Cash Hoarding Shoots Up, But it Still Lost Another 2.1% of its Value in 2019: Time for New Money
- Private investors sitting on a record $1.5 trillion in cash, highest record that doubled since five years ago
- From rich people to general public everyone holding on to a record pile of cash
- Competition, low-interest rates, the underperformance of funds, uncertainty about the global economy, and lower returns are the reasons behind the hoarding of cash
- Cash loses its value every year, the purchasing power of $100 has gone from $100 in 1913 to $3.87 in 2019, as such it’s time for smart money – BTC & crypto
Private-equity firms are stockpiling a record amount of cash. The industry including venture capital had a total of $1.45 trillion in cash to invest at the end of 2019. This is the highest on record and more than double what it was five years ago, according to data from Preqin.
The steady cash stream into private equity is driven by investors expecting lower returns from public markets. The flood of money is driving up the entry prices, said Inigo Fraser-Jenkins, head of the portfolio strategy team at Bernstein Research which could mean lower future returns.
Low global yield is another reason, with the 10-year Treasury yield going below 2% this year investors are looking for better investment alternatives.
Rich hoarding cash as well
But it’s not just private equity that is sitting on cash. Investor Warren Buffet is also sitting on a record $128 billion at Berkshire Hathaway, a 15% increase from the end of 2018.
As a Capgemini World Wealth report stated, High-net-worth individuals (HNWIs) — people with at least $1 million in investable assets — had about 28% of their portfolio in cash in Q1 of this year.
The cash holdings of clients at UBS, the largest wealth manager in the world are 26% while Credit Suisse’s 20%.
Uncertainty over the global economy fears over the trade war between the US and China, and the outlook for equities have led some investors to increase their cash holdings.
General public on the same path
The general public has also taken to hoarding cash as Wall Street Journal's “The World’s Cash Is Disappearing. Bankers Aren’t Sure Where It Went” article states,
“Banks are issuing more notes than ever and yet they seem to be disappearing off the face of the earth. Central banks don’t know where they have gone, or why, and are playing detective, trying to crack the same mystery.”
Whether it's distrust in the federal government or the banking system, that’s not really known.
But cheap money isn’t for retail
This year, cash also lost another 2.1% of its value. As a matter of fact, in 1913 when the Federal Reserve was first created $100 had the purchasing power of $100 dollars but has now fallen to just $3.87.
Another problem with fiat is income gap as Tuur Deemester, founding partner of Adamant Capital says,
“Monetary debasement significantly contributes to the wealth transfer from poor to rich. The rich have access to the money before it loses its purchasing power (via borrowing), and thus harvest wealth from the poor. As the money cheapened in the 90s, the wealth gap grew in tandem.”
— Alex Krüger (@krugermacro) January 3, 2020
Analyst Jacob Canfield says the ‘borrow list’ of the fed consists of almost entirely of banks and institutions like JP Morgan and Blackstone. This “cheap money,” he said is not available to retail rather they are charged fees to hold cash, via negative interest rates.
Time for smart money, Crypto!
If not invested, cash still loses its value every year. As eToro, a social trading and multi-asset brokerage company points out, it’s time for new money and to invest in cryptocurrencies.
For 2019, the annual inflation rate was 2.1%. That's how much your cash loses in value if it's not invested. Time for new money. #buycrypto
— eToro US (@eToroUS) January 2, 2020
“If Bitcoin is a get rich quick scheme, then fiat is a get poor slow scheme,” states Bitcoin enthusiast Rhythm Trader on the continuously falling purchasing power of US Dollar.