Cash isn’t trash anymore.
Maybe you noticed. Ray Dalio did.
“As John Maynard Keynes is credited with saying: ‘When the facts change, I change my mind. What do you do, sir?,'” Ray wrote on social media earlier this week, a day before officially transitioning from co-CIO to his new role at Bridgewater, “CIO mentor.” “Along these lines, the facts have changed and I’ve changed my mind about cash as an asset: I no longer think cash is trash.”
To quote a former president who enjoys archiving rare documents in retirement, “A lot of people are saying that.”
“Cash is THE asset du jour, as macro vol just remains too substantial,” Nomura’s Charlie McElligott wrote last week, noting that clients are “much more comfortable” sitting in cash than trying to express a view on the timing of a policy pivot from central banks.
With that in mind, almost $89 billion flowed into cash over the latest weekly reporting period, according to BofA’s summary of EPFR data (figure below).
That, the bank’s Michael Hartnett observed, was the largest inflow since the tumultuous weeks around the original pandemic panic.
Everything else bled. Gold funds shed $200 million, notching a 15th weekly outflow in the process, the longest streak in nearly nine years. Bond funds lost the most in four months thanks in no small part to a $12.5 billion exodus from IG credit. Local currency EM bonds shed assets for the 26th consecutive week. High yield bled a seventh week, munis a ninth week, government funds a seventh week, TIPS a sixth and bank loans a 17th. European equities saw their 34th weekly outflow in a row, which Hartnett said suggests an “almost secular asset allocation outflow.”
“At existing interest rates and with the Fed shrinking the balance sheet, it’s now about neutral — neither a very good nor a very bad deal,” Dalio said, of cash.
If last week’s flows are any indication, many investors think cash is a “very good deal” indeed. I’d have to agree, with one quibble. If “armageddon” is upon us, as Joe Biden not-so-subtly suggested on Thursday, then an optimal asset allocation strategy probably needs to include less cash and more reinforced-concrete bunkers.
I have thinking about the bunker lately.