Households, Corporations And Banks Are Hoarding $14 Trillion Cash

Surprise! Surprise! Households have $9.15 trillion in cash, up from $7.5 trillion in 2007 if you add all their deposits together says Matt Lloyd, chief of investment strategy at Advisors Asset Management of Monument, Colorado, which manages some $12.2 billion in brokerage and advisory investments including $8.3 billion in unit investment trusts. This $9.15 trillion in cash is 13% of the $70 trillion value the Fed puts on all household wealth, which includes stocks, bonds, residential homes and other assets as well as cash. Americans’ disposable income in relation to their debt is in better shape than any time since the 1980s avers Lloyd. Fed figures show the ratio of disposable income needed to service to debt at 10.50% today, compared
to 14% back in 2007. Hoarding in times of crisis and duress works like a dream, apparently.

The 3000 corporations that make up the Russell 3000 index, which represent 98% of all publicly traded stocks, have over $3 trillion in liquid assets on their balance sheets. This bonanza could bed used in part for share repurchases or acquisitions if senior management ever become more optimistic about the prospects for growth. They, too, are waiting to see how long and how effective Bernanke’s continuation of easy money and low interest rates will be. Anxious investors sold $155 billion of equity mutual funds and ETFs last year, lost a fantastic opportunity to ride a stock market going to new record highs.

The banks, for their part, are holding onto some $2 trillion on their balance sheets, uncertain about the direction of interest rates and afraid to lend money at low interest on which they could lose big-time if interest rates spike like they did a few weeks ago. The likes of JP Morgan, Citigroup, Wells Fargo are waiting on the duration of Bernanke’s QE as well.

The backdrop, suggests Advisors Asset Management’s Lloyd, for “takeoff” of the American economy if and when this record amount of liquidity, being underpinned by Bernanke’s policy, were ever put to the good measure of consumption. Think of all that cash sitting there in the wake of the housing index at a new record peak, while estimated of the budget deficit have been reduced from 11% to 2.8% for 2014. If this is an accurate projection it will confirm a shockingly positive turnaround in the nation’s financial condition. Yes, the stock market is selling at 16.2 times earnings, not much of a discount from its median price-earnings multiple over the past many decades. Advisors Asset Management’s Lloyd sees Bernanke’s accommodative easing to last for some time to come.

I agree, but reckon one reason for the hoarding of cash is the fear that in the unwinding of the Bernanke policy of quantitative easing, there is the fear that interest rates will move somewhat higher, meaning some of the assets on their balance sheets will lose value. We are in a brand new scenario that hasn’t been much tested before. I personally would feel more comfortable if Bernanke saw this monetary policy transition through himself, rather than departing in 2014. More uncertainty breeds more uncertainty which breeds more hoarding of cash. Maybe the hoarders know something about the future that’s not clear to us observers.