Bloomberg on $1 Trillion Cash Pile
Late last week, Bloomberg wrote, "A $1 Trillion Cash Pile Holds Key to Fate of Risk Assets." They explain, "The $1 trillion pile of cash that investors amassed amid the pandemic-fueled market turmoil may determine the length of the risk rally. U.S. money-fund assets have started to shrink from a record high. Roughly $105 billion has exited after four weeks of outflows, the longest such streak in more than three years, Investment Company Institute data show. The shift coincided with emerging signs of an economic recovery that drove the S&P 500 Index to the highest since February, and a historic rush into fixed-income exchange-traded funds as the Federal Reserve supported that market." Bloomberg's piece continues, "A lot is riding on whether the move out of cash, where it's earning virtually nothing, continues. On the one hand, it's an obvious potential source of additional fuel for the already-booming rebound in risk assets. But with virus worries mounting yet again, it may be premature to expect a major exodus anytime soon. A Deutsche Bank AG analysis shows that investors on edge over the pandemic have been sticking much more stubbornly to their cash holdings relative to past market crises." They add, "Assets in money-market mutual funds are still at a near-record $4.68 trillion, after soaring from $3.7 trillion in early March as the spreading virus battered stocks. At its peak, more than three-quarters of that was parked in Treasury-only and other government funds.... Even within money funds, there are signs that investors are willing to slowly take on more risk. Assets in prime funds -- which offer slightly more yield because they can also hold corporate obligations -- have risen the past 11 weeks, according to ICI data. Prime funds have added more than $100 billion from a near one-year low in early April, rising to $765 billion. Government funds have declined to about $3.79 trillion, from a record $3.92 trillion in early May." Finally, Bloomberg writes, "The trajectory of the cash stockpile relies on more than just investor confidence, according to JPMorgan Chase & Co. It may also decline in coming weeks because corporate and individual tax payments, delayed until July as part of government support measures, could trigger outflows, and as companies tap the cash to pay down credit lines, say strategists including Alex Roever."
