What To Do With Your Cash?

Have you moved a material percentage of your financial portfolio to cash? Have you become so concerned about the meteoric ramp upwards in asset prices that you find it wiser instead to move to the sidelines, build "dry powder", and wait to re-enter the markets at saner valuations?

If so, you have my sympathies.

The past 5+ years have been brutal for savers pursuing this strategy. I know this well, as I'm one of those folks, too.

The Mother Of All Financial Bubbles

As we've chronicled for years here at PeakProsperity.com, the global central banking cartel started flooding the world with liquidity (aka, money printed from thin air) in response to the arrival of the Great Financial Crisis in late 2008. And they never stopped.

The chart below shows how the combined balance sheets of the major world central banks (Fed, ECB & BOJ) are 3.5x higher today than their pre-crisis levels less than a decade ago. (And if we included the PBOC in this chart, the cumulative total would be 18.8 Trillion!): 


All that liquidity has to go somewhere. And, as hoped by the central banking cartel, it has found its way into the financial markets, pushing the price of nearly every asset class to record extremes. And then higher still.

Equities have shot the moon, and are now nearly twice as high as they were at the apex of the past two stock market bubbles, as this below chart of the S&P 500 shows (in fact, the S&P price/revenue ratio just hit the highest level in history, aside from the week of the March 2000 bubble peak):

Similarly, bond prices have continued their 30-year march higher, powered by record-low interest rates around the world:


And home prices have returned back to the same level seen right before the last housing bubble viciously burst (in many high-demand markets, home prices are well in excess of those 2007 highs):

We've written numerous articles about the dangers of the current central banking policies responsible for today's nosebleed asset prices. But the gist is this: we are currently living within the mother of all financial bubbles. These prices are in no way sustainable.

Why not? While the reasons are legion (and we've spilled plenty of ink writing about them all), the big reason is revealed in this chart:

To support the current level of asset prices, we have been growing our debts more than twice as fast as our national income (GDP). Any household knows that you can't do this for long before insolvency occurs. Nations -- even those with a printing press -- can't escape this same fate in the long run.

See that little wiggle in the debt line from 2008-2009? That's the wiggle that almost destroyed the world during the Great Financial Crisis. Look at those asset price charts above again. See how much higher we are today than we were back in 2008?

So... are you one of those people wondering how much more painful the next downturn will be, when we fall from even loftier heights this time? Are you one of the few folks who haven't already forgotten that the S&P declined over 50% in the short time between the end of 2007 and the beginning of 2009?

If you are, and you've decided not to participate in today's Ponzi scheme markets and instead build cash, it's been a painful ride watching the prices of nearly every other asset vault higher year-over-year while your cash pile simply sits there.

And if the feeling of "missing the rally" isn't bad enough with the mainstream media and your brother-in-law constantly rubbing your nose in it, there's a host of new threats besieging cash these days.

The All-Out War On Savers (aka Financial Repression)

Again, as we've written about often here at PeakProsperity.com, those running today's economy are doing their utmost to keep prudent savers like you from keeping your cash safely on the sidelines. They desperately want your savings pushed out into the economy so that their over-leveraged casino can continue operating a little bit longer.

We discuss this in depth in our recent report Less Than Zero: How The Fed Killed Saving, which explains how the Financial Repression playbook is very intentionally designed to transfer the burden of the government's orgy of debt onto the public. It seeks to do so in a way that is just opaque enough to just enough people that the general public doesn't catch on to what's happening.

The key elements of Financial Repression are:

  • Negative interest rates: These reduce the servicing costs of debt, allowing the system to take on even more. They also destroy any incentive to save, as cash parked in the bank actually loses purchasing power on a real basis. This pushes capital out of savings and into the riskier assets (stocks, bonds, real estate, etc) that all the built-up debt is supporting.
  • Capital controls: These "ring fence" domestic capital, making it difficult for prudent money to avoid the measures of financial repression. Restrictive legislation on international holdings like FATCA and the higher taxes placed on "safe haven" assets like precious metals are examples of these. Other manifestations are bank bail-ins, banking restrictions on withdrawing more than $10,000 (and oftentimes substantially less), civil asset forfeiture, and outlawing bank notes as part of the "war on cash" and the move to a "less cash" or "cashless" economy -- all of these serve to thwart and/or penalize savers who would just rather sit out the current insanity of the markets and accept no return over the risk of substantial loss.

