The US Economy: Hoarders of Cash

With all the worry of an potential recession, let’s take a step back and look at how likely they really are. Since 1947, there have been 12 recessions (fall in GDP for 2 consecutive quarters), averaging 6.42 years between. Although, since Q1 1983, there have only been 4 recessions averaging 9.25 years between, which even include covid (I classify this as an external force, not fundamental). This lack of economic struggle has lead to the largest bull run in history. Take a look at this chart of SP500 since inception:

Since the 1920s, SP500 volatility is down heavily, and mostly due to the lack of drawdowns, and not as crazy of spike upward. Creating more consistent returns. Which, in my opinion, has lead to the largest stockpile of cash in history. In recent years, M2 money supply (Cash/CD value) has never been higher as a percentage of GDP:

So what does this mean? In my opinion, we are better protected against a potential recession, due to the amount of cash available to be deployed, especially if asset prices become lower valued. You can look at this two ways, did the biggest bull run in recent history cause a bubble that’s ready to pop? Or a fundamentally strong economy, able to weather turbulent environments?

If we correlate this back to real estate, prices are coming down (as spoke about in prior weeks), but the cash pile is still there. The next 3 months will be especially important to see if this cash has an appetite for real estate.

What can get this cash off the sidelines? Lower interest rates & attractive real estate prices makes sense.

Next week: what are attractive real estate prices?