Cash is king, come here King

More evidence that the bond vigilantes are staging a coup in the pits.

The New York Fed’s “primary dealers” – the 22 largest broker-dealers in the US through which the Fed interacts with the markets – have slashed their holdings of Treasuries from a record $146 billion in October 2013 to just $30.3 billion in June.

The primary dealers or large Wall St banks, which trade with the NY Fed on debt offerings, have slashed their holdings, not because of provisions in Dodd/Frank, but to cut risk in their own portfolios.

On Monday the Dow Jones index went negative for the year. The other two indices –– S&P 500 and Nasdaq –– are just up more than 1% YTD.

So where is all this cash going? It’s out of equities, its leaving sovereign bonds, with yield rising to near 2.4% on the 10-year note after hitting a new low in Oct. of 1.6% .

Corporate bond offerings look a little like subprime paper in 2006. There is a rush to funding in the market, with defaults growing quickly in the last few weeks.

Where is money being treated the best?

A case could be made for tangible assets. Real estate has risen slightly, gold is holding a bid, oil is bouncing back and the dollar is still strong.

Is cash a good holding. There’s no inflation to speak of and a case could be made of a deflationary whiff in the air.

Why buy today when prices fall — or value of the dollar rises. When the two move in opposite directions, that’s deflation. And it could explain part of the retailers spiraling down of sales.



One thought on “Cash is king, come here King

  1. Pingback: Back-door easing to control 10-year prices | GRAY'S ECONOMY

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