“Cash Is Trash”? Look at This Chart.
Why the anti-cash crowd is probably having second thoughts
by Bob Stokes
Updated: December 06, 2018
Back in September 2017, the investing public didn't care much for being in cash.
In fact, it had been many years since they had held so little in their portfolios. Most of their cash was invested in the market.
But our Elliott Wave Financial Forecast at the time said "cash ain't trash," and provided some perspective with this chart and commentary (wave labeling available to subscribers):
The bottom graph on the chart shows the results of a monthly asset allocation survey by the American Association of Individual Investors. Investors were quite fearful in March 2009 after the Dow crashed 54%, so they allocated nearly 45% of their portfolio to cash. Now that the Dow has advanced for 8 years, investors as of the end of July are allocating just 14.5% of their portfolio to cash and the rest to stocks and bonds. That is the smallest percentage since January 2000, after which the Dow declined 38% into October 2002.
But Mom-and-Pop investors were not the only category of investors a year ago that held a disdain for cash.
On Jan. 25, 2018 -- just one day before the DJIA hit a peak that resulted in a 10% sell-off and some of the wildest volatility in quite a while -- Bloomberg said:
The world's biggest asset manager and largest hedge fund manager are anti-cash.
It was perfect timing, from a contrarian investor perspective, because the very next day, the DJIA hit a peak that held for several months.
Since the October peak, the stock market has again experienced some of its most volatile days in years. And -- no, cash has certainly not been trash. Just the opposite is true.
Before the market opened on Dec. 4, the Wall Street Journal said:
In a year of anemic returns and wild gyrations across most markets, cash is a star.
One popular cash proxy--the S&P U.S. Treasury Bill 3-6 Month Index... has returned 1.7% so far this year. That comes against a background of lower and even negative returns on most assets this year.
The timing of that WSJ article turned out to be spot on. It was on Dec. 4 that the DJIA closed down nearly 800 points.
The big question is: What's next for the stock market -- and for cash and its equivalents, like T-Bills?
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