So, with the reckless investors all around us gloating at their returns, with our banks paying us nearly 0.0% on our savings and treating us like criminals if we have the temerity to ask for access to it, and with the government talking about taking it all from us eventually anyways (replacing with Fedcoin, perhaps?) -- is it time for us cash savings holders to throw in the towel?

Hussman's "Choice"

In a word: No

We have to remember that we are living through a massive bubble market that has no precedent in history. Bubble markets are nefarious, as they prey on our mind's hard-wired greed/fear drivers. It is very easy for us be manipulated into thinking "it's different this time". Even the genius Isaac Newton fell victim to the mania of the South Sea Bubble:

John Hussman has done perhaps more work than anyone else demonstrating that today's elevated market pricing is due to pulling future value into today (through debt), and that the BEST investors can hope for going forward is a decade of 0% gains:


But I think his real masterwork is his very succinct summary of the situation we are all in at this moment in history:

The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. 

2008 is not so far in the past that we can't clearly remember the panic in people's eyes as they watched their retirement portfolios and home prices get cut in half within a matter of months. That's what looking like an idiot after the peak feels like.

As oddball as it may seem to others, as uncomfortable as it may feel as the central bank liquidity party rages on, as painful as it may feel as the system tries its best to separate you from your hard-earned savings, there will come a time when this unsustainable system will falter and then proceed in collapsing on itself.

When that happens, those who decided to look like an idiot early on and refuse to join the party (i.e., positioning their capital defensively), are going to look like geniuses. They will avoid the heartbreak of loss, and they will have capital to deploy when the dust settles, purchasing quality assets at (potentially historic) bargain prices.

It's not an easy choice to make, or to remain steadfast in. It takes foresight, courage, and resolve. But it's a smart choice.

Of course, cash savings is just one of a number of options for positioning your financial wealth defensively right now. For those looking to learn more about other ways to do so, we recommend the following progression:

  1. If you haven't yet read it, read our free report The Mother of All Financial Bubbles to understand the full nature of the situation we're living through today
  2. Read our report How To Hedge Against A Market Correction, to understand the most common strategies for protecting your portfolio from downside risk
  3. For those interested, I've shared how my own personal portfolio is positioned (Note: this is not intended as personal financial advice, but as an example to evaluate)
  4. Schedule a review focused on downside risk management with your financial adviser. If you're having difficulty finding one experienced on this topic, we can suggest one to consider.

It's unknowable exactly how much longer our unsustainable markets can remain at their record levels. But there is one thing we know for certain: we're closer to their day of reckoning than we've been at any point over the past seven years. A recession is due soon by historical standards, and long overdue by fundamental ones.

When it happens, do you want to look like an idiot? Or would you rather choose to look like one now, so that you can look brilliant then?

Choose wisely.

~ Adam Taggart

This is a companion discussion topic for the original entry at https://peakprosperity.com/what-to-do-with-your-cash/

The FOMC federal funds rate is currently in the range of 1.00% to 1.25%. In the past, even this meager rate would have influenced banking institutions to offer commensurate interest rates to entice savers. Sorry! My checking account (although free) offers no interest on the checking balance from month to month. I have a savings account with a modest balance that “earns” 0.15% annual interest. It hasn’t changed - even with the recent Fed moves. Then, whatever is “earned” at the end of the year has to have taxes paid on April 15th. My money won’t buy as much, but since the nominal value increased, I still have to pay taxes on it. Arrgh!
For all its warts, my savings account is still the least ugly horse in the glue factory. In other words, I don’t feel comfortable investing elsewhere. Thanks to Fed policies, everything is out of whack with underlying fundamentals.

I think I have been a minor crank of late. I know your articles are brilliant and insightful. And your advice has helped me more than I can state here.
This article by Adam really addresses a sore point for me, I cannot stomach the market again (I used to be an enthusiastic investor in stocks before the crash) especially knowing what we know. And my friends who jumped back in have been gloating gloating gloating.
Still, I sleep at night and never worry about my savings. If my funds evaporate I will be at the end of a long line of others and the situation will have bigger priorities. I hired one of the advisors your site recommends and I am sitting tight.
Thank you as always for what you do as a long time subscriber I am amazed at everything you have accomplished.

The time for second thoughts was 2012-2015. Jumping in now would make you an idiot before AND after. Stick to the facts and what we know to be true - it’s math.

