FUND MANAGERS DUMP INVESTMENTS, CASH IS KING

Around the world, cash holdings among investment fund managers has reached their greatest volume since the terrorist attacks in the U.S. in September 2001, the Financial Times reported.

Last Monday and Tuesday, $5.2 billion was withdrawn from the world’s mutual funds holding equities, running up the four-week outflow to $16 billion, according to Bank of America (BoA).

Cash on hand now makes up 6.1 percent of those portfolios, according to BoA data gathered from 288 professional managers handling $833 billion for institutional investors.

The cash holdings rose along with concerns about corporate earnings, the FT noted.

About 66 percent of fund managers contacted this month expect corporate profits to shrink, roughly the same percentage making the prediction at the onset of the Great Recession in 2008 and the dot-com bubble’s deflation in 2000. 

Thirteen percent of fund managers are now underweighting stocks in their portfolios, BoA analysts said, compared to 6 percent overweighting them last month.

“There has been a lot of damage to investors’ psychology and this is the result,” BoA chief strategist Michael Hartnett said to the FT.

Even though the benchmark MSCI All World Global Index of stocks has tumbled 17 percent so far this year, stocks’ “ultimate low” has not been reached, he added.

Goldman Sachs analysts are telling investors to go heavy in cash and have downgraded equities to a “neutral” rating, neither favorable nor unfavorable.

Investors must see a “convincing peak” in inflation to edge back into investments with risk, Goldman strategist Christian Mueller-Glissman told the FT.

TREND FORECAST: The down-trend in equities is seen in the numbers. Retail investors sent $17 billion into the markets in March, $11 billion in April, but only $2.4 billion during May’s first 10 days.

When the Fed’s key interest rate reaches or surpasses 1.5 percent, markets will sharply fall. When interest rates climb above 3 percent markets and the economy will crash. 

Therefore, when both start sharply declining, under pressure from Washington, the Fed may put a pause on raising interest rates so the economy appears strong before the 2024 Presidential election.

Not only will “Cash be King,” we forecast that precious metals will sit the highest on the economic throne.