It might go down as one of the worst financial market calls ever, akin to BusinessWeek declaring the death of equities on the eve of a booming era for stocks.
Ray Dalio, the billionaire who founded the world’s biggest hedge fund firm, had a message for the billionaires and CEOs who met at the World Economic Forum in Davos, Switzerland, in January.
“Cash is trash,” Dalio said. “Get out of cash. There’s still a lot of money in cash.”
Two months later, cash has become king across global markets and the economy. Dalio’s big Bridgewater Associates macro hedge fund, meanwhile, has plunged by 20% in 2020.
Businesses and investors have rushed to cash as known cases of Covid-19 passed 140,000 globally and the World Health Organization has declared the virus is now a global pandemic.
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With global stock markets plunging, investors have sought the safety of cash. U.S. money market funds experienced $87.6 billion of inflows in the seven days prior to Wednesday, according to Lipper. Bank of America reported that last week investors plowed a total of $136.9 billion into cash.
The U.S. banking system entered the coronavirus pandemic in strong shape and is much more resilient than it was during the financial crisis. The Federal Reserve moved on Sunday to further safeguard the financial system by launching a $700 billion quantitative easing program.
Last Thursday, as stock were plummeting, yields on 30-Year U.S. Treasuries were rising and gold fell. Bitcoin, which its proponents have advertised as a safe haven, crashed. Cash was where nervous investors wanted to be. It isn’t just any currency that is king. U.S. dollars are in particular demand as borrowers around the world start to pay a premium to obtain U.S. dollars.
Corporations also moved to make sure they had sufficient cash on hand. Boeing, already dealing with the grounding of its 737 Max aircraft, moved last week to tap a $13.8 billion credit line it had secured about a month ago. Other companies like Hilton, Wynn Restorts and Seaworld Entertainment, which are dealing with a swift deterioration in their business related to Covid-19, also drew on credit lines last week. There have been reports that private equity firms are looking to push their portfolio companies into considering tapping their credit lines as well.
The big U.S. banks that are funding those credit draws, like Citigroup, JPMorgan Chase and Wells Fargo, all moved on Sunday to put their stock repurchasing programs on hold to conserve cash.
States also moved to tap their rainy day funds to help them fund efforts to deal with Covid-19. Washington state, for example, is drawing $200 million from its rainy day fund, mostly to support public health efforts.
The rush into cash has been intense enough to include physical cash. Over the weekend The New York Times reported that a Bank of America branch in Manhattan for a short period ran out of $100 bills as customers were pulling out tens of thousands of dollars at a time. Bloomberg News reported that a Chase bank branch in the Hamptons had fielded a request for $30,000 in cash that it had to review under its protocols.
–Nathan Vardi, Forbes Staff, Hedge Funds & Private Equity
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