We are living in some very strange times. Humans have intervened, manipulated and tried to cover up mathematical facts for so long that many historical relationships are now broken and distorted beyond recognition. Take money, for one. Most of the world is desperate for it, with huge shortfalls and deficits as far as the eye can see. And yet there is more cash piled up in the financial system than we have seen ever. Cash is content to sit on the sidelines because market prices are too high and do not reflect the reality of the economic landscape likely to present over the foreseeable future. The more governments continue to intervene and force asset prices to remain over-valued, the longer the “cash drag” is likely to continue as the bricks and mortar economy starves for real demand and investment. But far from an emotional, hysterical response, the reasons for sitting on cash today are entirely rational:
“Bankers have an odd-sounding problem these days: they are awash in cash. Droves of consumers and businesses unnerved by the lurching markets have been taking their money out of risky investments and socking it away in bank accounts, where it does little to stimulate the economy.” See: Banks: In cautious times banks flooded with cash.
The systemic insistence on denial, manipulation and fraud, have rendered global stock and commodity markets today a casino driven by levered, reckless players. Rising risk markets today are not likely helpful leading indicators for the global economy. For more on why, watch this interview with Jim Bianco of Bianco Research: “Equities markets roiled by government meddling.”