2.7% dividend which is increasing by about 7% per year. Coke operates in almost every country and has a sparkling 50% market share world wide for cola sales. Unlike autos Coke is a lot of little purchases through out the world- many 1 soda at a time. Which is safer keeping your money in a Greek bank when currency is going to be cut in 1/2 or purchasing KO? The next question is if Greece failed would Coco Cola fail? – In a word-- no. The Greeks would still find a way to purchase Cokes. Even if they did not other people in other countries would. If Japan failed would Coke fail? The answer is Coke might have a bad quarter, but Coke will survive. Your Grandchildren will be drinking cokes, though the drink might say Minute Maid™ or Dasanit™ on the bottle. Coke owns a zillion brands of drinks. The stock market might drop 5-10% if Greece defaulted. But Coke stock would be back up within months. And all along it would pay that refreshing 2.7% yielding dividend- more if the stock dropped, because dividends are paid on a per share basis. In my humble opinion it would take a planet-killing asteroid to harm Coke. Even an incompetent CEO could run Coke for a few years without breaking. So is Coke the next world savings account? A definite maybe! I think I will sip on my Coke enjoy the bubbles and ponder such a thought!
Disclosures: Do I own coke stock-- Hell yes-- I own Coke stock and will for sometime. Do you trust anyone who does not own the stock they are talking about?
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