Cash Is Still King
Why cash has remained on the sidelines
How many years has it been since you’ve been able to earn 5% or more on your cash?
5 years? 10 years? 15 years?
Try 25 years.
Interest rates on money market funds are at the highest levels since 1999.
We shouldn’t be surprised by this chart and the fact that there is still a record-high of over $6 trillion still on the sidelines in money market funds.
In 2021 there was $5.2 trillion in money market funds earning 0.35%. 2019 had $3.6 trillion earning 1.85%.
Last week saw retail money market funds total net assets also reach a record high of $2.45 trillion.
What has all this cash earnings 5% done for consumers?
It has them flush with cash.
Here is what interest income generated by money market funds has done.
What does that 5% interest look like on your money? I took a look at what people are now earning on various levels of cash.
People are the most well-off financially ever. The stock market is at all-time highs, home value are at all-time highs and you’re earning 5% on your cash. US consumers net worths have never been higher.
And then they wonder why a recession never happened.
Nobody should be surprised to see the amount of money in markets increase. When you’re getting essentially a risk free 5% return, why would you put that money into equities or take on unnecessary risk?
Coming into the year I figured a chunk of the money market money would find its way into the stock market. Especially if the stock market continued to rally in 2024, that money was destined to buy stocks.
Well the stock market has now set 27 new all-time highs so far in 2024 and money market assets haven’t budged. They continue to rise. Just like the stock market has.
Money that’s in money market funds isn’t money that’s used to gamble on GameStop. It isn’t used to buy options or Nvidia stock. It’s not risk asset money.
If there is a market correction or crash, yes you can assume some will find its way into stocks.
But the large majority of this money is being saved as a cash cushion, an emergency fund, money for a house downpayment, accessible cash for individuals nearing or in retirement.
If you’re retired sitting at the beach and have $1,000,000 in money market funds. You’ve gone from making $5-10,000 a year in interest income in years past on your cash pile, to now making $50,000 a year. That makes that beach view look even nicer.
Consumers have way more money than ever before in history. I don’t think enough people realize that. The longer rates remain high, the longer cash will remain king.
The Coffee Table ☕
Hands down the best thing I read over the weekend came from Ted Lamade, who wrote My Month Without a Smartphone. I also tried doing this and wrote about it in 2022. Being Present: Don't make your family compete with your phone for attention Ted made some great points and has some excellent suggestions. I’m going to adopt a few of them as well. If you’re on your phone a lot, read this.
The jaw dropping chart of the week is this. More than 50% of the US population live in these 7 areas of the country. I knew these parts of the country were populated but didn’t know they accounted for so much of the overall population.
Source: TaraBull
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