Some of you old Steve Miller fans may remember his seminal 1973 album The Joker and one of its brilliant tracks, “Your Cash Ain’t Nothin’ But Trash.” (For the rest of you who don’t know the song, check it out; you’re going to love it.)

Like, I love cash now. Because now your cash is king. (Sorry, Steve.) For the first time since 2007, and 2001, and further back for that matter, you can park your cash and reap seriously meaningful rewards.

Here’s why cash is king again, where you should put your cash, and how to make money on the trend that’s making cash so lucrative.

How Interest Rate Hikes Have Put Cash-Yielding Investments Back on Top
After more than a decade of the Fed artificially manipulating rates so low for so long and trillions of dollars spent to combat Covid-19, including stimmy checks (or as Dire Straits’ Mark Knopfler would say, “Money for Nothing”), pent up demand meeting supply chain chinks meeting tons of money eager to be spent pushed inflation up from ground zero, like daffodils in spring, to where everyone notices the higher cost of just about everything.

Of course, the inflation spurt forced the Federal Reserve to start raising interest rates to combat what they said was “transient” inflation, which we now see as stubbornly high, possibly structural inflation.

Higher rates means everything that requires borrowed money to buy will cost more, because you’re going to have to pay a higher interest rate to borrow any money. Those higher borrowing costs sometimes mean borrowers, including the U.S. Treasury, have to raise how much interest they’ll pay lenders, meaning in this case you and me, to lend them our money.

The more rates go up, the more borrowers, meaning in this story the U.S. Treasury, have to pay us to lend them our hard-earned money. In a nutshell, that’s why the Fed’s regular hiking of the base rate against which all rates are priced, the fed funds rate, has pushed rates up across the economy.

So now when we lend money to the Treasury, they have to pay us decent (I’ll call them great) rates to get us to fork over our once trashy cash.

A lot of the “retail” public and institutions are now parking their cash on the sidelines. Where they park it depends on how much interest they can get on their cash, what credit exposure they’re willing to take for the yield they’ll get, and how long they want to park their money.

One statistic glaringly points to how much money has gone into cash-yielding investments. The Investment Company Institute (ICI) tally for the week ended February 15, 2023, it’s latest release, shows total money market fund assets rose that week by $9.99 billion, to a staggering $4.82 trillion. Of that inflow, a new $12.31 billion came from retail investors, who are not hoarding $1.78 trillion in cash that’s finally paying them something.

As far as where’s the best place to park your cash, in my professional opinion, it’s at the U.S. Treasury.

Two Ways to Get the Most Out of U.S. Treasury Yields
As of yesterday, the 4-week T-Bill yielded 4.57%, on an annualized basis and coupon equivalent basis. 4 weeks is the duration of your investment. T-Bills are U.S. Treasury issued bills. The Treasury issues bills, notes, and bonds; the difference in them is just a matter of their duration. Yesterday, a 26-week Bill yielded 5.13%, again, annualized. The 52-week or 1-year Bill yielded 5.12%, its highest yield in 22 years.

The often watched and reported 2-year Note yielded 4.69%; the 5-year note yielded 4.15%, and the benchmark 10-year Bond yielded 3.92%.

Treasury bills, notes, and bonds are considered “risk-free” as investors assume the U.S. government won’t default on its debts. In spite of debt ceiling debate fears, the reason the Treasury is assumed to always be able to make good on its debts is because the government has the right and ability to tax in order to collect what it needs to pay the country’s obligations. That’s the real definition of “risk-free.”

With risk-free rates so high, it’s no wonder more and more investors and savers are flocking to money-market funds and moreover U.S. Treasury bills, notes, and bonds.

I’m telling you, I am.

But I’m not loading up on longer dated bonds, I’m buying 26-week bills yielding 5.13%. Why? Because I get my money back in 26 weeks and can reinvest it. And since I think rates are going higher, which is another story for next week, I’m going to get my cash back in 26 weeks and reinvest it back into what I expect will be higher yielding 26-week Bills.

For me, it’s about higher rates. The trend has been towards higher rates as the fed keeps hiking.

So not only will I reinvest my cash down the road in what I expect will be a higher yielding T-Bills, I’m going to make trades in an inverse Treasury ETF that goes up in price when Treasury yields go up.

That ETF is ProShares UltraShort 20+ Year Treasury (TBT). We are trading it by buying call spreads in my Hyperdrive Portfolio subscriber service.

— Shah Gilani

Source: Total Wealth