Cash Rethink Energises Asset Markets

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Ethan Wu (0:36)

Thank Pushkin.

All through last year, the question in markets was, yeah, okay, that's a pretty good investment opportunity, but is it better than cash? And if it wasn't, it wasn't a good opportunity. We've been talking about interest rate cuts on the show recently, and with that being the dominant market expectation, cash is potentially looking less attractive. Today on the show, the diminishing allure of cash. This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I'm reporter Ethan Wu here in New York, joined once again from London by markets columnist and queen of cash, Katie Martin.

Katie Martin (1:15)

I'm happy to be queen of cash. It could have been worse, right? I could have been a cash cow, and I'm not. So I'll be queen of cash.

Ethan Wu (1:22)

Katie, I don't think my employment would last particularly long if I called you a cash cow on the show.

Katie Martin (1:28)

But yeah, it's cash rules, everything around me, right? Everyone's talking about it right now.

Ethan Wu (1:32)

Absolutely. It's the logical question to ask when we talk about interest rate cuts. But Katie, this is a broader market discussion, but this is also for me kind of a personal conversation.

I have a non-insignificant portion of my personal wealth in a money market fund. And it's nice to get those returns. They've been pretty good recently. I think I get four and a half percent. But on some level, I'm a little nervous about it. Like, what do I do with all that money? You know what I mean? And I know you're not an investment advisor, but I can show you some advice.

Katie Martin (1:59)

I really don't want to get the blame if I make you lose all of your money on some hideous crypto scheme.

Ethan Wu (2:04)

You're not going to tell me to put it in Dogecoin?

Katie Martin (2:08)

I'm not. But look, it's useful to define our terms a little bit here, right? We're not, I'm assuming, Ethan, that you have more sense than to have your money in like literally paper money cash, like put in a cupboard in your house somewhere. We're talking like accounts. We're talking like money market funds in the States, which are like wildly popular. And we don't have quite the same set up in Europe, but we're talking about money that's put on deposit that pays you some sort of rate that's tied to the benchmark interest rate. And cash goes through these various phases. So like in 2020, like Ray Dalio, Mr. Hedge Fund Supremo from Bridgewater Associates said, Cash is trash. Get your money out of cash. It didn't pay you anything at the time. This is like four years ago. Interest rates were basically zero.

You were just sitting with a pot of money that never grew.

Fast forward to 2023 and suddenly cash was king. Like these sort of short-term savings accounts were paying you like, I don't know, 5%. That's like a chunk of change. Like you had to put money in really risky investments a few years ago to get that kind of rate of return.

All of a sudden you were being paid 5% for something that's safe, really easy access, no drama, typically kind of boring. So, you know, I don't blame you for having a lot of your, no doubt, substantial wealth, Ethan, stashed away on money market funds.

Ethan Wu (3:31)

Very substantial.

And like you said, Katie, last year, you know, money market funds were kind of like, in some ways, the big traded market. So we saw over a trillion dollars move into those funds as interest rates moved above 5%. The yields were attractive. They were competitive with the bond market. And, you know, I think as of the latest Federal Reserve data, there's over $6.1 trillion in money market funds.

Part of that, I think, is cash, like you said, it has been so bad for so long that you would check your money market fund yield and it would be something depressing, like 0.01% or whatever. I have like an acute childhood memory of looking at my bank statement. You know, I had my 100 bucks of allowance in the bank and wondering, you know, I'm getting one tenth of a penny of interest. That's preposterous.