Nick Sanchez: “Billionaires Hoarding Cash Is Bad Sign for Economy” – Money News

Posted on :Sep 23, 2014

By: Nick Sanchez

Money News

September 23, 2014

Billionaires are hoarding cash, a bad sign for the economy, as it appears the wealthiest people in the world aren’t too keen on investments.

“This increased liquidity signals that many billionaires are keeping their money on the sidelines and waiting for the optimal moment to make further investments,” said a new “Billionaire Census” issued by Wealth-X and UBS bank, CNBC reported.

Apparently, that “optimal moment” is not now.

  The study shows a $60 million jump in liquidity compared to last year, bringing each billionaire’s average cash holding to $600 million.

To put that in perspective, the average billionaire’s real-estate holdings were only one-fifth as big as their cash holdings, $160 million.

Simon Smiles, chief investment officer for Ultra High Net Worth at UBS Wealth Management, said that after the economic implosion of 2009, many billionaires are opting to take a small loss on their holdings through inflation rather than risk it in more uncertain ventures.

He’s sometimes been able to coax billionaire families into taking “considered amounts of risk,” however, with interest rate swaps, credit default swaps, and foreign exchange derivatives.

“The apparent safety of cash, reinforced by the painful psychological experience of the 2008-09 global financial crisis and the subsequent troubles within the European Monetary Union, likely reinforces the tendency to favor this cautious allocation strategy,” he wrote in the report.

Mere millionaires were also found to be holding lots of cash, usually between 20 and 30 percent of their net worth.

The Motley Fool explained that holding cash is often the easiest way to maintain flexibility “to pounce on [investment] opportunities as they arise,” but said there are other ways to keep liquidity up.

“One of those ways is to buy stocks with strong balance sheets, available debt facilities and cash of their own. This way you can remain fully invested but still be exposed to the leverage which cash provides,” it explained.

Assuming some, if not many, billionaires and millionaires understand this, their outlook can be interpreted as extreme caution, which could in turn be a bad sign for the general economy.

Gold Goliath is not your typical gold dealer.

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