The Power of Cash: Why ‘Cash Is King’ During a Recession

cash is king during recession: Buy The Fear

Cash Is King in a Recession: Understanding Its Vital Role

Updated Aug 2023

So why is cash king in a recession? We could sum it up in two words: Hot Money.  However, for some strange reason, when it comes to the markets, individuals love long explanations even though, in most cases, the long descriptions reveal much less than the short ones.  Let’s look at a few things we ignore, but we know many investors do;

S&P 500 companies are going to report what will turn out to be the 6th consecutive quarter of lower stock market earnings.  Right off the bat, logic tells you we were right when we said hot money. What else would keep this market trending higher?  This is one of the longest-earning slumps in over a decade.

The following logical assumption would be, “Well then, there is no way stocks can keep rising”, or how long can they rise in a low stock market earnings environment? To get the correct answer, you need to ask the right question. Both issues are silly, and responding to either will not provide further insights.  One person will state it cannot rise because of the abovementioned negative factors. The other penguin will say it can increase because inflation is low, unemployment is low, gas prices are low and a host of other rubbish.

Cash Is King in a Recession: The Persistence of Skepticism Amidst Market Ascendancy

While it’s a widely acknowledged truth that “cash is king during a recession,” what often goes unexamined is when central banks will cease their monetary infusions into the markets. The answer might as well be “when hell freezes over.” This market is poised for a much longer ascent than most pessimists can endure.

An even more pertinent question arises: “Which side of the market do the masses favour?”

Herein lies the crux; the masses lean decidedly toward negativity. As long as they remain sceptical of this market, it will persist without a crash in sight.

But let’s delve further, even though these reasons don’t hold our primary concern, into why earnings might decline.

Energy and other commodity-based companies have witnessed a drastic profit plummet, making them the poorest performers for over 18 months.

A couple of additional factors come into play. Firstly, U.S. firms, on the whole, have reported reduced earnings due to the severe blows sustained by energy, commodity, and basic materials companies from dwindling prices. The energy sector, in particular, is poised to bear substantial losses once again.

The second factor is the robust dollar. It’s been on an upward trajectory, adversely affecting the profits of multinational corporations. This stems from the ongoing currency warfare; a strong dollar doesn’t bode well for multinationals, and vice versa. Furthermore, it impacts our exports, rendering our products more expensive in foreign markets.

Conclusion

In conclusion, cash indeed holds significant importance during a recession. It serves as a financial lifeline when times are tough, providing stability and liquidity. This is especially crucial in a market characterized by declining earnings and uncertainty.

Furthermore, the prevailing sentiment among the masses, which leans towards pessimism, can counterbalance, preventing a market crash as long as scepticism persists.

However, it’s essential to acknowledge that various factors, such as the downturn in earnings, particularly in energy and commodity-based sectors, and the strength of the U.S. dollar, affect the financial landscape.

In this ever-evolving financial environment, the role of cash during a recession remains vital, but it’s not the sole determinant of market outcomes. The interplay of multiple factors and “Hot Money” dynamics continue to shape the financial landscape, making it a complex and dynamic arena to navigate.

The only two things you need to consider are an extremely accommodative Fed and the masses refusing to embrace this market. Both developments are highly bullish for this market.

Data readily available to everyone is like news; the moment you hear it, it is no longer news but Gossip.

Originally published on October 7, 2016, this content has undergone several updates over the years, with the most recent update conducted in August 2023.

Other Articles of Interest

which of the following is the biggest pitfall of economic indicators

Which of the Following Is the Biggest Pitfall of Economic Indicators: Analysis

Feb 29, 2024 Which of the following is the biggest pitfall of economic indicators? Before diving into the core of ...
Smart Investing Unveiled: Perception Manipulation and Sentiment Indicator

Perception Manipulation: Mastering the Market with Strategic Insight

s Perception Manipulation & Investing: Sentiment Indicators Unveiled Updated Feb 24, 2024 By the ripe age of 18, the average ...
The Contrarian Outlook - Unleashing Success

Contrarian Outlook: A Pathway to Breakthrough or Breakdown

Contrarian Outlook: Balancing the Scale of Success and Risk Updated Feb 24, 20234 Introduction Adopting a Contrarian Outlook could be ...
Market Uncertainty: the emotion that separates traders from speculators

Market Uncertainty: A Challenge for Investors

Feb 22, 2024 Discerning the Hazards of Market Uncertainty with Poise Uncertainty, a state of being unsure or not knowing, ...
Stock market basics for beginners: do or die

Stock market basics for beginners: Adapt or Die

Stock market basics for beginners Updated Feb 22, 2024 A Contrarian Investor does not follow the Herd Sol Palha  Investing ...
Why Covered Calls are a Bad Strategy

The Unfortunate Truth: Why Covered Calls are a Bad Strategy

Feb 21, 2024 INTRODUCTION Covered calls have emerged as a favoured choice among the myriad methods, glittering with the illusion ...
DJU Index: To buy or not to

DJU Index: To Buy or Flee? Unraveling the Market Mystery

DJU Index: Decoding Signals – Is it Flashing Bullish or Bearish in the Market? Feb 21, 2024 Introduction: Intriguing Developments ...
Stock Market Psychology 101: Learn, Thrive, and Profit

Stock Market Psychology 101: Learn, Thrive, and Profit

Feb 20, 2024 Understanding Stock Market Psychology Through Charts for Beginners Understanding the stock market is akin to deciphering an ...
In 1929 the Stock Market Crashed Because of Greed, stupidity and arrogance

In 1929 the Stock Market Crashed Because of Greed

In 1929, the Stock Market Crashed Because of unchecked speculation Feb 20, 2024 Introduction to the 1929 Stock Market Crash ...
Palladium Forecast: Discovering the Hidden Bull Market Trend

Palladium Forecast: Unveiling the Stealth Bull Market

Palladium Forecast: Navigating the Silent Bull Market Unfolding Updated Feb 19, 2024 The lustrous white metal Palladium is silently scripting ...
The Journey to Remove Brainwashing

Unshackling Minds: The Journey to Remove Brainwashing

Feb 16, 2024 Unshackled Minds: The Journey to Remove Brainwashing Introduction: The Tangled Threads of Thought Manipulation In the grand ...
Mastering the Trading Range

Mastering the Trading Range: Unlocking the Potential for Explosive Gains

The Trading Range:  Masterfully Navigating Volatility  Feb 14, 2024  Introduction In the ever-fluctuating world of stock markets, mastering the trading ...
Unveiling the VIX Fear Indicator: Best time to buy is when the crowd is scared

Unveiling the VIX Fear Indicator: A Case Study in Market Volatility

Harnessing the Power of the VIX Fear Indicator: A 2016 Case Study Updated Feb 12, 2024 The VIX fear indicator, ...
Mind Games: Unmasking Brainwashing Techniques in Institutions & Media

Mind Games: Unmasking Brainwashing Techniques in Institutions & Media

Unmasking the Invisible: The Subtle Art of Brainwashing in Institutions & Media Updated Feb 11, 2024   Introduction: Intriguing Insights ...
The Gamblers Mindset: Exploring the Hidden Desire for Defeat

The Gamblers Mindset: The Enigmatic Urge to Embrace Loss

The Gamblers Mindset: Exploring the Secret Desire to Lose Syndrome Updated Feb 11, 2024 Introduction: The Investor's Paradox: Unraveling the ...