Reuters tells us that, "America's $7 trillion cash stash isn't going anywhere." They write, "A record-high $7 trillion of cash is currently sitting 'on the sidelines' in money market funds (MMFs). Anyone hoping to see a significant chunk of this flooding the wider investment field in the coming months may be disappointed. Many strategists assume this massive pile of cash will start to shrink now that the Federal Reserve is cutting interest rates as investors seek a more profitable home for their capital in the face of diminishing cash yields.... Not so fast." (Note: Please register soon for Money Fund University, which will be held Dec. 19-20, 2024 in Providence, R.I. Happy Thanksgiving, and hope to see you in Providence in 3 weeks!)
The piece states, "In this topsy-turvy world, MMFs have emerged as a premium destination for investors' cash. They offer significantly higher rates of interest than rival checking accounts and commercial deposits or fixed income assets like Treasuries that would traditionally be the havens of choice for those seeking liquidity and safety. In 'normal' times, longer-dated bonds carry higher yields than MMFs, because the yield curve usually has a positive slope."
It continues, "But times have not returned to 'normal', and Treasury yields have been below the fed funds rate for two years. Why buy a two-, five- or ten-year bond and assume duration risk when you can earn more in a plain old money market fund?"
The article adds, "Redeployment may not be so rapid. Strategists at Societe Generale recommend clients maintain their 10% cash allocation next year. Yet expectations for an imminent exit from cash persist. 'The road is lined with people trying to call the impact and timing of cash moving off the sidelines,' says Adam Farstrup, head of multi-asset, Americas, at Schroders."
In related news, Barron's asks, "Can Cash Be King Again? Suddenly, T-Bills Look More Attractive." Subtitled, "The potential for higher-for-longer rates means cash vehicles, including Treasury bills, money market funds and savings accounts, could continue to offer attractive yields into next year," the article says, "Cash could be the best game in town. That's the argument of one prominent Wall Street analyst after market shifts make short-term investments look a lot more attractive."
They quote Strategist David Rosenberg, "Time to de-risk and shift to cash.... A safe 4.5% 3-month T-bill yield looks compelling in an increasingly unpredictable backdrop." Barron's explains, "It's worth noting that Rosenberg, former chief North American economist at Merrill Lynch, is a long time stock skeptic. Sometimes labeled a permabear, Rosenberg argued earlier this year the economy was on the verge of a recession.... So far, that hasn't panned out. But when it comes to cash, Rosenberg has a point—short-term holdings do look more attractive than they did just a few weeks ago."
Finally, they comment, "The potential for higher-for-longer rates means cash vehicles, including Treasury bills, money-market funds and savings accounts, could continue to offer attractive yields well into next year.... Just how much cash should investors hold? It depends on your situation, wrote Rosenberg in an email Tuesday. 'Think back to the past, when you had allocated the most [in] your portfolio into T-bills and money-market funds, and head straight for that target,' he said. 'For those with constant ice in their veins, that could mean 10%. For those like me with a more conservative streak, it would mean 50%.'"
In other news, WSJ columnist Jason Zweig published the brief, "Awash in Cash," which states, "Warren Buffett's Berkshire Hathaway is piling up cash at what I believe is the fastest clip in the history of corporations. A year ago, Berkshire had an already stupendous $157.2 billion in cash and short-term investments. By this Sept. 30, the company had more than doubled that hoard to $325.2 billion."
He tells us, "Never mind that with this cash pile, Berkshire could buy all of the 40 smallest companies in the S&P 500, combined, at their current market value. Leave aside the fact that this mountain of cash is greater than the gross domestic product of 55 of the world's nations put together, according to the World Bank."
The piece asks, "Is it humanly possible to find enough undervalued investments to put a third of a trillion dollars to work? In a world where private-equity funds will pay any price and bear any debt burden to put their surplus capital to work, I'm not sure. Shareholders aren't likely to complain too much about drowning in cash so long as Buffett remains in charge, but I think his eventual successors will have to initiate a dividend. I doubt they will have much choice."