Typo alert: The acronym for the Foreign Account Tax Compliance Act is FATCA, not FACTA.
FATCA is a royal pain for foreign institutions to comply with, to the point that some banks in other countries no longer want accounts from US citizens.

I increased the percentage of cash I hold a number of years ago but also kept a reasonable portion allocated to equities. Even a 25-50% decline from here would still yield a nice gain on the equity portion, markets have been on a long wild ride to these levels. I’ve found that using a simple momentum trading approach has worked well for me, markets tend not to go up and down in a straight line, as such, once things turn south I will sell my equity allocation. How things play out in the bond sector will be interesting, hard to perdict but I’m using a momentum approach in this area as well. I keep dancing will the music keeps playing. I’m sure I will incur some losses but I’ve also made some nice gains. Everyone needs to do what allows them to sleep at night.

What frustrates me about the peak prosperity community is that we acknowledge the markets are in a bubble and that they are in a state of systemic risk, but we still continue to find some way of taking advantage of them to make money. It seems to be obvious that the system itself is geared towards failure given a long enough time frame. It is a disconnect, or cognitive dissonance of people still trying to get a free lunch. The essence of day trading or investing is trying to make money without working. Instead of producing something and selling it at a profit, you want to make money by doing nothing.
If you want to know where to put your money, take a 1st year economics approach. Divide the economy into three. the primary economy, the secondary economy and the tertiary. The primary being production of resources, so farming, mining, logging, fishing. the secondary being anything that takes primary production and adds value, so the carpenter making furniture with the wood, and so on. The tertiary being anything that derives it’s resources from anything else, so banks, accountants, government, stock markets and so on.
Assume the tertiary economy is a bubble and systemically flawed. Invest in those things that aren’t related to the tertiary, and can’t be influenced by the tertiary. So whilst food production sounds good, if the food is traded on the futures market then stay away. Invest in a small farm and grow mixed food, or a CSA, but don’t buy something on the stock market where the wealth is tied up in the tertiary.
So here is where you make money, invest in a farm, or a carpenters workshop, a barber shop, or something small and local that will always be around, something that existed before corporations existed. The bad news is you probably can’t day trade and keep your money, you will have to get your hands dirty and do an honest day’s work. The good news is that it’s not that hard, you can find plenty of jobs for older people, or people that aren’t strong anymore.
Ask yourself these questions; if you have all of your money in a bank in the next crisis, what stops a Cyprus style bail in from taking half of it? If you have all of your money at home, and the next crisis takes 10 years with an inflation rate of 6% how much will be left when you need it?

nigel wrote:
What frustrates me about the peak prosperity community is that we acknowledge the markets are in a bubble and that they are in a state of systemic risk, but we still continue to find some way of taking advantage of them to make money. It seems to be obvious that the system itself is geared towards failure given a long enough time frame. It is a disconnect, or cognitive dissonance of people still trying to get a free lunch. The essence of day trading or investing is trying to make money without working. Instead of producing something and selling it at a profit, you want to make money by doing nothing.
Thumbs up for the whole post, but especially the first paragraph. We are all living on surplus energy and as a result have managed to fool ourselves into thinking that all the accouterments and trappings of tertiary activities are as real, if not more real in many people's minds, than primary or secondary. To that end, the degree to which each of us is still wedded to our own ideas of "free lunch" tertiary gains is the degree to which we may be pretty disappointed in how the future unfolds. After all, unsustainable is unsustainable. In better news, for the first time in what may be 5 years, we have a single Monarch butterfly that now frequents our many plantings in the yard. I am surprised by how much I value this single butterfly. Powerful flyer, graceful, extraordinarily beautiful. It reminds me exactly what I am fighting for. All life. Beauty. Those are worth fighting for.

We have seen more monarchs this year than in quite a while, but still not all that many. We visited a friend who lives on the south shore of Lake Ontario this week. He hasn’t done much planting, but does have a few milkweeds and butterfly bushes. He had a lot of monarchs that were apparently passing through. The west end of Lake Ontario and the east end of Lake Erie are a major flyway for birds, but I hadn’t heard that butterflies follow the same flyways. Nonetheless, I was happy to see them.

