BBRG: Don’t Fall for the ‘Cash on the Sidelines’ Trope

Don’t Fall for the ‘Cash on the Sidelines’ Trope
Money coursing through the economy can impact markets and investor sentiment for the better, just not in the way many think.
Bloomberg, April 12, 2021

 

 

 

The FOMC cut rates to zero, and as Federal Reserve Chair Jay Powell explained on 60 Minutes last night, they have no plans in the foreseeable future to raise their benchmark interest rate or halt  the $120 billion in monthly quantitative easing. Big fiscal stimulus April and December 2020 and March 2021 also added to the cash pile. A possible Biden administration’s $2 trillion infrastructure plan is also a possibility.

Sure, there is a ton of money floating around these days. But do not assume that the many explanations and narratives around all that cash are accurate depictions of some future bullish outcome. But be wary of overly glib explanations.

Cash coursing through the economy can impact markets and investor sentiment for the better. But some of the claims just do not hold up to close scrutiny.

Let’s consider these claims specifically:

Money Supply

Brokerage Account Cash

Individual Portfolio Cash

“Successful” Capital

Velocity of Money

Money coursing through the economy can impact markets and investor sentiment for the better, just not in the way many think.

 

 

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I originally published this at Bloomberg, April 12, 2021. All of my Bloomberg columns can be found here and here

 

 

 

 

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