Why cash is king today

One of my most popular tweets last week was my comment that Cash is king.

Many might have misinterpreted this to mean sell everything and just stay in cash.

Just to clarify, I said cash is king not because I think cash is the best asset to own from a return perspective.

Although cash, particularly the US dollar, has provided the best return so far this year compared to all other asset classes including bonds and stocks, its not the best asset to own in terms of creating or even preserving wealth from a longer-term perspective. This is because the same amount of cash will buy you fewer goods over time, especially if inflation remains elevated.

However, cash is king today because of its limited supply. Given the high level of risk aversion, it is very difficult and expensive to borrow money and raise capital.

Cash is also king because of the abundance of opportunities available to cash-rich investors. Right now, there are so many bonds, stocks and nonfinancial assets that can be bought at a huge discount.