With apologies to Adam as my post was not that of a gentleman, in fairness I still hold gold because of the crash course (and have done quite well from it) and constantly look for good investments. I am the cause of my own frustration often. I avidly read your posts good sir, you introduced me to singing frogs farm, and that alone was worth the price of admission.
My post was rude because you and Chris write for a broad audience, at different stages of being awake, and your post was gentle and good, and just because I didn’t get value doesn’t mean that someone else might not have needed to hear it, and my criticism of day trading was done without consideration for them. Tact is not my strong area and I usually hold my fingers from being so poorly behaved.
My weekend was spent cleaning out a new garden bed. It will be my lavender and rosemary garden, because they are both beautiful, they smell nice, and the bees will love them, maybe a butterfly or two.
Happy gardening.

Great article I am definitely one of those sitting on the sidelines. My main investments have been in my small farm and trying to get as self sufficient as possible. A large part of my land is timbered and recently I had several loggers up to my place to inquire about thinning out my woodlot. After some boundry marking, and cruising of the timber I was quoted a price that really surprised me. It was almost a thousand dollars an acre. This land had been logged 15 years ago, and the logger informed me that it can be logged every 15-20 years. I chose not to do it for now, I am still doing research and making sure that this is a good option for me.
I am by no means an expert on timber, but this is certainly an investment worth looking into. When I bought the place, I never even considered that I was buying a timber investment. I used the woods to cut cord wood to heat my home, hunt, and provide privacy. When I do the calculations, a regular timber harvest pays all my property taxes for the entire 15 year period plus about 7k.
So come to find that the piece of my land that I thought was worth the least, is not only providing free heat for my home, venison for my table, and privacy from neighbors…is no paying my entire property tax bill FOREVER. If I ever get around to tapping those maple trees, It’ll also top my pancakes.

When I was growing up in the mid-late 60’s, a fairly large tree in the backyard of our farm property was covered top to bottom with migrating monarchs taking a break. (Western Indiana) It was sight to remember. Unfortunately, the Brownie was out of film. : (

Timber’s generally a good investment but has its risks as well. Fire is one. Infestation is another (think chestnut blight, dutch elm disease, gypsy moth, etc.). Theft is also a possibility. My ideal property would be one on a body of water filled with fish and other edible aquatic life, edible wildlife, abundant hardwoods, good soil, a gold mine, steady wind (for a wind farm), and abundant sunshine (for solar). Lots of primary wealth. So far, still looking.:wink:

The thing I don’t understand about this is how all the creation of this new money will effect the next crash. Now that all this printed money exists arent these higher prices just here to stay? I was told that all this money printing would lead to inflation, so aren’t we just seeing this inflation now and isnt inflation different than a bubble?
The next crash will look far different from the 2008 crash. Will prices really drop in the same assets areas like they did last time? They won’t be able to use the same strategy again to get us out…

Christian values
Business owner: 16 years Cstore, pizzeria, in resort area.

I found this sight thru the Blaze. I consider myself a bright person. I run a large business in a resort town that includes C-store, Mobil gas, Pizzeria/deli, liquor store, laundromat and apartments upstairs. I’ve been married 33 years and have two teens…one in college so I deal with fafsa, etc. besides dealing with the rules/regulations in NYS dealing with fuel/liquor. I have just haphazardly had 401ks etc. since I was a young girl working for someone else. After being self employed I’ve plugged away on my own. I bought one stock @ $500 (my first ever) and it’s now 15K, I had to rollover my corporate stocks and went to Goldline (a Beck listener). I don’t like stocks so put some in equities which I guess are an expensive way to invest (???). Also JUST started IRA a couple months ago. I have NOOOOO idea what I’m doing…I’ve never even heard of your “three basic economic” trio. I wish I new where to even begin. The more I read, the less I know and more confused. I work 70-80 hrs a week and am an involved Mom. Where do I begin???

The place to begin is The Crash Course:

The 3 E’s are: Energy the Economy and the Environment.
Welcome to PP. If the crash course makes sense to you then you’ve found a great website!

No maple trees as we are in the Deep South, but we have stands of forested hardwood pines (yes, they come in hardwood: i was surprised) and the market for them is depressed. At the family meeting I advocated for selling some of them anyhow because if you think the market is depressed now, wait until no one has any money.
There’s enough lumber there we can still cash in the rest later if we make it through to the other side of the coming crash,

This is a well-run and useful community and we are glad to have you aboard. Start with the Crash Course. It’s overwhelming at first but don’t despair when watching it, for if you say you are a Christian then there’s that saying, “God had everything under control.”
PM me with any questions! Be well.

Welcome. I second the recommendation to go through the Crash Course first. Then follow along with new posts as you are able. Things will begin to come together.