Everyone from consumers to companies is exhibiting a still growing preference for holding cash. The media keeps saying this flows because of uncertainty about regulation changes. This is missing the real issue here. The reality is that cash is held as a place to park when asset prices no longer present attractive investment prospects. We have seen this trend repeatedly through market cycles.
Central bank interventions around the world have now made equity and commodity prices the least attractive since 2007. Even dividend paying stocks and bonds at present prices are less attractive now than in 2007 when interest rates were still in the normal range. When the US Fed began intervening to arrest the economic slow down in 2007, they were starting from an overnight rate of 5.25%. Today at .25%, and more than two years of degrading their balance sheet with “quantitative easing”, they have already blown their recession-fighting policy budget on trying to keep the “recovery” going the past 2 years. With the global economy in the next cyclical contraction today, and with asset prices back at ludicrous valuations, cash is everything but trash. But expect few talking heads to acknowledge this. Their business models depend on keeping capital held in the risk fire at all costs to their clients. Here is a direct link.
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Garbage ! The graph is VERY misleading. The FED “printed” A LOT OF money in the second half of 2008. People are scared out their wits and these talking heads want to talk that money back into the market ? Outrageous.
A good gauge is the 3 month T-bill rate: it was in early over 5%, now it’s at a about 6 basispoints. This is the best gauge of how fearful people are. And no: The FED DID NOT lower that rate, it was Mr. Market (=all investors combined).
More over: companies have used the ferocious demand for (corporate) bonds from investors and have issued lots of bonds. So, against those stacks of cash there’s also a lot of newly issued debt. What do you mean, “cash on the sidelines” ?