As interest rates rise and equities wobble, cash is having a moment.
The mountain of cash U.S. institutional money market accounts now totals almost $3.5 trillion, per the Investment Company Institute. Retail investors have also been pivoting more of their earnings toward higher-yielding money market accounts. High-net-worth individuals are diving in too. Those with $1 million or more in investable assets held over 34% of their portfolios in cash as of January this year.
Yet it's not just retail or institutional investors who are piling up the Benjamins.
Icons of finance are also quietly showing their preference for greenbacks at this time.
Hathaway Stores Cash Away
Iconic investor Warren Buffet – best known for his uncannily profitable stock picks – has been hoarding cash in recent business quarters. Buffet's company, Berkshire Hathaway, has grown its mountain of cash so high it eclipsed Disney's market value in September.
The company's second-quarter earnings revealed a near-record $147.4 billion of assets sitting in cash, Treasury bills, or other liquid assets. Berkshire's cash holdings surged 40%, or $42 billion, in the 12 months to June 30, mainly due to Buffet's selling spree, which saw his team liquidate a net $29 billion worth of stocks during that period.
What can the ‘Oracle of Omaha' see the rest of the market is missing?
Buffet is known for sniffing out undervalued stocks. It could be Buffet isn't keen on anything the market has to offer right now. Buffett is famous for viewing market downturns opportunistically, comparing them to grocery store sales or even golden rain showers. He may be simply stocking up on dry powder and lying in wait for conditions to ripen for the next bargain hunt.
Water Under the Bridge
Bridgewater Associates founder Ray Dalio seems to have given up his earlier clash with cash.
After declaring “cash is trash” in 2020, Dalio has admitted that, in the current climate, “cash is good.”
In a recent LinkedIn post, he explained his change of heart. It revolves around interest rates. Returns on cash back in 2020 were less than 1%, which was rubbish, but now that the Federal Reserve's benchmark rate sits at about 5.5%, cash is much more attractive.
Dalio is famous for his “All Weather Portfolio,” which he claims generates returns in every economic cycle. The portfolio is a split between 55-30-15 split between bonds, stocks, and hard assets (gold and commodities), but tellingly does not involve cash.
Nonetheless, in September, when asked at a Singapore event, Dalio told an audience he'd prefer cash over bonds.
“Right now, cash I think is good … and the interest rates are fine. I don't think will be sustained that way,” he said.
Mad Money? Mad Cash?
Celebrity investor and CNBC “Mad Money” host Jim Cramer recently revealed he holds half of his portfolio – fully 50% – in cash.
Cramer's next largest holding is 40% in U.S. index funds at 40% of his total (for conflict of interest reasons, he cannot hold individual stocks that may be discussed on his show). Yet his enormous cash holding is due to a decision he reached with his wife, Lisa a couple of years ago.
Cramer said Lisa wanted to be sure she could access her half of his wealth if she outlives him. A cash allocation gave her the assurance the money was accessible to her.
Lisa reportedly told Cramer: “We're partners. So, I am making an executive decision: 50% of this is yours, and 50% is mine. And the 50% that I have is going to be cash.'”
Although Cramer's cash pile is more for personal than professional reasons, he has also further diverted some of his salary earnings to cash holdings in recent months. In June, he told his audience that, for the first time since 1982, he would skip his monthly contribution to his 401(k). The reason he gave was to make the most of the unusually high yields for cash in savings accounts (driven by the Fed hiking interest rates to above 5%.)