Short-term yields look much more attractive than many stock dividends and longer-dated fixed income instruments.
Having the flexibility to manage and deploy portfolio liquidity is like having a ladder to higher ground.
It may be time for investors to actively reevaluate their liquidity management.
Uncertainty about the unwinding of Libor could increase spread volatility and create opportunities in products indexed to short-term rates as the market evolves.
Autopilot liquidity management that seeks yield without proper compensation for liquidity or credit risk could lead to investor regret down the road.
An improving growth picture gives fodder to the Fed to increase rates this year – possibly several times. It should also be a signal for capital preservation and liquidity investors.
Investors should take note of the low absolute yields which many “cash equivalent” assets offer, in both absolute and relative terms.
Now that we have clarity on the U.S. election and seem to be on the precipice of a Fed hike, it is time to refresh the rules for investing for capital preservation.
An investment in money market funds since the beginning of 2009 would have decreased purchasing power by more than 14% on a cumulative basis.
The Brexit vote caught many investors flat-footed but central bankers charged with liquidity management merely lifted an eyebrow.
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