Cash Stockpiles Reaching All Time Highs
It was probably inevitable that investor panic has led to increased cash stockpiles at banks and other demand deposit institutions. I saw that Bloomberg did a report using Federal Reserve Data that showed over 8.9 trillion dollars is sitting in cash, money market funds, and bank deposits in the US alone. This is over 75% of the market value of US Companies.
Why is this important historically?
In the same article, I discovered that the S&P 500 has risen 24% in 6 months, the eight previous times cash levels have been this high relative to market capitalization.
Should I be buying stocks again?
I am not saying that this is necessarily a good time to buy stocks for you, but I will say that that cash has to go somewhere because people wont be satisfied with pennies on the dollar for too long.
That being said, the overarching inescapable truth of this economy is that it isnt just going to magically better because some historical S&P chart says it will. This decline has been nothing like we have seen in history (Dow Jones worst performing year ever!). This time will require patience and discipline and will require a watchful eye on improving macro-economic fundamentals before any big move should be made.
I know what you are saying already, my broker says, "Now is the time to buy!" Well everyone's broker and advisor will soon be chirping like this. My advice -- Stay focused. Have a strategy and execute it methodically. Get on an ACH (automated clearing house) program of regular savings to a brokerage account and invest your money consistently in your strategy on a quarterly basis. Only make big moves when there are big signals that the fundamentals are back.
Read the Cash is King Article referenced in this post here