First, a quote from a recent news story:
Jul 4, 4:57 AM (ET) NEW YORK (AP) - That old saying "cash is king" certainly rings true these days. Investors can't seem to get enough of it... Even with today's minuscule returns, cash seems to have become a sought-after asset class among investors who intend to keep it as a part of their portfolios for the long term.
Actually, the returns on cash and cash equivalents -- such as U.S. Treasury bills -- have been more than "minuscule."
As Elliott Wave International's president Robert Prechter told Barron's in a recent interview, "Cash has been good. Today you can buy twice the house, twice the stock shares and twice the gasoline that you could a short while ago." And as for T-bills, the March 2008 issue of EWI's monthly Elliott Wave Financial Forecast presented this table to subscribers, and said:
While the buy-and-hold sentiment is as strong as ever, that stance has been bested by a completely risk-free return for eight years. Cash will continue to outperform until stocks are no longer fashionable, at which time the market will be near a bottom.
EWI's endorsement of cash as the asset to own during deflation goes back to this forecast and recommendation Bob Prechter first expressed in his 2002 New York Times Business Bestseller Conquer the Crash* (quote):
Conquer the Crash, Chapter 18
Should You Invest in “Cash”?
For those among the public who have recently become concerned that being fully invested in one stock or stock fund is not risk-free, the analysts’ battle cry is “diversification.” This “strategy” is bogus. Why invest in anything unless you have a strong opinion about where it’s going and a game plan for when to get out? Owning an array of investments is financial suicide during deflation. They all go down, and the logistics of getting out of them can be a nightmare... [A]ll assets go down in price during deflation except one: cash. Cash is the only asset that assuredly rises in value during deflation.
Seven years later, it seems like more people are finally discovering this fact. But, continues the AP article quoted earlier, "So long as the cash just stays on the sidelines, there won't be much fuel to propel stocks and the economy forward."
Does that mean that the stock rally off the March lows is over? You may be surprised by the answer on p. 3 in the new, July Elliott Wave Financial Forecast. Read it online now, risk-free.
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