• Through monetary policy the Fed a real alternative to stocks
• Cash with an attractive return “without any risk”
“Cash isn’t junk anymore. That was a two-decade-old meme, that’s not [mehr] applies,” said market researcher Jim Bianco in a recent interview with “CNBC”. Bianco is President of Bianco Research and, according to “The Market”, was shortlisted for one of the vacancies on the Board of Governors of the US Federal Reserve in 2019. The US -Currency watchdogs and their recent rate hikes are also the reason why the saying “cash is trash” no longer applies, according to Bianco.
Expert: Fed is likely to raise interest rates more than originally expected
Since February 1, the key interest rate in the US has been in a range of 4.5 to 4.75 percent, and the Fed has also signaled further interest rate hikes in order to stem the still high inflation. As Bianco told CNBC, Wall Street is increasingly assuming that the Fed will raise interest rates again in March, May and June – once again more than previously widely assumed – and that the interest rate will eventually exceed the level of 5.25 percent is likely to rise, which the Fed once called the end point. “A lot of people are starting to think: The Fed isn’t just going to be an additional one rate hike but it’s going to do a lot of additional rate hikes,” the market researcher explained. “Investors are going to have to start thinking about the idea that we have a 5 percent or 6 percent world, and they’re going to have to start thinking about the idea thinking that cash isn’t junk for the stock market anymore,” Bianco continued.
Tailwind for short-dated government bonds
The expert understands cash primarily to mean US Treasury bills debentures of the US Treasury with short maturities of up to one year. Such a Treasury bond with a six-month term is already yielding five percent, and according to Bianco’s estimate, it should be six percent by the fall. That would then be roughly the level of two-thirds of the long-term return on the US stock market, which is around 10 percent. “You get two thirds of the long-term increase in value of the stock market without any risk. This will be a strong competition for the stock market. It could take money out of the stock market,” the market researcher told “CNBC” with conviction. Because a higher return on such fixed-income securities usually means that investors shift at least part of their portfolio into low-risk investments and thus the prices for riskier financial instruments such as shares fall.
Bianco: Cash is no longer a waste of time
Government bonds with short maturities, money market funds and similar investments are more attractive for investors worldwide than they have been for years due to the hawkish monetary policy of the central banks. Even the interest rates on fixed deposits and call money are currently rising again. According to our fixed deposit comparison, German savers can currently earn up to 2.9 percent interest for a one-year term, according to a call money comparison, it is up to 1.85 percent for deposits that are available at any time – some institutes offer even higher interest rates for a limited period of a few months.
Cash was “just a waste of time” in the 2010s, Bianco told CNBC. However, those times are now over. “Cash could actually become a kind of alternative,” says the expert. It may even come out on top for the first time in years thanks to rising interest rates.
Editorial office finanzen.net
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