All aboard the Overweight cash train!
Honestly, I’m not even sure why I’m writing this. This has become such a familiar refrain over the past three months that it hardly bears repeating at this juncture, but I took the time to grab the charts (again), so by God, I’m going to use them.
JPMorgan Asset Management thinks cash is a good place to be in 2019 and the rationale is simple:
Our cash and duration overweights really distill down to overweights in U.S. cash and Treasuries, where ex-ante Sharpe ratios are now well ahead of those for U.S. stocks for the first time in a decade.
So, vol.-adjusted returns for riskless USD cash are now attractive for the first time since the crisis. Got it.
To be clear, everyone is making the same call on this. “Cash is back”, “TINA is dead” or some derivation thereof permeates year-ahead outlook pieces and the following chart is a rather poignant illustration of why.
(Bloomberg)
For their part, JPMorgan Asset Management suggests that decelerating earnings growth and ongoing geopolitical turmoil will likely dent risk assets in the new year, another observation that definitely isn’t going to win anybody a Fields Medal.
What’s important to note about this debate (and we’ve been over this on too many occasions to count), is that this dynamic is to a certain extent self-fulfilling. The rising appeal of USD cash saps demand for risk assets that would already be seen as undesirable in a challenging environment. That’s the key point.
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In any event, if you’re going by risk-adjusted returns, T-bills are one of the only clear winners in 2018. For what it’s worth, here’s a chart of money market fund assets and 1-month bill yields:
(Bloomberg)
And then here’s an updated version of that Deutsche Bank chart everyone loves (or hates, depending on how you were positioned this year):
(Deutsche Bank)
So if what you want to do is play like Ike and beat “TINA” on a daily basis, you’ve got carte blanche.
Ok, that’s it. I’m done with this one.
