Cash Rich, Asset Rich, and Repo Markets

I’ve been having this thought lately, one that has been debated before, it’s that very few people are actually cash rich today. Most are asset rich.

Like no other point in time, even greater than the DotCom Bubble, investing has permeated every corner of culture. In hindsight, Bitcoin was a phenomenon that introduced millions to speculative markets practically overnight. There are more brokerage accounts open today than in the DotCom Bubble. And it’s growing. I think part of that is because of the ease of investing. The 20-year-old who just got into vaping can download a commission free brokerage app and buy two shares of Tilray in a few minutes. Even the rapper Waka Flacka, not long ago, was sharing an Instagram image of his stock portfolio.

While I think investing can be beneficial across all asset classes, I do wonder what it means to have a society that is entirely focused on being asset rich and not cash rich. Corporations especially. We read daily about how much cash companies like Apple have, but we rarely ever scruntize their liabilities, their debt, or the actual nature of this “cash.” I would wager most cash assets today are actually in short-term vehicles that are marketed as such, “just as good as cash” … *reads fine print at bottom of page* “but not really cash in its true definition.”

Today, the Fed is quietly injecting $30+ billion each night into repo markets. The main cause is because there isn’t enough cash in the short-term to fund the immediate overnight needs of banks and corporations. Even if it is just a one-time fluke, which many tell me it is and that it’s not that out of the ordinary, the fact remains that whatever just happened, beneath the surface, there was a squeeze for cash going on.

Just recently, on one of these cash-squeezed nights, the interest rate on an overnight loan in the repo market, that thing in the corners where very few ever look, went as high as 9%.

A family member of mine once warned me about the perils of being asset rich. How much do you think everything in your room, the one you grew up in, is worth today? I think a couple thousand dollars. I mean I have some great baseball cards in there, some video games that are still worth playing, some clothes, and a few other items. Now, imagine you took all of that stuff to a garage sale and spent a day or two trying to sell it. How much is it worth now? Probably a couple hundred dollars. Maybe less.

That’s the difference between being cash rich and asset rich. And when the signals start to show, heed them wisely on where you should be.

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