Cash in Mutual funds
idorfman.com
Household debt:
idorfman.com
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So when you hear it said by some Street commentator that households are sitting on a mountain of cash at the current time, you know that the appropriate response is "compared to what?". Again, we're not suggesting that the world is about to go dark, but rather we're trying to paint the picture of household financial character and potential financial flexibility as we move ahead. In our minds, the ease of availability, ease of terms and price of credit has been the household substitute for cash in recent years. After all, one can "always" refi. One can "always" get a line of credit. One can "always" get another credit card. We believe that for many folks, the lines between cash and credit have blurred. But as with household holdings of cash and bond assets, the price, terms and availability of credit is cyclical over time. In the current cycle, most folks have probably long forgotten that truism. In a simple world, we'd suggest that it will ultimately take cash at the household level to further purchase equities, residential real estate, etc. as we move forward. And current cash levels relative to these asset class values look much more like molehills than mountains at the moment. But we're not in a simple world. We're in an unprecedented credit cycle. We're in a finance based economy. Whether it's the trade deficit or household mortgages, activity is based on borrowing, not cash. Maybe it will only be with an ultimate change in the credit cycle that the mountain of household cash will truly be seen for what it is, not much more than a speed bump set within the context of history.
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