The big rush for cash
A recent Citi estimation talks of 600bn$ of cash being hoarded up by hedge funds. Not a surprise. The fly to safe lands (cash) coupled with deleveraging was already happening, and it looks like it is assuming epic dimension right now. Not a suprise, considering the following gib question marks:
- the 700bn$ bailout is facing challenges. On top of this, we don’t even know how much effective it will be. Noy much I suspect
- banks keep failing, and big ones this round - WAMU tonight, with 300bn$ in assets
- rules and regulations are changed overnight - ban on short sales
So, with rules changing overnight to such an extent that the perfect position turns into a nightmare, banks failing -and therefore bank not willing to lend each other-, with the rescue plan in doubt or at least unclear, the economy falling… what would you bet on? The safest thing to do is to ammass cash and stay out. This clearly will have negative consequencies on asset prices and might worsen the situation even more.
Yet, it’s your money. It’s a self-fulfilling expectation, and you can hardly stop that. Cash is king today, and it will be for a long while. Markets are too risky, better place a short bet on the index and spend your time cultivating your hobbies and interests (not rates, as they are going down in a pure deflationary fashion!).
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