What To Do With Your Cash?

Is it folly to hold cash right now? Or brilliant?

Have you moved a material percentage of your financial portfolio to cash? Have you become so concerned about the meteoric ramp upwards in asset prices that you find it wiser instead to move to the sidelines, build “dry powder”, and wait to re-enter the markets at saner valuations?

If so, you have my sympathies.

The past 5+ years have been brutal for savers pursuing this strategy. I know this well, as I’m one of those folks, too.

The Mother Of All Financial Bubbles

As we’ve chronicled for years, the global central banking cartel started flooding the world with liquidity (aka, money printed from thin air) in response to the arrival of the Great Financial Crisis in late 2008. And they never stopped.

The chart below shows how the combined balance sheets of the major world central banks (Fed, ECB & BOJ) are 3.5x higher today than their pre-crisis levels less than a decade ago. (And if we included the PBOC in this chart, the cumulative total would be 18.8 Trillion!): 

(Source)

All that liquidity has to go somewhere. And, as hoped by the central banking cartel, it has found its way into the financial markets, pushing the price of nearly every asset class to record extremes. And then higher still.

Equities have shot the moon, and are now nearly twice as high as they were at the apex of the past two stock market bubbles, as this below chart of the S&P 500 shows (in fact, the S&P price/revenue ratio just hit the highest level in history, aside from the week of the March 2000 bubble peak):

Similarly, bond prices have continued their 30-year march higher, powered by record-low interest rates around the world:

(Source)

And home prices have returned back to the same level seen right before the last housing bubble viciously burst (in many high-demand markets, home prices are well in excess of those 2007 highs):

We’ve written numerous articles about the dangers of the current central banking policies responsible for today’s nosebleed asset prices. But the gist is this: we are currently living within the mother of all financial bubbles. These prices are in no way sustainable.

Why not? While the reasons are legion (and we’ve spilled plenty of ink writing about them all), the big reason is revealed in this chart:

To support the current level of asset prices, we have been growing our debts more than twice as fast as our national income (GDP). Any household knows that you can’t do this for long before insolvency occurs. Nations — even those with a printing press — can’t escape this same fate in the long run.