7 trillion dollars “Wall of cash” that come to the market

This may not be an era into which Americans fall asleep in physical currency that fatten their wallets Generation of attractive crops Due to the increase in the interest rate of the federal reserve to combat inflation. There is a record amount of cash on the cash market, approximately 7.6 trillion. Dollars, According to the tap.

But as Federal Reserve is preparing to reduce rates For the first time in a year, perhaps as much as 50 basic points-polytics, which over time reduces profitability without risk of monetary equivalent- The market attention has changed before whether the money will be on the move. In the most extreme, the so-called “Wall of Cash” Wall-Street-which claims that all this money can create their own stock on the stock market-voiced about as many times as offered.

At least this is a significant moment of changing the federal reserve policy. A Latest data market data Confirmed the enhancement of fears of the labor market in the wrong direction and the need for the central bank to move faster than later before unemployment. Meanwhile, Recent inflation dataWhile far from the fucking pressure on pricing across the economy did not suggest that the Fed would restrain At least reducing the rate on 25 basic points Next week.

Salaries’ wages are “causing the rate to reduce the rate,” said the chief economist of the Institute of Investment and the lead researcher Shely Antoniewicz at the “ETF Edge” CNBC earlier this week.

According to most market experts and economists, she said The pace of these cuts will remain depending on the data, as the Fed is observing both the labor market and inflation, and manages its double mandate of full employment and prices stability. But she added on Podcast, part of ETF Edge As the Fed begins to reduce the rates, approximately $ 7 trillion, “sitting in the money market,” are gradually getting more at risk, including stocks and bonds, since the savings rate becomes less attractive.

Certainly, more mutual funds will pursue these assets on the abyss A huge decision of the Securities and Exchange Commission What can allow every asset management company to offer the class of its ETF funds. Antonovich noted that the SEC has 70 applications for release, and the ICI, the main trading group of the mutual fund, works with hundreds of funds sponsors to be prepared to add ETF stock if the SEC says “Go”.

Although all that can be true, Peter Crane, the president and the publisher of the Crane scientific firm, heard it all before, at least when it comes to the Fed and the cash market, and he has a simple answer: assets of cash are just growing, and the only time in the last story when they went down, unlike.

“The tariffs are important, but much less than most people consider, ”Crane said.

In fact, in the 52-year history of monetary market funds, the assets declined only after the Dotcom bust and the financial crisis, periods when intense economic stress led to the speed of rock-day, “the lower rate of rates nailed to zero,” he said.

If everything becomes bad enough in the economy, that the Fed should reduce more aggressively earlier than later, it is not quite a sign of the market where investors are likely to be too aggressive at their own risk profile.

“Dream on Wall -Strit,” said Crane. “This creates a good time of conversation, but $ 7 trillion does not go anywhere but above.”

Over time, there was a shift in the use of the cash market, so that it was mostly a phenomenon of retail, now most institutional and corporate cash – approximately 60% of the market, according to Crane. “They don’t move, no matter what,” he said. “They are not going on the stock market.”

The point is not that money researchers, such as Crane Deny that lower rates matter, or that some cash assets can really go to higher risks, higher revenue directions-it believes that it may be 10% of 7 trillion. Dollars, although it adds that there is no accurate data that can be relied on.

But if you consider approximately $ 20 trillion, which Americans leave in banking fields, mostly giving their money on Wall -States to get out and earn more money without making money themselves, a decrease in 25 basic points in the current interest rate does not make money for a dead option.

“It’s more about how big the rate is,” he said. “A quarter of the investor item in cash, which looks a few years ago when the rates were zero and are they used to getting anything?” he asked.

While investors can “re -sensitize” to give way at what level it will be? Currently, investors earn money by 4.3% annually.

Crane says that even if the rates move up to 3%, they are by no means assured, as 100 basic fed speeds are considered by many as an aggressive, which prohibits a serious decline in the economy, most of the money will remain delivered, especially when you consider that banks pay to hold cash at best. “Bank deposits are wildly underpaid,” he said.

That is why Crane thinks that it is to repeat the Fed history to move a significant amount of money. “Perhaps if you go to zero, erosion will appear in the base,” he said. The Fed reduced the rates a year ago before it stopped with fear about inflation, and since then, cash assets have only increased. “If we go up to 3.80%, 3.85%, who will care?” said Crane.

In addition, despite the fact that the overall balance on the money market is huge, individual residues are usually relatively small. If the investor has $ 5,000 in the monetary market and earns 1% or 2% less, Crane says there are the best things you can think of how to make money. “You just spent more money thinking about the problem, then you earn. Nothing should be done less than 1% or a hundred bucks,” he added.

And, at a time when the bond market was unstable, in fixed profits and in the Treasury market than to the Treasury market than the investors expected, making the length of a more difficult offer for investors.

Portfolio parameters when the Fed goes to lower rates

One thing is for sure: the monetary funds market will not move next week to the direct offensive of the Fed on the rate of reducing the rate. Unlike the Treasury accounts, cash has a balanced maturity for 30 days, so assuming the Fed reduction next Wednesday at the Fomc meeting, the treasures begin to decline, but the cash will take a month to be completely below because they are still owners of the Higher Doda. Old securities. And at least in the short term, when the Fed submit the incision from Jamba, the crane expects that cash market assets will increase for the same comparative reason.

“But in the long run, this is negative,” he said. “After all, there is less interest in comparison with other investments.”

But the fact that the market retains A blow of record highs And the assets of money also fall into record highs, does not suggest that the game is the one where any benefits of the stock harm the money market.

If you are among the investor who has created a more significant balance than you necessarily need the cash records, there are options, according to Toda Son, Technical Strategist, and ETF asset management strategies. But he emphasized that it all depends on the risk tolerance as well as the tax factors.

“Once the money market rates will start flirting with a lower area of ​​3%, your yield after taxation is not great,” the dream said. But although this cannot be perfect for the return that you can create, “maybe you risk and just want to keep it there,” he added.

For investors who determine that the transition from cash is justified, the first step that needs to be considered is the exit to the Treasury curve, such as the ETF Treasury, the duration of two to five years. Sleep acknowledges that during the greater volatility of the fixed income market, this means that investors take more risk and more volatility, but do not risk the loan. “At least you will get a yield plus prices,” he said.

To manage any surprises on the fixed income market, investors can use what is called A “Bond staircase” ETF.

“There are several ETFs, which will be the stairs of the treasury so that you find themselves on the curve,” he said. “The balance of the ladder can keep the volatility below the addition of too long,” he added, a factor that has burned many investors in recent years.

Among the recent instability of the bond market is many investors on the market ETF Gravity to the most short -term treasures of all.

Investors may also consider adding stocks, either at all correlated assets either to the stock market or on bonds, but SOHN has warned that any investor already has a diversified portfolio is unlikely to need a greater impact of growth and technology of large capitalization, while the record market, which is moving these stocks now, and eight the largest technological rallies. representing about 40% of the US stock market.

“But maybe you see holes in the sleeve of your capital,” the dream said. “Evaluate your portfolio to find out if you need a small, average capitalization or international exposure. There are many low cost,” he added.

You can watch Full Show “ETF Edge” this week More about some ways as investors are getting new impact on the stock market and investments that make profits through active ETFs and ETFs that use stock options.

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