Investing Blog

Cash equivalents have never been so high. Currently there is around $9 Trillion stored in cash equivalents such as treasuries, CDs and money market accounts a total that hasn’t been seen since the recession of 1992. Now with so much money being parked in fixed rate investments, rates are dropping and investors are tired of it. Why invest for no return?

The most promising part of the $9 trillion in cash equivalents is that $9 Trillion is actually 75% of the current worth of the stock market. If that money were to pour back into stocks, stock prices would double.

What I see for 2009 is not an economic turnaround, its an investment turnaround.

Let’s get things straight before we proceed. The market has been propped up with trillions of investment dollars that are now casually sitting on the sidelines. With so much credit and cash out of the market, there is plenty of room for a boom as investment dollars start to come out of fixed income. The months of deflation– or deleveraging– are now over and we’re going into a inflationary cycle brought on by government stimulus and trillions of dollars coming back to the stock markets.

To prove the point here is a chart of the treasury yields during the month of December:

Here is the Dow for the same time period:

It takes very little imagination to see the trend. When treasury rates go up because investors are selling them off, the proceeds find their way to the stock market. When treasury rates drop, money is being poured out of the stock market.

The US cannot maintain 0% treasury rates and neither can investors who want to produce a return. At some point trillions of dollars will make its way into the market, I’m thinking the rally begins soon.

Bonds, Investing