Fund managers have a message: Cash is king

In the age of coronavirus, cash is indeed king. That’s the view, at least, of many major investors, who are selling everything from stocks to bonds to gold in order to raise cash. Bank of America Merrill Lynch in its March Fund Managers’ Survey indicated that month over month, cash among funds has seen the 4th largest monthly jump in the survey’s history, from 4 percent to 5.1 percent. Like buy-side fund managers, sell-side advisors also feel the need to be conservative, waiting on the sidelines for the market selloff to settle.

Jonathan Pain of the Pain Report markets newsletter, who called the selloff on February 24, told CNBC on Monday that he is seeing “a mad rush for cash.” The spike in bond yields, with 10-year rising above 1.2% and the 30-year more than doubling in the last few days, marks only the latest way that the typical correlations between assets are breaking down.

Gold, a classic “safe” asset, has seen wild swings between $1,450 and $1,550 an ounce, triggering panic selloff by traders looking to liquidate everything they have in order to honor large market positions on borrowed money. Essentially, they need to generate cash to pay for the over-exposed calls that have generated losses. The big problem for world markets right now is that there just aren’t enough dollars to go around.

That’s one reason the greenback just crossed the 101.45 mark against a basket of currencies, despite the Fed funds rate going down to near zero. Divya Devesh, Asia foreign exchange strategist at Standard Chartered, told CNBC’s “Street Signs” on Wednesday that even though the Fed has rolled out a $700 billion asset purchase program, the bond market doesn’t foresee inflation rising. Inflation risk is off the table because of the unprecedented crash in oil prices.

Fund managers have a message: Cash is king, CNBC, Mar 19